Out-Law / Your Daily Need-To-Know

Court of Appeal in London rules on reasonable endeavours in force majeure clause

Out-Law News | 22 Nov 2022 | 4:50 pm | 2 min. read

The Court of Appeal for England and Wales has ruled that a switch of the currency in which payments were made in a ship charter contract would count as ‘reasonable endeavours’ and would avoid the contract not being fulfilled because of a force majeure event.

In a rare appeal of an arbitration decision over a point of law, the court overturned an earlier decision by the High Court that the ship owner would not have to accept a change in currency as a ‘best endeavours’ attempt to fulfil the contract, and that it didn’t have to accept non-contractual performance.

Michael Fletcher, dispute resolution expert at Pinsent Masons, welcomed the judgment. “It makes good commercial and common sense that, if harm can be avoided to the receiving party by an obligation being performed in a different way in circumstances of force majeure, this should be permitted.”

The case before the court concerned the consequences of US sanctions placed in 2018 on the parent company of a charterer, RTI Ltd, which was obliged to make payment to ship owners Mur Shipping in US dollars. Mur invoked the force majeure clause in the contract on the basis that it would be a breach of the sanctions for it to continue performing the contract, and that the sanctions prevented it accepting dollar payments. RTI said it could make payment in euros instead.

An arbitration tribunal confirmed that the sanctions prevented payment in US dollars. However, the tribunal also said Mur’s obligation to exercise reasonable endeavours to overcome the force majeure event meant it should have accepted RTI’s proposal to make payment in euros – including the cost of converting the euros into US dollars – which would have overcome the effect of the sanctions.

Mur took the tribunal’s decision to the High Court in a rare example of the English courts granting leave for appeal under section 69 of the Arbitration Act 1996, which allows a party to appeal an arbitral decision on a point of law. Mur asked the court whether the reasonable endeavours obligation extended to accepting payment in euros instead of dollars.

In his judgment, Mr Justice Jacobs said the reasonable endeavours provision did not require the owners to accept non-contractual performance, and did not oblige them to accept payment in euros instead of dollars. He added that the exercise of reasonable endeavours “required endeavours towards the performance of that bargain; not towards the performance directed towards achieving a different result which formed no part of the parties’ agreement.”

By a two-to-one majority, however, the Court of Appeal overturned the decision of the High Court. In the lead judgment, Judge Stephen Males stated: "It is an ordinary and acceptable use of language to say that a problem or state of affairs is overcome if its adverse consequences are completely avoided."

Although payment in US dollars was a requirement of the contract, "the purpose of that payment obligation was to provide Mur as the shipowner with the right quantity of dollars in its account at the right time," the judge said, adding that this purpose could be achieved if Mur had accepted RTI’s proposal.

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