RTI Ltd v MUR Shipping BV – UK Supreme Court – 15 May 2024

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MUR Shipping sought to overturn a previous decision by the Court of Appeal by focusing on a force majeure clause in their contract with RTI. MUR invoked force majeure due to US sanctions preventing payments in dollars. The appeal examined contractual clarity, contractual rights, and the application of force majeure clauses.

Previous Arbitration and Court Decisions

The case revolved around an appeal from the Court of Appeal’s decision, which overturned the judgment of Jacobs J, concerning a contract of affreightment (COA) between MUR Shipping, a Dutch company, and RTI, a Jersey company. The COA, effective from June 2016 to June 2018, obligated MUR to transport monthly shipments of bauxite from Guinea to Ukraine. A critical element of the COA was its force majeure clause, allowing exemption from liability in case of events beyond the parties’ control, including government regulations affecting monetary transactions.

The dispute arose when the US Department of the Treasury’s sanctions on RTI’s parent company, designating it as a blocked entity, hindered MUR from receiving freight payments in US dollars as stipulated in the COA. MUR promptly invoked the force majeure clause on April 10, 2018, arguing that compliance with the sanctions prevented them from fulfilling their contractual obligations. RTI responded by proposing to pay in euros with conversion to dollars at their expense, arguing that they were not subject to the sanctions as a Dutch company. MUR refused this offer, insisting on dollar payments and declining to nominate vessels to transport the cargo.

RTI subsequently initiated arbitration, claiming additional costs incurred due to MUR’s failure to transport the bauxite. The arbitral tribunal, in its First Partial Award, acknowledged the practical difficulty of executing dollar payments through US banks but ruled against MUR on the grounds that they could have overcome the issue by accepting euro payments. MUR appealed this decision, focusing on whether reasonable endeavors required them to accept non-contractual payment methods under the force majeure circumstances.

Justice Jacobs, in granting MUR permission to appeal, emphasized that MUR had not failed in exercising reasonable endeavors by rejecting euro payments, reiterating their contractual right to demand payment in US dollars. He supported the tribunal’s finding that the force majeure clause extended to restrictions on monetary transfers, not solely to physical impediments to loading or discharge.

Supreme Count Appeal

Upon appeal to the Supreme Court, the central issue was whether MUR could legitimately invoke the force majeure clause when the sanctions’ impact could potentially be mitigated by accepting euro payments. The Supreme Court, delivering a unanimous judgment through Lords Hamblen and Burrows, critiqued the Court of Appeal’s narrow interpretation of the force majeure clause. They upheld MUR’s position that the clause did not obligate them to accept non-contractual performance to avoid its effects.

The Supreme Court grounded its decision on several principles. First, it underscored the causation requirement of force majeure events, emphasizing that MUR needed to demonstrate that compliance with the sanctions prevented them from performing their contractual obligations as specified. The Court asserted that reasonable endeavors should focus on maintaining contractual performance rather than substituting it with non-contractual measures.

Secondly, the Court emphasized the freedom of contract, asserting that MUR had the unequivocal right to insist on dollar payments as stipulated in the COA. They rejected RTI’s argument that MUR should accept euro payments, highlighting the need for clarity and adherence to contractual terms to ensure commercial certainty.

Thirdly, the Court scrutinized prior case law to support its interpretation. They referenced cases like Bulman & Dickson v Fenwick & Co and Reardon Smith Line Ltd v Ministry of Agriculture, Fisheries and Food (The Vancouver Strike Cases) to illustrate that parties should not be compelled to forfeit their contractual rights unless explicitly stated otherwise.

Ruling

The Supreme Court’s decision reversed the Court of Appeal’s majority ruling, reinstating Jacobs J’s judgment. The Court affirmed that MUR’s invocation of the force majeure clause was valid and that they were justified in refusing RTI’s offer of euro payments.