UK Supreme Court’s Stance on Freedom of Contract and Force Majeure: Clarifying ‘Reasonable Endeavour’ in Force Majeure Clauses

Introduction

The UK Supreme Court’s decision in RTI Ltd v. MUR Shipping BV[i] provides an insightful interpretation of force majeure clauses in commercial contracts, particularly regarding the scope of ‘reasonable endeavours’. The case centred on whether a party affected by a force majeure event must accept a non-contractual form of performance offered by the other party. This ruling has significant implications for international trade contracts, emphasising the importance of contractual certainty and clarifying the limits of ‘reasonable endeavours’ under force majeure clauses. The decision provides an in-depth insight into balancing contractual rights with the obligations imposed by force majeure provisions.

Facts

• On 09.06.2016, MUR Shipping BV (‘MUR’), a Dutch company, and RTI Ltd (‘RTI’), a Jersey-based company, executed a contract of affreightment to transport bauxite from Guinea to Ukraine. Clause 36 of the contract contained a force majeure provision mandating the affected party to use ‘reasonable endeavours’ to overcome such events.

• In April 2018, the US Department of the Treasury’s Office of Foreign Assets Control (‘OFAC’) imposed sanctions on RTI’s parent company, affecting RTI indirectly. MUR invoked the force majeure clause, claiming that the sanctions prevented payment in US dollars, as stipulated in the contract. RTI proposed payment in euros, along with a commitment to bear any costs associated with converting euros to US dollars, but MUR refused, insisting on payment in US dollars.

• The dispute went to arbitration, where the arbitrators agreed with RTI, ruling that MUR could not rely on the force majeure clause if it could be overcome by accepting euro payments. The Court of Appeal upheld this decision, leading to an appeal by MUR to the UK Supreme Court.

Held

• The Supreme Court unanimously ruled that MUR was not required to accept a non-contractual performance (euro payment) to invoke the force majeure clause. The Court agreed with the dissenting judgement of Jacobs J and Arnold LJ in the Court of Appeal.

• The Supreme Court held that the force majeure clause should be interpreted to maintain contractual certainty, holding that the ‘reasonable endeavours’ requirement did not extend to accepting non-contractual performance. It concluded that a party’s right to contractual performance - such as payment in a specified currency - should not be overridden unless explicitly stated in the contract.

• The Court clarified that the primary objective of a ‘reasonable endeavours’ provision is to ensure the continuation or resumption of contractual performance. It was observed that the provision was intended to maintain the contract as originally agreed upon, not to alter the fundamental terms of the contract.

• The Supreme Court emphasised the principle of freedom of contract, ruling that MUR had the right to insist on its contractual entitlement to payment in US dollars. It noted that freedom of contract includes not only the right to enter agreements but also the right to decline offers of non-contractual performance. Thus, it was held that MUR was entitled to reject RTI’s proposal to pay in euros rather than in US dollars.

• Further, the Court highlighted that, in commercial contracts, clarity and predictability are paramount and that force majeure clauses should not be interpreted in a manner so as to introduce uncertainty. It observed that any requirement for a party to forego its contractual rights, such as accepting non-contractual performance, must be stated in the contract in unequivocal terms if it so intends.

Our Analysis

The Supreme Court grounded its decision on four core principles: the objective of ‘reasonable endeavours’ provisions, the principle of freedom of contract, the need for clear wording to relinquish valuable contractual rights, and the importance of certainty in commercial contracts. The judgment refrained from adopting a broad interpretation that would allow ‘reasonable endeavours’ to include measures that could undermine the original contractual arrangement. It protects the autonomy of contracting parties, ensuring that contractual rights are not unilaterally altered under the guise of ‘reasonable endeavours’.

Further, the Court’s refusal to extend the ‘reasonable endeavours’ obligation to include accepting alternative performances (such as payment in a different currency) without clear contractual language helps maintain the predictability on which commercial entities rely.

The principles set out in this decision can be adapted to the Indian legal context. Indian courts have similarly emphasised the sanctity of contracts, the freedom of parties to determine their obligations, and the importance of clear and unambiguous terms when altering contractual rights. In M/s DLF Home Developers Ltd. v. Capital Greens Flat Buyers Association[ii],* *the Supreme Court of India ruled that a force majeure clause did not excuse the delay in handing over possession because the developer had not taken all reasonable steps to complete the project within the stipulated time frame. The Court similarly emphasised that ‘reasonable endeavours’ clauses should be construed to uphold original contractual obligations.

In Central Bank of India Ltd. v. Hartford Fire Insurance Co. Ltd.[iii], the Supreme Court of India recognised the principle of freedom of contract, holding that parties are free to enter into contracts and stipulate terms they deem appropriate. The Court noted that unless a term is declared illegal or contrary to public policy, it must be enforced as agreed upon by the parties. Similarly, while dealing with the issue of certainty and predictability in commercial contracts, the Supreme Court of India in Transmission Corporation of Andhra Pradesh Ltd. v. GMR Vemagiri Power Generation Ltd.[iv] held that certainty is paramount in commercial contracts. The Court held that force majeure clauses, while flexible in addressing unforeseen events, should not create unnecessary ambiguity that could lead to unpredictable and unintended results.

Thus, it can be seen that this decision reinforces the sanctity of contracts and the principle of freedom of contract in commercial law. By ruling that the ‘reasonable endeavours’ requirement in force majeure clauses does not mandate the acceptance of non-contractual performance, the Court has clarified the limits of such provisions. The ruling also highlights the Court’s reluctance to impose additional obligations on parties beyond those expressly agreed upon in their contracts. This judgment serves as a reminder to parties to draft force majeure clauses with precision, especially when dealing with potential non-contractual performances.

The decision will likely influence how future force majeure clauses are drafted and interpreted, encouraging parties to clearly define their rights and obligations in such scenarios. Overall, the judgment is a benchmark for maintaining contractual integrity, ensuring that force majeure clauses are not used to unfairly modify agreed contractual terms.

End Notes

[i] [2024] UKSC 18.

[ii] (2021) 5 SCC 537.

[iii] (1964) SCC Online SC 239.

[iv] (2018) 3 SCC 716.

Authored by Prashant Singh, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.