Paul Crane Partner
Court of Appeal finds owner should have accepted non-contractual performance
Mur Shipping BV v. RTI Ltd  EWCA Civ 1406
A majority of the Court of Appeal has held that the Owner under a contract of affreightment (COA) should have accepted payment of freight in Euros, rather than the US dollars provided for in the COA. Its refusal to do so meant that the Owner could not rely on the force majeure clause in the COA, in circumstances where US sanctions might have restricted US dollar transfers from or on behalf of the Charterer.
In coming to this decision, the majority of the Court of Appeal disagreed with the first instance judge, who concluded that the Owner was not obliged to accept non-contractual performance in the form of payment in a non-contractual currency.
The background facts
The COA in question was dated 9 June 2016 and was for the carriage of regular quantities of bauxite in bulk from Guinea to Ukraine. 95% of freight was payable on each cargo within five banking days after bills of lading were signed or released.
The COA contained a force majeure clause, which defined a force majeure event as “an event or state of affairs” that met a number of criteria, including that: it prevented or delayed the loading or discharging of the cargo at the load or discharge port; and it could not be overcome by reasonable endeavours from the party affected.
In April 2018, US sanctions were imposed on a US parent company of the Charterer that had guaranteed the Charterer’s obligations under the COA. However, the Charterer was not itself subject to sanctions.
The Owner sought to declare force majeure for as long as the sanctions remained in place. It argued that it would be in breach of sanctions if it continued to perform the COA and that the sanctions would prevent US dollar payments as required under the COA and it could not be expected to continue with loading and discharging operations if it was not guaranteed to be paid.
The Charterer objected, contending that the sanctions would not interfere with cargo operations and that the freight could be paid in Euros. The Owner was a Dutch company and was not a “US person” caught by the sanctions. Further, the Owner’s bank would immediately convert the Euros into US dollars and the Charterer undertook to cover any expenses or currency exchange losses arising as a result.
The Owner did not initially agree. In the event, however, the Owner resumed its obligations under the COA 11 days after its purported force majeure notice and thereafter accepted payment of freight in Euros that were converted into US dollars by its bank on receipt.
The Charterer sought to recover the cost of chartering in replacement vessels for seven cargoes.
The arbitration award
In arbitration, the tribunal agreed with the Charterer that the Owner had not been entitled to rely on the force majeure clause as suspending its obligation to load those cargoes because the force majeure event could have been overcome by the exercise of reasonable endeavours. Accordingly, the Charterer was entitled to damages for the Owner’s refusal to nominate vessels to load the relevant cargoes. The Owner appealed.
The Commercial Court decision
The Court allowed the appeal. It held that the COA provided for payment in US dollars and the Owner was not required by the exercise of reasonable endeavours to accept non-contractual performance in order to circumvent the effect of the force majeure clause. The Charterer appealed.
The Court of Appeal decision
The Court of Appeal, by a majority, allowed the appeal and restored the arbitration award. It concluded that the force majeure event or state of affairs could have been overcome by reasonable endeavours from the Owner as the party affected.
The majority emphasised that they were addressing the specific terms of this force majeure clause and were not concerned with force majeure or reasonable endeavours clauses in general.
Having carefully analysed the wording of the relevant clause, they thought that the essential question was whether acceptance of the Charterer’s proposal to pay freight in Euros and to bear the cost of converting those Euros into US dollars would overcome the state of affairs caused by the imposition of sanctions on the Charterer’s parent company. If it would, it would have been a very straightforward matter for the Owner to accept that proposal, requiring no exertion on its part. If it would not, no amount of endeavours, reasonable or otherwise, would change that situation.
The force majeure clause should be applied in a common sense way that achieved the purpose underlying the parties' obligations. In respect of payment obligations, the underlying purpose was that the Owner should receive the right amount of US dollars in its bank account at the right time. There was no reason why a solution that ensured this purpose was achieved should not be regarded as overcoming the state of affairs resulting from the imposition of sanctions. It was an ordinary and acceptable use of language to say that a problem or state of affairs was overcome if its adverse consequences were completely avoided.
The arbitrators’ finding was that the Charterer’s proposal would have presented no disadvantages to the Owner and could have been accepted with no detriment to it. There was no dispute that the Charter was able and willing to make payment in Euros, and to bear any additional costs or exchange rate losses in converting the Euros to US dollars. Acceptance of the proposal would have achieved precisely the same result as performance of the contractual obligation to pay in US dollars, namely the receipt in the Owner’s bank account of the right quantity of dollars at the right time. The Owner’s contractual right to payment in US dollars remained, but it would have suffered no damage whatever as a result of the Charterer’s breach consisting of payment in Euros.
The Court should not interfere with this finding unless it thought that the word “overcome” necessarily meant that the contract must be performed according to its terms. The majority did not think that it did. The position would have been different if payment in Euros would have resulted in any detriment to the Owner because then the force majeure would not have been “overcome”. That was not the case, however. In fact, as was apparent from the arbitration award, the real reason why the proposal was not accepted was because the contract had become disadvantageous to the Owner, who no longer wanted to perform it.
The dissenting judge agreed with the first instance decision, concluding that “an event or state of affairs” was not “overcome” within the meaning of the force majeure clause by an offer of non-contractual performance by the counterparty to the party affected.
This is a significant decision from the Court of Appeal, notwithstanding that the majority sought to confine their decision to the particular wording of this force majeure (and reasonable endeavours) clause. It is particularly interesting in the light of the usual presumption that contracting parties should not otherwise be taken to have given up their legal rights in the absence of clear and express wording to that effect.
Given that the Court of Appeal decision was not unanimous, it remains to be seen whether this case will go to the Supreme Court.
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