The Supreme Court’s Landmark Decision on Force Majeure and “Reasonable Endeavors”
In the recent case of MUR Shipping v RTI, the Supreme Court ruled that the “reasonable endeavours” proviso in a force majeure clause does not oblige parties to accept non-contractual performance, even if it would resolve the issue created by the force majeure event.
What Are Force Majeure Clauses?
Force majeure clauses are contractual provisions designed to temporarily suspend a party’s obligations when unforeseen events—such as extreme weather, strikes, or sanctions—make performance impossible as originally agreed. These clauses shield both parties from liability for non-performance due to factors beyond their control.
The Facts Behind the Case
In MUR Shipping v RTI, RTI was unable to make payments in USD due to sanctions imposed on their parent company. To resolve the issue, RTI offered to pay in EUR while covering the conversion fees. However, MUR Shipping rejected this proposal, citing the force majeure clause and arguing that the issue could not be resolved through “reasonable endeavours.”
RTI challenged this position, asserting that MUR Shipping had failed to make reasonable efforts by rejecting a solution that caused no detriment or prejudice. RTI argued that accepting EUR payments would have resulted in the correct payment amount and negated the force majeure obstacle.
This dispute escalated through the courts, with the central question being whether a “reasonable endeavor” obliges a party to accept non-contractual performance in response to a force majeure event.
The Supreme Court’s Findings
In a unanimous ruling, the Supreme Court held that the “reasonable endeavours” proviso does not require a party to accept non-contractual performance unless explicitly stated in the contract. The decision rested on four key principles:
- The Purpose of the Reasonable Endeavours Proviso
The proviso is intended to facilitate contractual performance—not to impose alternative or non-contractual solutions. - Freedom of Contract
The ruling reinforced the fundamental principle that parties are free to agree on the terms of their contract and are not obligated to accept performance beyond those terms. - The Importance of Explicit Contractual Rights
Contracts must clearly outline any obligations or allowances for non-standard performance to avoid ambiguity. - Certainty and Predictability in Commercial Law
English and Welsh commercial law prioritises predictability, ensuring businesses can operate within clear legal frameworks.
The Court underlined that even if non-contractual performance could resolve the issue, the focus of the “reasonable endeavours” proviso should remain on achieving the originally agreed contractual performance.
The Impact on Contractual Certainty
The Supreme Court’s decision highlights the courts’ commitment to upholding legal certainty and the freedom to contract—or not contract—as agreed. Requiring parties to secure performance “by any means” would undermine these principles, creating a slippery slope. Where would the line be drawn in obligating alternative solutions?
Key Takeaways for SMEs and Businesses
This decision reaffirms that the English and Welsh courts prioritise the sanctity of contracts. Businesses must carefully assess their priorities when drafting agreements, deciding whether the desired outcome or the method of achieving it takes precedence.
Contracts should be drafted with clarity and precision, ensuring provisions for flexibility—or rigidity—are explicitly outlined. While “reasonable endeavours” may suggest flexibility, this case demonstrates the importance of specifying the boundaries of such obligations.
How Berry Smith Can Help
At Berry Smith, we specialise in guiding businesses through the complexities of commercial contracts. Whether it’s supply chain management, distribution agreements, or bespoke commercial arrangements, we tailor our advice to meet your specific needs. With our expertise, you can ensure your contracts are robust, precise, and designed to support your business goals.
For further advice, contact us at 029 20 34 55 11 or commercial@berrysmith.com.
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