21st November 2022
In times of economic decline or uncertainty parties often seek to extricate themselves from contractual commitments which, perhaps for reasons outside their control, are no longer commercially favourable. One strategy in such cases is to try and invoke the contract’s force majeure clause.
In our earlier briefings, we explained the concept of contractual termination by force majeure and we highlighted some of key issues and cases. In our force majeure update of April 2022, we covered the High Court’s decision, from spring 2022, in MUR Shipping BV v RTI . The Court of Appeal has recently overturned that judgment .
In an economic climate where contract termination remains prevalent, businesses should note the outcome of, and the reasoning behind, the Court of Appeal’s decision. In this article, Walker Morris’ Commercial Dispute Resolution experts Gwendoline Davies, Nick McQueen and Jack Heward explain and consider the likely impact for contract termination disputes.
One finding in the High Court’s judgment was that, in exercising reasonable endeavours to overcome the impact of a force majeure event, a party is not obliged to accept anything other than contractual performance. At first instance the relevant party was not, therefore, required to accept payment in Euros rather than the contractual currency, US dollars.
That finding was appealed. The Court of Appeal had to decide whether a party seeking to invoke force majeure could resist an offer of alternative performance that departed from the contractually-specified method. On the facts of this shipping case, that raised the question whether charterers could offer to pay (and to require the owners to accept) freight in Euros, despite a contractual term requiring payment in US dollars.
The Court of Appeal focused on the interpretation of the particular contract and factual matrix, as opposed to finding/applying any general principle. It decided that, although the contract provided for payment in US dollars, the owners could, in the circumstances, have accepted a payment in Euros without suffering detriment.
The Court of Appeal’s decision confirms that the invoking and operation of a force majeure clause will depend on the wording of the particular clause in the particular contact, and in the context of the particular circumstances facing the parties.
The decision means that each case will turn on its own facts, and force majeure/contract termination disputes are therefore likely to abound.
Importantly, the Court of Appeal’s decision on the facts of this case also opens the door for the use of non-contractual performance to overcome force majeure, provided that the end result is commercially the same as the parties’ original obligations.
The decision therefore seemingly prioritises the particulars of the case (i.e. the specific contractual terms and the individual facts/circumstances) whilst, at the same time, acknowledging that a ‘reasonable endeavours’ clause may involve a party departing from the terms of that particular contract so as to overcome a force majeure event, and therefore to avoid contractual termination.
It remains to be seen whether the Court of Appeal’s decision will be further appealed. Walker Morris will monitor and report on developments.
One thing that is clear from the MUR Shipping litigation is that the interpretation and operation of force majeure clauses, may not be as black and white as one might think. That can especially be the case where qualifications, such as reasonable endeavours provisions, are inserted into otherwise typical boilerplate clauses, to govern when a force majeure event would occur, or what a party may be able to do to overcome that.
What this means in practice is that parties should seek expert advice, both when negotiating and drafting commercial contracts, and when considering contract termination by force majeure or by any other means.
Walker Morris’ commercial contract specialists are highly experienced in all aspects of contractual negotiation and interpretation. Our Commercial Dispute Resolution team also has a wealth of experience in advising clients on all aspects of supply chain disruption, and contractual mitigation, including the operation of force majeure and other termination options. The team has significant expertise in providing commercially-focused legal and practice advice to businesses, from both a risk management and a dispute resolution perspective.
  EWHC 467 (Comm)
  EWCA Civ 1406
(FCIArb) Head of Commercial Dispute Resolution