A force majeure is a clause included in contracts to remove liability for unforeseeable and unavoidable catastrophes that interrupt the expected course of events and prevent participants from fulfilling obligations. These clauses generally cover manmade catastrophes and natural disasters.
MUR Shipping BV (MUR) v RTI Ltd (RTI) is a case that highlights the consequences for parties whose force majeure clauses require them to use “reasonable endeavours” to mitigate or overcome an unforeseen event.
The appeal related to the interpretation of the force majeure clause in the contract between the parties. This clause allowed one party to terminate the contract without liability on the occurrence of specified events that were outside of their reasonable control.
The predominant question the Court was asked to consider was: where a force majeure clause contains a provision requiring the party which is affected by unforeseen event to exercise reasonable endeavours to overcome it, can the provision require the impacted party to agree to accept non-contractual performance? The judgment raises a “fundamental point of principle” that does, in theory, apply to all force majeure clauses, refining the interpretation of “reasonable endeavours” provisions within commercial contracts. The Supreme Court stressed the importance of certainty and predictability in commercial contracts. Subsequently, in the absence of clear wording, a reasonable endeavours obligation does not mean that a party must accept a non-contractual solution in order to resolve an issue. The Supreme Court took the view that “the principle of freedom of contract includes the freedom not to contract.”
More recently COVID 19 caused potential issues with force majeure clauses as parties disputed whether the pandemic could be considered a force majeure event. It is still widely debatable whether it can be classified as a force majeure. Force majeure clauses will generally adopt one of the following approaches:
- Listing specific events. This involves considering whether the list of events included was exhaustive or non-exhaustive. Unless specific words are used to suggest that a list is non-exhaustive, it can be difficult to argue that parties who set out a list of specific events but did not include a particular event, such as a pandemic, nonetheless intended that event to be covered.
- Setting out broad criteria. Determining whether this covers issues arising from COVID 19 is a question of interpretation and is fact specific. In unprecedented circumstances like the present, the courts are likely to be generous in their interpretation of this sort of wording when faced with parties who have encountered genuine difficulties in performing. However, such parties will still need to show that their non-performance was truly outside of their control and could not be prevented.
For further information on this topic or on any other legal area, please contact John Szepietowski or Kay Stewart at Audley Chaucer Solicitors on 01372 303444 or email admin@audleychaucer.com or visit our Linkedin page.
MOLLY ROSS
This information was correct as of June 2024
