UK Supreme Court Rules on Sanctions-Related Force Majeure Event
A recent U.K. Supreme Court ruling could have implications for how certain sanctions-related payment issues are treated under force majeure clauses in contracts.
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The court ruled May 15 that a party that invoked force majeure isn’t contractually obligated to accept payment from its U.S.-sanctioned counterparty in a different, non-dollar currency. Overruling an appellate court decision, the high court held that Dutch ship owner MUR Shipping BV was entitled to have its shipping contract paid in U.S. dollars, as required by the contract, and that an offer to have the contract paid in euros didn’t count as “reasonable endeavors” because it was an offer to perform a non-contractual duty.
The dispute started from a contract signed between MUR and Jersey charterer RTI Ltd. In 2018, the Office of Foreign Assets Control sanctioned RTI's parent company, Russian metals company Rusal, which also made RTI subject to blocking sanctions.
Following RTI's designation, MUR invoked the force majeure provision of the contract because RTI wouldn't be able to pay in dollars, which was required by the contract. RTI offered to instead pay in euros and bear any exchange rate losses. Arbitration proceedings followed, which led to an arbitral award for RTI. The arbitrators said that while sanctions causing a probable delay in paying U.S. dollars would normally be a force majeure event, this provision is overcome by MUR's "reasonable endeavors," since the company offered to pay in euros.
An appellate court again sided with RTI, finding that MUR wouldn't have suffered any damage as a result of the breach "consisting of payment in euros."
The Supreme Court reversed this finding, holding that there "are good reasons of principle supporting MUR's case that 'reasonable endeavours' to overcome a force majeure event do not include accepting an offer of non-contractual performance absent clear wording to that effect."