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Force majeure clauses are an important boilerplate provision in a commercial contract. In light of recent events such as Covid-19, they have come under increasing scrutiny by the courts. We have previously explored some of the key drafting points for a successful force majeure clause in our article which can be found here.
The recent judgement in MUR Shipping BV v RTI Ltd is another reminder about the importance of spelling out clearly what circumstances the clause should cover and specifying whether or not such event(s) are capable of being overcome.
A contract was made between MUR and RTI that stated RTI would pay MUR in US dollars. The contract also contained a force majeure clause stating that a party would not be liable for any loss if it were unable to perform the contract due to certain specified events beyond its control, one of which was “restrictions on monetary transfers and exchanges”. However, the force majeure clause also contained the caveat that an event would only be a force majeure event if it could not be “overcome by reasonable endeavours from the party affected”. RTI became unable to pay in US dollars due to sanctions, so MUR tried to claim a force majeure event on the basis that it would be a breach of those sanctions to continue to perform the contract.
When deciding what events to explicitly include or exclude it is important to consider which party is likely to be invoking the clause. For example, the party most likely to rely on the force majeure clause (usually the supplier) may want to expressly include industrial action and subcontractor/third party defaults whereas the party least likely to invoke the force majeure clause (usually the customer/service recipient) would want these events expressly excluded. The exact wording will be subject to negotiation between the parties at the time of entering into the contract.
It is also quite common to include a catch all phrase such as "any other cause beyond the parties' reasonable control". However, this must be approached with caution and we recommend it is used as a last resort because the court has cast doubt on the effectiveness of such a phrase.
The problem with the construction of the clause in MUR Shipping was that if an event capable of being a force majeure such as restrictions on monetary transfers did arise but it could be overcome by reasonable endeavours, it would no longer amount to a force majeure event.
The Court of Appeal had to decide whether RTI paying in euros instead of dollars and reimbursing MUR for any costs incurred as a consequence would overcome the force majeure event. It was held that MUR would suffer no detriment and payment in an alternative currency not only a sensible solution but also a suitable course of action to overcome the force majeure event. On this basis, the clause could no longer be relied upon as grounds to cease contract performance.
We recommend that force majeure clauses include an obligation to mitigate the effect of a force majeure event rather than using the wording in MUR Shipping in light of its outcome. Taking this approach means that even if the party fail to mitigate the situation, the event would remain a force majeure event and relieve the party of their contractual obligations. This would therefore allow the parties to rely on the force majeure clause in a wider range of scenarios.
This case is another good example of why it is important to carefully consider the drafting of a force majeure clause in individual contracts. Try to avoid adopting a 'one size fits all' approach in order to tailor the possible events to the nature and context of the particular contract.