Force majeure: not just a boiler plate clause

A recent case in the Court of Appeal, MUR Shipping BV v RTI Ltd [2022], has clarified when a force majeure clause can be relied upon if there is a reasonable alternative.

Force majeure

When your school is entering into a contract with a third party, such as a Hire Facility Agreement in respect of a sports hall or theatre, or an agreement for services such as a catering or cleaning contract, you should ensure that your school’s position is protected where certain events happen which are outside of the school’s control. This is the purpose of a ‘force majeure’ clause.

Where a force majeure clause in included in a contract, it will typically excuse either one party, or both parties to the contract, from all or certain of its obligations if an event occurs which is outside of that party’s control.

The case

The Court of Appeal ruled in the case of MUR Shipping BV v RTI Ltd [2022] that a force majeure clause did not apply as the party unable to comply with its obligations had offered suitable alternative performance. This was envisaged by the force majeure clause which included a reasonable endeavours obligation. In doing so, it reversed the decision at first instance. The case involved a contract for the carriage of goods by sea, with RTI to pay MUR under the contract in US dollars. The United States imposed sanctions on the owner of RTI, and MUR subsequently service a force majeure notice on RTI. MUR stated that it would not load further cargoes as accepting dollar payment for such cargoes would breach the sanction which had been imposed.

Whilst RTI offered to make future payments in euros, with RTI to cover the cost of conversion from euros to dollars, MUR waited 15 days before it confirmed that it would continue the contractual relationship. The dispute was referred to arbitration to consider whether MUR could rely on the force majeure clause.

In this case, the force majeure clause was drafted to mean a state of affairs which, amongst other criteria, “cannot be overcome by reasonable endeavours of the party affected”. In arbitration it was decided that accepting payment in euros was a realistic alternative, and therefore the force majeure clause could not be relied upon. The case was appealed to the High Court, which held that payment in euros would not be contractual performance, and the exercise of reasonable endeavours as set out in the force majeure clause did not require a party to accept non-contractual performance.

RTI appealed to the Court of Appeal, which found instead that the force majeure clause could not be relied upon. It found that payment in euros, with RTI covering the cost of conversion from euros to dollars, overcame the state of affairs which had been caused by the sanctions. The Court of Appeal considered that terms such as “overcome” and “state of affairs” are non-technical terms. The force majeure clause should be applied in a common-sense way which would achieve the purpose underlying the parties’ obligations. The word “overcome” did not mean that the Contract had to be performed in strict accordance with its terms. It is now clear following this decision that careful consideration will always need to be given by schools as to what may amount to reasonable endeavours to mitigate a force majeure event.

Practical steps

A force majeure clause may previously have been dismissed by schools as a boiler plate clause with little consideration given as to the appropriateness of the clause for the contract and the relationship of the parties. Whether you can rely on a force majeure clause will depend entirely on the circumstances and the drafting of the clause, and as demonstrated in MUR Shipping BV v RTI Ltd [2022], can turn heavily on the drafting of one aspect of the clause.

It is key to fully consider the drafting of any force majeure clause in your school’s various contracts. Points for reflection are:

• Ensure that any events which are of particular concern to your school are expressly included as a force majeure event, such as industrial action; epidemic and pandemic.
• Set out clear steps to be taken by a party seeking to enforce the force majeure clause, for instance notice provisions
• Will your school want to include within the force majeure clause an obligation for the party affected by the force majeure event to take steps to mitigate its impact?
• In some circumstances, the force majeure clause will simply suspend the parties’ obligations whilst the force majeure event continues. However, you should consider whether it may be appropriate to allow either or both parties to serve notice to terminate the contact after a specified period.

We would always recommend that you seek advice when preparing a contract or when considering whether to service notice on the other party pursuant to a force majeure provision. If you require any support drafting or reviewing your school’s contracts, or if you have queries in respect of force majeure provisions, we will be happy to provide assistance.