Contract termination by force majeure: Court of Appeal case

Overcoming contractual termination by force majeure: What did the Court of Appeal decide?

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.

What does the Court of Appeal’s decision in MUR Shipping mean for contractual termination by force majeure?

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.

How we can help with contract termination and force majeure

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.

For further information, training or advice, please contact Gwendoline, Nick or Jack.

[1] [2022] EWHC 467 (Comm)

[2] [2022] EWCA Civ 1406