Sanctions, force majeure. No obligation to accept payment in alternative currency.

MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm) raises the question of whether the effect of financial sanctions obliges a contractual party to accept payment in a currency other than that specified in the contract. Mur Shipping BV (“the Owners” or “MUR”) concluded a Contract of Affreightment (“COA”) with RTI Ltd (“the Charterers” or “RTI”) in June 2016. Under the COA, the Charterers contracted to ship, and the Owners contracted to carry, approximately 280,000 metric tons per month of bauxite, in consignments of 30,000 – 40,000 metric tons, from Conakry in Guinea to Dneprobugsky in Ukraine. On 6 April 2018, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) applied sanctions (“the sanctions”) to RTI’s parent company, adding them to the Specially Designated Nationals and Blocked Persons List. This led to the Owners invoking a force majeure clause in the COA by sending a force majeure notice (“FM Notice”) on 10 April 2018 in which the Owners said that it would be a breach of sanctions for the Owners to continue with the performance of the COA and noted that the “sanctions will prevent dollar payments, which are required under the COA”.

The force majeure clause provided for the suspension of the obligation of each party to perform the Charter Party while such Force Majeure Event is in operation.  The clause provided that

“36.3. A Force Majeure Event is an event or state of affairs which meets all of the following criteria:

a) It is outside the immediate control of the Party giving the Force Majeure Notice;

b) It prevents or delays the loading of the cargo at the loading port and/or the discharge of the cargo at the discharging port;

c) It is caused by one or more of acts of God, extreme weather conditions, war, lockout, strikes or other labour disturbances, explosions, fire, invasion, insurrection, blockade, embargo, riot, flood, earthquake, including all accidents to piers, shiploaders, and/or mills, factories, barges, or machinery, railway and canal stoppage by ice or frost, any rules or regulations of governments or any interference or acts or directions of governments, the restraint of princes, restrictions on monetary transfers and exchanges;

d) It cannot be overcome by reasonable endeavors from the Party affected.”

The claim arose from the fact that RTI had chartered in 7 vessels when MUR, alleging force majeure, suspended performance of the COA in April 2018, and was based on the difference between the COA and chartered in rates for these 7 vessels.

The tribunal accepted that the effect of both “primary” and “secondary” sanctions was drastic. Thus, normal commercial counterparties would be frightened of trading with the party that has been sanctioned, bank finance was likely to be frozen, and underwriters would be reluctant to insure normal trading activities. The tribunal also held that sanctions had an impact on the ability of the Charterers to make US dollar payments to the Owners. The tribunal held that, but for one point, the Owners’ case on force majeure succeeded. The point on which it failed was that, applying the terms of the force majeure clause, it could have been “overcome by reasonable endeavours from the Party affected.” This was because the tribunal considered that the exercise of reasonable endeavours required the Owners to accept a proposal made by the Charterers to make payment in €. The tribunal described this as a “completely realistic alternative” to the payment obligation in the COA, which was to pay in US dollars.

Jacobs J held that the Tribunal had erred in their finding that “reasonable endeavours” required the Owners to accept the Charterers’ proposal to make payment in a non-contractual currency. A party does not have to perform the contract otherwise than in accordance with the contract in order to avoid a force majeure event. There was no reason to construe the force majeure clause as being concerned only with contractual obligations directly concerned with loading and discharging: the force majeure event may have an impact on other contractual obligations which then have the causative impact required by clause 36.3 (b). Jacobs J noted “Clause 36.3 (b) is an important part of the force majeure clause: it identifies the necessary consequence, as a matter of causation, of the “event or state of affairs” described in other parts of the clause. However, it is clear from clause 36.3 (c) that there may be a wide range of different matters which bring about the consequence that loading or discharge is delayed or prevented. Those matters include “restrictions on monetary transfers and exchanges”.

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Professor Simon Baughen

Professor Simon Baughen was appointed as Professor of Shipping Law in September 2013 (previously Reader at the University of Bristol Law School). Simon Baughen studied law at Oxford and practised in maritime law for several years before joining academia. His research interests lie mainly in the field of shipping law, but also include the law of trusts and the environmental law implications of the activities of multinational corporations in the developing world. Simon's book on Shipping Law, has run to seven editions (soon to be eight) and is already well-known to academics and students alike as by far the most learned and approachable work on the subject. Furthermore, he is now the author of the very well-established practitioner's work Summerskill on Laytime. He has an extensive list of publications to his name, including International Trade and the Protection of the Environment, and Human Rights and Corporate Wrongs - Closing the Governance Gap. He has also written and taught extensively on commercial law, trusts and environmental law. Simon is a member of the Institute of International Shipping and Trade Law, a University Research Centre within the School of Law, and he currently teaches at Swansea on the LLM in:Carriage of Goods by Sea, Land and Air; Charterparties Law and Practice; International Corporate Governance.

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