Force Majeure: Non-Contractual Performance Not Required

Freedom of contract is a fundamental legal principle, giving businesses autonomy to agree the commercial terms that best suits their interests. A natural outflowing is that a party cannot be forced to accept terms to which they have not agreed – including non-contractual performance, as an important decision demonstrates.

The award-winning shipping and commercial lawyers at Bahamas firm ParrisWhittaker are experienced in advising businesses on their commercial contracts and disputes.

Force majeure

A  ‘force majeure’ event is an act or circumstances which are beyond the parties’ control, such as acts of God, terrorism and legislative changes. A force majeure event means the parties are no longer bound by their contractual obligations. How this works in practice depends on the express terms agreed between the businesses involved.

Force majeure clauses often include a “reasonable endeavours” provision, providing that a party cannot rely on a force majeure event if that party could avoid its effects by the exercise of reasonable endeavours.

The correct approach to force majeure and contract performance has been clarified by the UK’s highest court in a long-running case. The ruling has important persuasive authority on the courts in The Bahamas and provides welcome clarity to the business community.

The case

Briefly, in April 2018 the US applied sanctions to the shipping charterer’s parent company – with the effect that contractual payment could not be made in US$.  The contract specifically provided for payment in US$ and the claimant therefore invoked the force majeure clause, which included a reasonable endeavours proviso.

The respondent proposed making payments in Euros but this was refused and operations were suspended. For a detailed review of the facts, see our earlier article.

The Supreme Court has now ruled that the claimant was not legally required to accept a non-contractual performance (payment in Euros) and they were entitled to invoke the force majeure clause. The fact the claimant rejected the offer of non-contractual performance did not amount to a failure to exercise reasonable endeavours.

The judgement lays out four guiding principles:

• Force majeure clauses and reasonable endeavours provisos concern the causal effects of impediments to contractual performance. The party relying on it must show the force majeure event caused the failure to perform – that exercising reasonable endeavours could not have avoided failure to perform according to the contractual terms.

• The principle of freedom of contract includes the freedom not to contract. This extends to the freedom not to accept non-contractual performance .

• Clear words are needed to forego valuable contractual rights. The shipping company had a clear contractual right to insist on payment in $US – and to refuse other form of payment.

• Certainty and predictability are very important in English commercial law. Without clear wording, a reasonable endeavours proviso does not oblige a party to accept an offer of noncontractual performance.

What does this mean?

The decision upholds the fundamental principle of freedom of contract – a contractual party cannot be forced to accept non-contractual performance. This provides important clarity for all business organisations.

It’s a reminder that they should seek to include clear, unambiguous wording in force majeure clauses to minimise the risk of expensive litigation in future.

For advice and assistance from shipping and commercial contracts and disputes, get in touch with the award winning commercial and shipping lawyers at ParrisWhittaker at +1.242.352.6112 or info@parriswhittaker.com

¹RTI Ltd  v MUR Shipping BV v 2024] UKSC 18