The case for the UKSC must
be that they were constrained by the appealed legal question from the arbitrator's
decision, although that is not said.
The terms of the Force
Majeure Notice were that “it would be a breach of sanctions for the Owners [ie
the Carriers, ie us] to continue with performance …. to load any further
cargoes.” It was never an argument of the Carriers that force majeure was engaged
because the Shippers could not perform. The terms of that Notice accorded with
36.3(b) and would be effective if they were indeed unable to load.
But this is odd, because the sanctions may have prevented payment in $US
(because all $US payments had to go through US banks who would respect US
sanctions) but they didn’t prevent loading or discharge, and only events
preventing that were force majeure events.
As Steve points out, it seems to have been assumed that the arbitrator must
have reasoned that the inability of the Shippers to pay in US$ caused the
Carriers to be unable to load. But that is, of course, false. If they had made
a good bargain they would have happily performed and accepted the proffered
Euros. Nothing shameful in trying to escape from a bad bargain of course.
Also unfortunately, the
arbitrator in the reasons given never seems to have said that the Carriers were
unable to load because of the Shippers’ inability to pay in $US. There is no
explanation as to how 36.3(b) is satisfied.
The UKSC states that the
Shippers’ argument “required the Carrier to accept payment in another
currency.” ([44]).
But they were not required
to do any such thing. If the assumption that they could refuse any tender of
payment that was not in US dollars was correct, they could still refuse to
accept the tender of Euros and claim damages for breach of the payment obligation.
They weren’t required to accept anything other than perfect performance. The
question was whether they themselves could refuse to perform because the
Shippers would inevitably not be able to pay them in US$: an entirely different
question.
Professor Miriam Goldby in
an excellent forthcoming piece in Legal Studies points out that GENCOA standard
clauses are drafted so that the Carrier may refuse to perform if payment is
delayed. GENCON standard terms do not. This was a GENCON contract. The conclusion
reached re-wrote the parties’ bargain.
Trying to get at the right
result if we have to accept the arbitrator’s apparent mistaken interpretation
is like trying to eat soup with a fork. If we must accept that there was an
inability to load because there would be no payment in $US, then no reasonable
endeavours by the Carriers could overcome it, because nobody could ensure
payment in $US.
There are different
questions.
It’s right that the
definition of a FME is logically prior to the question of its effect. But the
difficulty isn’t whose obligations are prevented it’s what is
prevented, given the drafting of this clause.
The clause here required
that the state of affairs constituting FM should be such that “It prevents or
delays the loading of the cargo at the loading port and/or the discharge of the
cargo at the discharging port”
Perhaps it’s not obvious
why an inability to be paid should prevent loading, and perhaps Rob is right
about that aspect. I guess the answer might be that commercially it’s just
ridiculous to load a cargo you won’t get paid to carry, so that although it’s
physically possible to load it, it’s not commercially possible to do so and
that’s enough.
But however good or bad as
that argument might have been it wasn’t up for grabs in the appeal—the
arbitrators had (rightly or wrongly) accepted that part of the definition was
satisfied. And that had not been appealed, which means it was not open to argument.
That may have been because the appellant thought it was a question of fact not
law, or that it was not a question of law for which permission to appeal would
be given.
The “law of the case” as
far as the courts were concerned was that the sanctions had prevented
loading/discharge. Since that wasn’t the question of law certified, it wasn’t
“up for grabs”. The only question of law certified was "whether
'reasonable endeavours' from the Party affected within Clause 36.3(d) of the
Contract of Affreightment can include accepting payment in € instead of the US$
for which the contract provides". Hence, after explaining the legal
parameters of the appeal, the CA’s comments at [39] that “we must proceed on
the basis that” all the other requirements for a FME were satisfied. They
obviously harboured doubts. They swallowed them, as they had to.
Where I agree with Alex and
part company with Rob is in thinking that *if there was a FM event* (and
the only issue in that respect was the “reasonable endeavours” point) it makes
any difference whose obligation was prevented. Whatever other tricks they might
have missed, the parties didn’t miss that one. Once it was a FM event, the
entire performance on both sides was suspended. Not because that’s a valid
deduction by any process of reasoning about frustration or the general effect
of FM clauses, but because that’s what this clause said. Very boring and
case-specific.
So:
- As a matter of the relevant procedural law,
unless the reasonable endeavours provision prevented this from
being a force majeure event, the court was bound to hold that it
was a force majeure event, because that narrow issue was the only one up
for argument.
- As a matter of the contract, once it was
decided that there was a force majeure event all obligation of both
parties (with a very narrow exception, not relevant) were suspended.
P
--
Paul Stanley KC
D: +44 (0)20
7147 7340
Barrister
regulated by the Bar Standards Board.
The effect of the FM clause that both parties’
obligations were suspended is not relevant to the first-level inquiry of what
an FM event is in the first place. And that analysis is limited to (i) *you*
can’t perform (ii) despite *your* reasonable endeavours. Because the modalities
of payment does not affect the carrier’s ability to perform at all
(presumably), then there is no question of the carrier’s reasonable endeavours.
The case should have been about conditional
obligations. It is not unimaginable that the carrier’s general obligation to
load and discharge goods was conditioned on the shipper maintaining an ability
to make timely payments at all points. If that was true, then the carrier could
argue its obligation to perform was suspended because the conditions for it
were never engaged.
But even on that basis, it should have been the
shipper’s reasonable endeavours that were relevant to test if the condition was
engaged or not, not the carrier’s.
Best,
Varun Srinivasan
The contract in this case provided that
While such Force Majeure
Event is in operation the obligation of each Party to perform this Charter
Party (other than an accrued obligation to pay monies in respect of a previous
voyage) shall be suspended.
That clause does not say that the obligation of the
party whose performance is rendered difficult is suspended, and then leave
it to the rest of the law to work out what the knock-on consequences of that
are. It says that while a force majeure event is “in operation” the obligation
of each party to perform the contract at all is suspended.
So Rob is of course right that “Force majeure clauses
excuse a party from performing their obligations. They don't discharge
contracts.”
But one still has to ask “whose obligations and what
obligations do they suspend” and the answer here is “both parties, and all
obligations”.
(I think I’m agreeing with Alex … it’s a point quite
specific to the terms of this particular clause.)
--
Paul Stanley KC
D: +44 (0)20 7147 7340
Barrister regulated by the Bar Standards
Board.
Force
majeure clauses excuse a party from performing their obligations. They don't
discharge contracts.
Similarly,
it is wrong to think that "contracts" are frustrated, obligations
under contracts are.
So, it
would do no good for the carrier to argue that the shipper's obligations are
subject to a force majeure event. When they're sued for damages for breach of
contract they have to argue that they're excused from performing their own
obligations. It does them no good to argue that the counterparty would be
excused from paying because they could rely on force majeure. Which, as Jacobs
J explains, is what the arbitrator accepted they could do (doubtfully).
If the
carrier is excused from performing because of force majeure (or frustration)
that may mean the counterparty 's obligation to pay doesn't accrue (it being
conditional on the carriage) but that is because of the nonperformance , not
the force majeure (or frustration).
I don’t
think that 'not being able to pay because of sanctions' is the force majeure
event. Indeed, ’not being able to pay’ isn’t an event at all. (Perhaps it is a
’state of affairs’, but I doubt that too…)
The
imposition of sanctions was an event. And, as you say, the arbitrator seems to
have accepted that the imposition of sanctions indirectly would have prevented
loading/discharge. We can agree or disagree about whether that was actually the
case, but I think it is the basis on which the dispute proceeded.
Nonetheless,
the ‘person affected’ by the event was the shipper, not the carrier. The right
question the SC should have asked is whether the shipper could with reasonable
endeavours have overcome the event. I think that is doubtful.
But I don’t
share in your criticism that the force majeure point didn’t arise because the
carrier was able to perform—even if unfortunately not argued on this basis, the
carrier could (and should) have argued that it was discharged from performing
and so could not be in breach.
I don't
agree. A force majeure event is defined by the contract
"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"
So not being able to pay because of sanctions is not a
force majeure event.
The argument that seems to have been accepted by the
arbitrator (see Jacobs J) was that the carrier by loading would themselves be
triggering the sanctioned payment. But as they weren't *obliged* to accept any
payment, I don't see how the carrier could be excused from performing their
obligations (which is what a force majeure clause does).
Rob,
I am not
sure the force majeure clause works as you say. Though I do not think the case
is reasoned quite correctly either.
While such
Force Majeure Event is in operation the obligation of each Party to
perform this Charter Party (other than an accrued obligation to pay monies in
respect of a previous voyage) shall be suspended. (emphasis added).
So the
argument for the carriers is: *you* can’t perform because of the force majeure
event, therefore *we both* need not perform. Therefore we aren’t in breach.
And so at
issue was whether it really was the case that the shippers could not perform.
If so, then the question ought not to have been whether the carriers
could by reasonable endeavours have overcome the event, for they were not the
‘Party affected’ (cl. 36.3(d): A Force Majeure Event is an event or state
of affairs which meets all of the following criteria: … It cannot be
overcome by reasonable endeavors from the Party affected). It was whether the shippers could
by reasonable endeavours have done so.
Do you think it would have made any difference if the
shipper had offered to pay in crypto?
This
email was sent to you by someone outside the University.
You should only click on links or attachments if you are certain that
the email is genuine and the content is safe.
A shipper cannot pay in US$ as contractually required because of sanctions, but
offers to pay in euros and to reimburse any conversion cost. Carrier refuses to
ship. Shipper claims damages for non-performance before an arbitrator. Carrier
invokes a force majeure event as an excuse. Shipper says "reasonable
endeavours" require the carrier to accept the proffer of euros. UKSC says
"reasonable endeavours" clause can't be used to require carrier to
accept a performance different from that contracted for. Carrier not liable.
How should these facts have been understood?
If *you* can’t perform because of a contracted for force majeure event, *you*
should not be liable for breach, so long as *you* use reasonable endeavours.
But in RTI v MUR the party invoking the clause (the carrier) was perfectly able
to perform. There was no problem at all with their ability to load, carry and
deliver the goods. They should not be able to rely on the force majeure clause
at all (see also cl 36.3(b) of the contract of carriage which reinforces the
point.) That means the question of whether "reasonable endeavours"
could overcome the force majeure event was of no relevance. They should not
have been able to invoke force majeure at all.
Their counterparty, the shipper, may not have been able to perform their side
of the deal because they couldn’t pay. We can have an argument about whether
they would have been able to perform or not but I don’t think that is relevant.
The issue should have been: can the carrier refuse to perform because the
shipper will inevitably not pay the US$ contracted for? That is about whether
the carrier’s obligation to perform was conditional upon the shipper’s ability
to pay in the manner stipulated. Again, I don’t think that is anything to do
with force majeure, and so “reasonable endeavours” is of no relevance. The
issue was whether a condition of the carrier’s obligation to perform was
satisfied, not whether the shipper would be liable for breach.
As presently informed, even if the shipper would inevitably not be able to pay
the required US$ once the goods were carried, I don’t see why that would have
been a condition of the obligation to carry. The shipper never repudiated the
deal.
Perhaps the court(s) were constrained by the appealed legal question from the
arbitrator's decision. But the result is difficult in the abstract and the
court does not state that they are so restricted,
Having yourself used “reasonable endeavours” is a condition of invoking
force majeure where you are unable to perform, but it was not relevant here.
Perhaps I have not understood the case, and so appeal to others.
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