In this case, a shipowner entered into a contract with a charterer to transport bauxite. The contract provided for the payments to be made in US dollars and contained a force majeure clause setting out what constituted a force majeure event.
The US Government imposed sanctions on the parent company of the charterer and the shipowner, thinking this was going to impact payment in US dollars, and sent a force majeure notice insisting on suspension of the contract. The charterer rejected the notice and claimed it could pay in Euros and that it would bear the exchange rate losses. The shipowner continued to insist that it was paid in US dollars, performance was suspended, and the charterer sought compensation for having to find a replacement vessel.
A Tribunal found that the shipowner could not rely upon the force majeure clause because the clause was subject to reasonable endeavours. The High Court disagreed.
The Supreme Court found that the shipowner was fully entitled to insist on a very strict and literal interpretation of the contract in this context by demanding payment in the specific currency of US dollars. Nowhere in the contract was it specified that another currency, such as Euros, could be used.
This reinforces numerous English contract law principles, including parties’ freedom to contract and not enter into a contract, clear words are needed to surrender valuable contractual rights, and certainty of a contract (referring to the idea that all clauses and requirements are followed exactly as they were written and intended to apply) and predictability of outcomes, which are important principles that should not be diminished.
If parties wish for greater flexibility in their contractual arrangements, they need to include a direct provision regarding that specific area. It is important to draft clearly and unambiguously, especially when considering Force Majeure Clauses, to make sure that the scope of the clause is clearly defined within the Agreement so that each party knows what protections it can rely on in these situations.
In this scenario, where specifying that the payment is allowed in an alternative currency would have been accepted, it is important to consider whether these alternatives would still achieve the same contract result with the desired performance.
If you are reviewing a commercial contract and need advice or guidance on how to protect your interests, please contact Nick Attwell on 01473 229242 or email Nick at [email protected].
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