Certainty in Commercial Contracts: Arbitrators Should Draw Lessons From the UK Supreme Court’s Case RTI Ltd v MUR Shipping BV
A recent judgement of the UK Supreme Court (RTI Ltd v MUR Shipping BV) illustrates a philosophy of contract interpretation which could inform decisions of international arbitral tribunals. It is a philosophy which primarily values certainty in commercial contracts.
RTI Ltd (RTI) and MUR Shipping BV (MUR) concluded a contract of affreightment. Under the contract, MUR agreed to carry bauxite for RTI. The contract required RTI to pay in USD. US sanctions impeded the RTI's ability to make USD payments. MUR invoked the force majeure clause. RTI rejected MUR’s notice of force majeure and offered to pay MUR in EUR instead and to cover the cost of transferring the payment from EUR to USD. RTI based its offer on the provision of the contract which required the party affected by force majeure to exercise reasonable endeavours to overcome it. MUR rejected this offer and suspended operations under the contract.
The main issue on the appeal before the Supreme Court was whether the exercise of reasonable endeavours may require the party affected to accept an offer of non-contractual performance from the other contracting party in order to overcome the effects of the event or state of affairs. In particular, the Court was to decide whether based on the reasonable endeavours clause MUR was obliged to accept RTI’s offer of the payment in EUR instead of USD. The Court decided MUR did not have to accept this variation of the contract.
The Court put forward a number of arguments. The argument based on the principle of certainty and predictability in commercial contracts stroke a cord with me. MUR had a better case, because it was anchored in the contract: the contract did not require acceptance of an offer of non-contractual performance. The Court rejected the argument that that reasonable business people would favour RTI’s position. If the reasonableness was to trump the required contractual performance this would introduce uncertainty. The court also rejected the argument based on the purpose of the contract. It is based on the assumption that there is a single purpose underlying any particular obligation and there may be no clear purpose at all.
As an arbitrator I subscribe to this philosophy. I think arbitrators first and foremost have a duty to decide the case in accordance with the contract. All too often arbitrators look for a “fair” or “reasonable” solution, even if the contract is clear and the solution proposed by the arbitrators is at odds with the contract. Some even think that this is the essence of arbitration, as a “business friendly” mechanism of dispute resolution. Others argue that arbitrators’ powers are vast and should not be constrained by such petty details as the wording of the contract. I would urge humility. Yes, arbitrators have enormous powers but they should be very careful how to use them. Otherwise, businesses people may decide that arbitration is too unpredictable and will take their disputes elsewhere, as indeed many have done.
Michał Kocur