The Court of Appeal in England has decided in MUR Shipping BV v. RTI Ltd [2022] EWCA Civ 1406 (27 October 2022) that sometimes a party must accept payment in Euros, even though the contract expressly stipulated payment to be made in US Dollars. Although the case is not about independent undertakings, DCW and TFG readers might ask if the decision could have implications for letters of credit and demand guarantees.

The relevant facts of the case involved RTI engaging MUR to transport cargo from West Africa to a port in Ukraine on a monthly basis. According to the contract, payment was to be made in US Dollars. The agreement also contained a force majeure clause that excused non-performance if the critical event “cannot be overcome by reasonable endeavors from the Party affected.” 

After the majority owner of RTI was placed on the US Department of the Treasury’s Office of Foreign Assets Control’s (OFAC’s) Specially Designated Nationals and Blocked Persons List, MUR treated this development as a force majeure event and refused to transport any additional cargo. 

MUR determined that it expected delays and legal problems if it continued to deal with a party that was connected to a sanctioned entity. RTI claimed that the situation lacked a strong-enough connection to a designated person (RTI itself was not listed) and also offered to pay Euros instead of US Dollars to avoid the application of US sanctions law by way of the use of US currency.

Additionally, RTI promised to indemnify MUR against all costs relating to currency conversion and transaction charges. This, in RTI’s view, would constitute “reasonable endeavors” that MUR was obligated to undertake – or otherwise pay damages for its refusal to ship the cargo.

After an arbitral tribunal and the High Court were seized with the matter, ultimately, the Court of Appeal decided in favour of RTI, meaning that payment in Euros instead of US Dollars had to be accepted by MUR based on the particular facts of this case and the “reasonable endeavors” clause in the contract. Because RTI was willing to pay in Euros and credibly assured MUR of compensation for any conversion losses, the Court determined that MUR breached the contract.

The question is whether this decision could have an impact on transactions involving Letters of Credit or demand guarantees. Even if such trade finance undertakings contained a comparable force majeure clause vis-à-vis the bank that requires “reasonable endeavors” to facilitate payment of an LC or demand guarantee, the international trade finance community likely would not accept such a unilateral deviation in currency, as it would undermine the fundamental principle of independent undertakings – namely legal and commercial certainty. 

Equally important, reputable international banks will either pay as promised (that is, in US Dollars) into a blocked account or not at all in order to avoid accusations of improperly circumventing or even breaching US sanctions. Too many banks have been assessed hefty fines for assisting in the violation of sanctions and thus, most financial institutions now exercise heightened caution.

This article was originally published in Documentary Credit World (DCW), published by the Institute of International Banking Law & Practice.