The escalating geopolitical tensions in the Middle East and the effective closure of the Strait of Hormuz have resulted in acute disruption to global shipping markets and maritime trade flows. Given the Strait’s role as a key corridor for energy and commodity trade, the current restrictions on transit are likely to have significant and enduring implications for shipping contracts.
Parties to these contracts may face delays, rerouting, increased costs and heightened security risks, raising key questions regarding the operation of force majeure provisions, war risk clauses and other contractual risk-allocation mechanisms. As a growing number of vessels encounter operational or safety challenges during voyages, disputes arising from shipping contracts are expected to increase in tandem, particularly where commercial demands come into conflict with contractual obligations. The update identifies the principal issues parties should consider where the performance of a contract has been adversely affected by the ongoing conflict in the Middle East and the ways in which Ontier’s global network and capabilities can assist.
1. Force Majeure Clauses and Frustration of Contract
One potential avenue of protection offered to contracting parties under English law contracts are “Force Majeure” clauses. In contrast to other legal systems, force majeure is not recognised as an autonomous doctrine under English law but is entirely contractual in nature. This means that parties must include an express force majeure provision in their agreement if they wish to rely upon it. The ability to invoke the clause successfully, and the resulting contractual consequences, will depend on the wording and scope of the provision, as well as its legal interpretation. Parties to a force majeure clause will therefore need to consider the following:
(A) How a “Force Majeure Event” is defined in the clause: namely, whether the relevant definition adequately captures aspects of the current conflict in the Middle East.
(B) Causation between the conflict and the resulting disruptions: some clauses stipulate that the force majeure event must prevent contractual performance, whereas other clauses may apply a lower barometer, allowing the invoking party relief where performance has been hindered or delayed.
(C) Mitigation: many force majeure clauses will also contain wording requiring the affected party to take steps to mitigate the impact of the relevant event on contractual performance. The affected party should ensure that, where there is a requirement to mitigate, any steps taken towards mitigating their exposure are well-documented should they need to be evidenced at a later juncture.
(D) Notice Requirements: force majeure provisions will often contain detailed notice requirements as to the format and timeframe within which notice must be given. Compliance with notice requirements may, in effect, serve as a condition precedent to invoking a force majeure clause and therefore failure to give notice in the correct format might prevent a party from relying on it even where a qualifying event has occurred.
Where a force majeure clause has not been drafted into a contract, parties may try to rely on the English common law doctrine of “frustration”. This doctrine discharges the parties from their contractual obligations where a supervening event renders their performance either impossible or radically different from those originally contracted between the parties. This is a high threshold to meet, and the Courts are generally reluctant to rule that a contract has been frustrated except in extreme cases.
2. War Risk Clauses
Charterparties frequently include war risk clauses in contracts as a means of contingency planning for geopolitical risk. War risk clauses are typically based on industry-standard formats such as CONWARTIME and VOYWAR. A war risk clause generally provides a master or shipowner with the right to refuse to proceed through an area where the vessel, crew or cargo may be exposed to war risks.
As at the date of this update, passing through the Strait of Hormuz would most likely be captured within an industry standard war risk clause, however this will require ongoing risk assessment as the situation in the region develops.
3. Liberty Clauses/Implied Indemnity
A contract may contain a “liberty clause” providing an express right for a vessel to deviate its route under specific circumstances (which can include war or other safety risks). Such clauses typically provide that deviations should be reasonable and proportionate to a given threat, and therefore deviations outside of what is agreed have the potential to result in contractual breach and ramifications on insurance cover (see below).
Under time charters, vessel owners are obligated to follow the charterer’s instructions on how to use the vessel, including in relation to routes and which ports to visit. Where there is a no indemnity clause in the contract, English law will imply an indemnity whereby charterers must indemnify owners for any losses resulting from following these instructions. It is a topic of debate as to whether orders to call at ports in the Gulf will allow owners to recover any losses as a result of calling there and will depend on the specific facts of each scenario.
4. Insurance Cover
The current high-risk status of the Strait of Hormuz passage means standard vessel insurance is unlikely to suffice, and extra premiums may be required. The costs liability for this additional cover will depend on the provisions of the charterparty in place.
Parties should also give due consideration to the interaction between the forms of contract provisions discussed in this update above and insurance cover. For example, an unreasonable deviation may risk insurance cover being lost and parties should consult with their insurance providers before deviating from a contractually agreed route. Further, there is a question mark over whether insurance premiums are recoverable under standard war risk provisions (including those in CONWARTIME and VOYWAR clauses mentioned above).
Ontier’s Capabilities
At Ontier, we understand the logistics and global supply-chain sector as a constantly evolving landscape where creativity, innovation, and legal strategy go hand in hand.
We know that success in today’s shipping environment also means navigating new business models, digital transformation, sustainability requirements, and dynamic markets that demand efficiency, compliance, and adaptability. That’s why we go beyond traditional legal advice; we help our clients manage risk, seize opportunities and maintain a competitive edge in an increasingly global and technology-driven sector.
Ontier’s Middle East Desk is supported by an extensive network of experts and deep experience in the Saudi and UAE markets. Our Transportation & Logistics practice advises on operational matters, including commercial agreements, access rights, liability management, and risk allocation across complex transport networks. This, combined with our Litigation and International Arbitration practices across the UK, Spain, Italy, the USA and Latin America mean that we are optimally positioned to support you with:
• analysis of shipping or trade agreements to understand the operation of force majeure clauses or other provisions contracting for risk allocation between parties;
• understanding how the maritime disruption can affect a wider supply chain and impact upon the allocation of liability between parties; and
• managing your future risk by identifying any immediate action required with a view to avoiding disputes and protecting ongoing business relationships.
We would be pleased to discuss how we can assist you if your business has been affected.
