Contractual disruption and the Middle East crisis: what are your legal options?

The ongoing instability across the Middle East has created significant practical and legal challenges for businesses operating in the region and further afield, often compounding the impact of the war in Ukraine. Supply chains have been rerouted, deliveries delayed, prices inflated, and, in some cases, performance has become wholly impossible or uneconomic. If your contracts are governed by English law, understanding the legal remedies available to you is an essential first step.

Force majeure

For many businesses, the first port of call will be the force majeure clause in their contract. These provisions, which appear in the majority of well-drafted commercial agreements governed by English law, excuse or suspend a party's obligations when performance is prevented by events outside their reasonable control. It is important to note, however, that the term "force majeure" has no settled meaning in English law and its scope in any given contract will be a question of interpretation of the specific wording used.

Does the clause cover the event?

Force majeure events are typically defined as acts, events or circumstances beyond the reasonable control of the party concerned. Some clauses set out exhaustive lists of qualifying events – such as war, civil unrest, acts of terrorism, or government action. Others rely on broader sweep-up language and many contain both. Where a list is used, a court will consider whether the specific event falls within it, and care should be taken with the rule that general sweep-up words may be read in the context of, and limited by, the nature of the specific examples that precede them.

In the present context, the events most likely to be relevant include the US/Israeli war against Iran, the closure of the Strait of Hormuz, Houthi attacks on commercial vessels in the Red Sea and export or shipping restrictions imposed by governments in the region.  Depending on the precise wording, any of these events could potentially fall within the ambit of a force majeure clause. The Strait of Hormuz is one of the world's most strategically critical chokepoints, through which a significant proportion of global oil and liquefied natural gas passes. As we have seen over the past weeks, any closure, even partial or temporary, has immediate and far-reaching consequences for contracts dependent on the transit of goods or energy commodities through the Persian Gulf.

One important and often overlooked point is that English law does not require a force majeure event to have been unforeseeable at the date of the contract, unless the clause expressly says so. Where a clause is silent on foreseeability, there is no implied common law requirement that the event be unexpected (Navrom v Callitsis Ship Management SA (The Radauti) [1988]). That said, the more foreseeable an event, the more likely it is that its consequences will be considered avoidable and therefore within the affected party's control – which may undermine a force majeure argument on causation grounds.

Has the event caused the non-performance?

The burden of proof lies on the party seeking to rely on the clause, who must demonstrate that the force majeure event falls within the clause and that non-performance was caused by it. The level of causation required depends on the precise wording used. Where the clause requires the event to have "prevented" performance, the affected party must show that performance was legally or physically impossible, not merely more difficult or expensive. The words "hindered" or "delayed" set a lower threshold and will generally be satisfied if performance has been made substantially more onerous, though a mere increase in cost is unlikely to suffice even under a hindrance standard. Where the clause uses the word "unable," English courts have indicated this sets a similarly high bar to prevention.

Critically, if there are two concurrent causes of non-performance – only one of which qualifies as a force majeure event – the clause may not be available, depending on its drafting (Seadrill Ghana Operations Ltd v Tullow Ghana Ltd [2018]). A party will also be unable to rely on force majeure if it would not have been ready and willing to perform its obligations in any event, absent the relevant event.

Mitigation

Most force majeure clauses expressly require the affected party to have taken reasonable steps to avoid or mitigate the effects of the event, and even where no such express obligation exists, one is likely to be implied. A party that has failed to take reasonable steps to overcome the force majeure event – for example, by exploring alternative shipping routes or supply arrangements – may find that the clause is unavailable to it on causation grounds: the cause of non-performance in such circumstances may be characterised as the affected party's own inadequate response rather than the event itself. Importantly, however, a recent Supreme Court decision confirms that a party is not required to accept non-contractual performance from the other side as part of its mitigation obligations, unless the contract expressly requires this (RTI Ltd v MUR Shipping BV [2024]).

Notice

Most force majeure clauses impose procedural obligations, and in many cases giving notice within a specified period is a condition precedent to relying on the clause. Any notice must comply strictly with the requirements of both the force majeure clause and the general notice provisions of the contract. A notice that fails to adequately describe the event or its effect on performance, or that is given out of time, may be held to be invalid. If you have not yet given notice and believe you may be entitled to, you should take legal advice without delay.

Effect of the clause

Force majeure clauses are generally suspensory in nature: the affected party's obligations are suspended for the duration of the event rather than discharged entirely. When the event ends, the contract is reactivated. Many clauses also provide that if the force majeure event persists beyond a defined period, either or both parties may terminate the agreement – but it is important to check the drafting carefully, as a party that purports to terminate without entitlement to do so may itself be guilty of wrongful termination.

Where a force majeure clause is contained in a party's standard terms and conditions, it will be subject to the reasonableness requirement under the Unfair Contract Terms Act 1977. A clause that seeks to classify events within a party's control as force majeure events may not satisfy that test.

Frustration

Where a contract contains no force majeure clause – or where the clause does not cover the relevant circumstances – the common law doctrine of frustration may provide relief. Under English law, a contract is frustrated where, without either party's fault, a supervening event renders performance impossible, illegal, or radically different from what was originally contemplated (Davis Contractors Ltd v Fareham UDC [1956]).

The modern approach requires a court to consider all the facts and circumstances of the case, including the terms and context of the contract, the parties' knowledge and assumptions at the time it was entered into, the nature of the supervening event and the parties' reasonable calculations as to the possibilities of future performance in the changed circumstances.

The threshold for frustration is a high one, and the doctrine will not apply in several important situations. It cannot be invoked where the contract makes express provision for the event – including where a force majeure clause covers the situation. The courts have consistently held that increased cost or difficulty is insufficient. In Tsakiroglou v Noblee Thorl [1962], the House of Lords declined to find that a contract for the sale of groundnuts was frustrated by the closure of the Suez Canal, even though the cargo had to be rerouted around the Cape of Good Hope at considerably greater expense. The closure of the Strait of Hormuz is, perhaps, more likely to count as frustration, given the lack of an obvious practicable route for many cargoes. However, where a period of regional instability already existed at the time the contract was made and did not materially worsen during the contractual period, frustration will be difficult to establish. The doctrine is equally unavailable where an alternative method of performance remains possible, or where the event is self-induced.

Where frustration is established, the contract is automatically discharged at the point of the frustrating event. Under the Law Reform (Frustrated Contracts) Act 1943, money paid before the frustrating event is generally recoverable, money which had fallen due but not yet been paid ceases to be payable, and a party who has incurred expenses in performing the contract may be entitled to retain or recover a sum in respect of those expenses. A party who has received a valuable benefit before the frustrating event may be required to pay a just sum for it. Parties should note that a notice of frustration – rather than a notice of termination – is the appropriate step where frustration is being asserted, and the counterparty may dispute the position and allege repudiatory breach, making early legal advice essential.

Breach of contract and contractual allocation of risk

Where force majeure or frustration does not apply, a party who fails to perform remains in breach of contract and may be liable in damages under English law. If you are the innocent party, you may be entitled to claim damages for wasted expenditure and loss of profit, and to terminate the contract and procure a substitute supply, recovering any additional cost from the defaulting party. If you are the party unable to perform, limitation of liability clauses, damage caps, and exclusions for indirect and consequential loss may materially limit your exposure, subject to the requirements of the Unfair Contract Terms Act 1977.

Responding to a force majeure notice

Parties who receive a force majeure notice from their counterparty should respond promptly. A notice that is not justified by the facts and contract terms may itself constitute a repudiatory breach, but rights to challenge it – and to terminate in response – can be lost through delay, waiver, or estoppel. An immediate holding response, reserving all rights while the notice is investigated, is strongly advisable. The recipient should then consider carefully whether the event falls within the clause, whether adequate notice and proof have been provided, whether the affected party has complied with any mitigation obligations, and what relief the clause actually permits.

Arbitration and dispute resolution

The majority of international commercial contracts governed by English law – particularly in the energy, commodities, and shipping sectors which are directly affected by instability in the Persian Gulf – provide for arbitration. Common institutional frameworks include the LCIA, DIAC, ICC, SIAC and UNCITRAL rules. Arbitration offers confidentiality, international enforceability of awards under the New York Convention, and the ability to appoint tribunal members with specialist expertise. Parties should review their arbitration clauses carefully, paying attention to the seat, applicable rules, number of arbitrators, and any limitation periods. Emergency arbitrator procedures are available under most institutional rules where urgent interim relief is required.

How we can help

Whether you are seeking to invoke force majeure, challenge a notice served against you, assess your position on frustration, or prepare for arbitration, specialist legal advice is essential. RPC has extensive experience advising clients across the energy, commodities, and manufacturing sectors on contractual remedies under English law and in international arbitration proceedings worldwide. We would be pleased to discuss your position and help you navigate your options.