As disruptions in the Strait of Hormuz continue to affect supply chains, particularly for companies sourcing from the Middle East, it’s imperative that members of the branded merchandise industry are prepared to make adjustments as necessary.
That could mean seeking alternative suppliers, determining different trade routes, lengthening delivery timelines and other precautions. Above all else, maintaining communication with clients and partners regarding these changes should be the top priority.
These types of disruptions underscore how quickly unforeseen global events, such as the United States’ war with Iran, can reshape business operations and expectations. When geopolitical instability or conflict interferes with supply chains, companies may find themselves unable to fulfill contractual obligations through no fault of their own.
In such cases, understanding how force majeure provisions apply becomes critical to managing risk and setting appropriate expectations with partners and clients.
What Is Force Majeure?
The COVID-19 pandemic resurrected the concept of force majeure like no other global circumstance in many years, according to Cory Halliburton, an attorney with Freeman Law and general counsel for PPAI.
- An “act of war” is usually one of many circumstances that may be included in a force majeure provision in a contract.
“Generally, force majeure provisions seek to allocate risks of loss if performance becomes hindered or prevented and are usually tied to events or circumstances over which a party of a contract has no reasonable control or that the parties could not have anticipated,” Halliburton says.
- As indicated above, acts of war, declarations of war or the like are many times included as events that may excuse performance failure or delay, at least while the circumstance-of-excuse exists.
Even if a contract has no force majeure provision, Halliburton says, there are common law concepts (such as impossibility of performance or impracticality of performance) and possibly statutory provisions (such as in the Uniform Commercial Code applicable to the sale of goods) that address scenarios of excused performance failures.
Cory Halliburton
General Counsel, PPAI
Those concepts are separate and distinct – although closely related to – contractual force majeure, and they could come into play in many force majeure-type scenarios that prevent or hinder performance, depending on the type of contract, reasons for non-performance or delay and the terms of the actual contract, Halliburton says.
- See, for example, Uniform Commercial Code section 2-615, which regards excuse of performance due to failure of pre-supposed conditions.
- Comment 4 to that section specifically mentions the application of the section to incidents of “war.”
“As in all things contractual, words matter,” Halliburton says. “The specific words used in a force majeure provision are important to evaluate because the freedom of contract is a powerful one; one that courts will honor, unless public policy demands otherwise.
“Thus, the terms ‘act of war’ (or something similar) must be in the actual contract, and the actual event in issue is usually required to be as contemplated in the terms. Otherwise, the parties to the contract must resort to external authorities, such as the Uniform Commercial Code or common law concepts to fill in the contractual gaps, which can be inefficient to apply and ambiguous on potential outcomes.”
The specific act of war must be the actual cause of the non-performance or delay, Halliburton adds. “Proving as much could be difficult or it could be inapplicable,” he says, “if the actual cause of the delay is due to the ineptitude or negligence of the contracting party in issue who is blaming war versus looking in the mirror for the root of the cause.”
Ultimately, in an increasingly volatile global landscape, companies that proactively understand their contractual protections and communicate transparently will be best positioned to navigate uncertainty and preserve trust.
