The impact of force majeure on international trade contracts

When strategic sea lanes are closed, not only are ship traffic disrupted... It also tests the rigidity of international contracts. In light of the recent geopolitical developments in the region, Qatar Energy has announced the activation of the Force Majeure clause in some LNG supply contracts. This development raises important legal questions that go beyond the economic or political dimension and touch on the essence of the rules governing the implementation of long-term international contracts in the energy sector. Legally, force majeure means an exceptional event that: • It is beyond the control of the parties to the contract • Unpredictable when contracting • It makes the implementation of the obligation impossible or very difficult. In international energy contracts – especially LNG Supply Agreements – armed conflicts or serious security threats are among the most prominent facts that may justify declaring force majeure. The disruption of navigation or the closure of the Strait of Hormuz, one of the world's most important sea lanes for energy transmission, could make it too difficult or practically impossible to enforce contractual obligations related to supply chains, which could open the legal framework for the enforcement of force majeure clauses in some contracts. An important legal implication of a declaration of force majeure is that it may result in the suspension of the performance of contractual obligations during the period of the compelling event, while exempting the affected party from contractual liability and from the application of penal clauses or damages for delay or non-performance, as long as it is proven that the failure to perform was a direct result of the compelling event and beyond its control. This concept has been enshrined in several international legal references, including the UNIDROIT Principles of International Commercial Contracts (Article 7.1.7), which recognize that a party that is unable to perform its obligations due to an obstacle beyond its control and cannot be foreseen or avoided, is exempt from liability for non-performance during the duration of such an impediment. However, the declaration of force majeure does not automatically lead to an exemption from contractual obligations, as it is subject to several legal controls, most notably: ▪ Immediate notification to the other party ▪ Proving the causal relationship between the compulsive event and the inability to execute ▪ Take reasonable measures to minimize the effects of the event In many cases, the question of the existence of force majeure clauses is the subject of close examination before international commercial arbitral tribunals, especially if the declaration results in significant commercial losses for the contracting parties. The legal question that arises here: Can the closure of strategic sea lanes such as the Strait of Hormuz be considered a force majeure circumstance that exempts suppliers from fulfilling their contractual obligations? Or can it be interpreted in some cases as a mere hardship rather than a legal impossibility?

INTERNATIONAL LAW