As featured in Global Trade Review
Baldev Bhinder, our Managing Director at BlackStone & Gold LLC, examines the growing legal and arbitration risks facing commodity traders as conflict-related disruptions, tanker hesitancy and escalating war-risk pressures trigger a fresh wave of force majeure declarations across global energy markets.
The article explores the distinction between genuine force majeure events and selective performance, highlighting the challenges businesses face when supply disruptions, rising costs and resource allocation decisions come under scrutiny. It also discusses the importance of causation, mitigation efforts and contemporaneous documentation in determining whether a force majeure defence is likely to succeed.
As geopolitical tensions continue to impact global trade flows, the article provides timely insights into the contractual and dispute-related risks confronting market participants.
When does a genuine force majeure event excuse non-performance, and when does it become a commercial decision?
Force Majeure Is Not Automatic
The existence of a disruptive event alone does not necessarily relieve a party from its contractual obligations.
To successfully rely on force majeure, a party will generally need to demonstrate that the event directly prevented performance of the contract, rather than simply making performance more difficult, costly or commercially unattractive.
The Challenge of Selective Performance
One of the key issues highlighted is the allocation of limited resources during periods of disruption.
Where supply becomes constrained, businesses may prioritise certain customers over others. While commercially understandable, such decisions can create legal challenges if a party continues performing some contracts while suspending others under the guise of force majeure.
Questions that may arise include:
• Whether performance was truly impossible
• Whether alternative means of performance existed
• Whether available resources were allocated fairly and consistently
Increased Costs Are Usually Insufficient
Geopolitical instability often results in:
• Higher freight costs
• Increased insurance premiums
• Operational delays and inefficiencies
However, increased expense alone will rarely amount to force majeure. Courts and tribunals generally distinguish between performance becoming impossible and performance becoming less profitable.
The Importance of Mitigation
Parties invoking force majeure are typically expected to take reasonable steps to minimise the impact of the disruptive event.
This may include:
• Exploring alternative suppliers
• Identifying substitute transport routes
• Seeking replacement cargoes or materials
• Implementing contingency measures
Failure to demonstrate meaningful mitigation efforts may undermine a force majeure defence.
Documentation Remains Critical
In many disputes, the outcome depends on contemporaneous evidence.
Businesses should ensure they maintain records showing:
• The specific impact of the disruptive event
• Efforts made to mitigate disruption
• Decisions regarding resource allocation
• Reasons alternative solutions were unavailable
Well-documented decision-making can be crucial in defending future claims.
Key Takeaway
The recent Middle East conflict serves as a reminder that force majeure is not determined solely by the existence of a crisis.
Rather, the focus remains on whether the event genuinely prevented contractual performance and whether reasonable steps were taken to overcome its effects.
As geopolitical and supply chain risks continue to evolve, businesses should review their contractual obligations carefully and ensure that operational decisions are supported by robust evidence and clear commercial reasoning.
Read the full article on Global Trade Review https://www.gtreview.com/news/contributed-content/force-majeure-or-selective-performance-how-the-middle-east-conflict-is-testing-traders/