The conflict in the Persian Gulf has created significant challenges for international trade. Much attention has focused on the disruption to shipping through the Strait of Hormuz, one of the world’s most important maritime chokepoints.

Less attention, however, has been paid to the legal consequences of these events for the performance of trade contracts. This article examines how the conflict may affect the fulfilment of Gafta contracts concluded on CIF terms before the disruption of navigation through the Strait of Hormuz, and why the traditional allocation of risks under CIF contracts may produce unexpected results.

Risk Allocation under CIF Contracts

Although the conflict has caused considerable disruption to cargo deliveries to the Persian Gulf, it does not, in itself, provide grounds for excusing non-performance under CIF contracts, given the distinctive nature of the CIF basis.

A CIF seller is not ordinarily required to ensure the physical delivery of the goods to the destination. For grain traders, it is perhaps fitting that one of the best-known descriptions of a CIF contract comes from SIAT v Tradax, where the Court observed that there is “a grain of truth” in treating a CIF contract as a sale of documents. That observation captures the essence of the CIF bargain: the seller’s principal obligations lie in procuring a contract of carriage and tendering compliant documents, coupled with a negative obligation not to interfere with the delivery of the cargo.

Once the goods conforming to the contract have been shipped, appropriated to the contract, and the contractual documents have been properly tendered, the seller will generally have fulfilled its obligations under the contract. Against this background, the disruption arising from delays in reaching the destination does not necessarily prevent the seller from performing its obligations under a classic CIF contract.

The Scope of Force Majeure

This allocation of risk is also reflected in widely used Gafta forms, including Contracts Nos. 27, 45, 48, 80 and 100. While the standard force majeure provision is principally concerned with events preventing shipment at the loading port, the definition of an ‘Event of Force Majeure’ also includes “unforeseeable and unavoidable impediments to transportation or navigation”, potentially suggesting that it may be relevant in the context of the Strait of Hormuz.

On closer examination, however, this subclause may offer limited assistance to sellers. Where cargo has been shipped before the outbreak of the conflict in the Persian Gulf, the seller’s ability to make a valid documentary tender is likely to remain unaffected. At the same time, where a contract is concluded after the start of the blockade, it may prove difficult to establish that the relevant impediment was both unforeseeable and unavoidable.

The Risks of Invoking Force Majeure

In these circumstances, the commercial impact may shift to the buyer. This reflects the underlying rationale of CIF contracts, under which the buyer’s payment obligations are usually linked to documents rather than physical delivery. Consistent with this allocation of risk, the ‘Prevention of Shipment’ clause affords relief only to the seller, providing for suspension of performance only where the seller is prevented from fulfilling its obligations.

These legal peculiarities place both sellers and buyers in a difficult position. The threshold for establishing force majeure under English law is notoriously demanding, and a mere increase in the cost or inconvenience of performance will not ordinarily suffice to excuse contractual obligations.

Traders, therefore, must carefully assess whether performance has been genuinely prevented or merely made more onerous. The distinction is of considerable practical importance, as an unjustified reliance on force majeure in circumstances where performance remains possible, albeit at greater expense, may itself constitute a breach of contract.

Commercial Responses to Disruption

Faced with these challenges, market players often favoured pragmatic commercial solutions over legal confrontation. To mitigate the risk of vessels remaining idle outside the Strait of Hormuz, traders frequently agreed to revise the contractual destination under both the sale contract and the contract of carriage. This, in turn, required the shipping documents to be amended to reflect the alternative discharge port. While commercially effective, these solutions were rarely straightforward and often required careful consideration of the contractual and documentary framework governing each transaction.

This GAFTAworld article is authored by  Partner Pavlo Lebediev, Partner, and Associate Andrii Tantsiura.