In a nutshell: Rising tensions in the Persian Gulf have raised questions about whether charterparties can be terminated. In most cases, this will depend on the wording of war risk or force majeure clauses, as English law sets a high threshold for “frustration.” Owners may also rely on war risk provisions to refuse orders exposing the vessel to heightened risks.

A number of clients have asked whether the current situation in the Persian Gulf gives a charterer, or an owner, the right to terminate a charter. 

Typically a charter will include a war clause, entitling either party to terminate on an outbreak of war, but this typically requires the war to be between (not merely involving) two or more countries from a list of specified countries (usually based around permanent members of the UN Security Council plus additions which are thought relevant to the parties or intended employment) and may also require evidence that it directly impedes the terminating party's use of the vessel. Unless Iran is specified together with either USA or Israel, such a clause is unlikely to be triggered in the present circumstances.

Assuming the war clause is not triggered, the next consideration will be whether "force majeure" applies. In an English law charter, force majeure will only apply if there is a clause which expressly provides for it, in which case such a clause will be enforceable in accordance with its terms. Careful consideration will therefore need to be given to the terms of such a clause to determine whether or not the current circumstances fall within its scope. In charters governed by the law of other jurisdictions the parties should consult suitably qualified lawyers to determine whether the applicable law applies a concept of force majeure to a contract, even in the absence of a specific provision.

Absent a force majeure clause, English law does not recognise a general concept of force majeure applicable to contracts. It does recognise a concept of "frustration" which may allow a contract to be terminated, but the circumstances in which this may apply is a much higher bar than is typically found in force majeure clauses. It requires a change in circumstances which renders further performance of the contract impossible, illegal or radically different from that which the parties contemplated when entering the contract. Where a time charter provides for worldwide trading limits, the inability to trade to/from the Persian Gulf would be highly unlikely to be interpreted as causing frustration, in a legal sense, even if the parties had anticipated that the Persian Gulf would be an important trading area for the vessel. Hence if and to the extent that the current situation prevents a vessel trading to the Persian Gulf, it is unlikely to give a time charterer a right to terminate the charter. The position may well be different for voyage charters relating to voyages which necessitate passing the Strait of Hormuz.
 
This may change if in fact the vessel is in (or enters) the Persian Gulf and becomes blocked or trapped. This could ultimately lead to a constructive total loss (which would cause the charter to terminate). Even prior to becoming a constructive total loss the blocking and trapping could lead to frustration (and therefore a right of termination) if it continues for a significant proportion of the time remaining on the charter. 
 
Meanwhile, charters will typically include provisions to the effect that the vessel cannot be obliged or required to proceed to or through any area where it, its cargo or crew may be exposed to war risks. Charterers should be aware that this may entitle owners to refuse to enter (or leave) the Persian Gulf in the current circumstances without risk of Charterers being able to cancel for a refusal to follow orders (although the circumstances need to be kept under continuous review), should charterers be minded to give such orders despite the current constraints on the availability of insurance cover. 

If you would like to discuss any issues arising out of these cases, please contact Richard Henderson, Nina von Borries or Iain Preston, or your usual ERG contact.