Introduction

Affected by the Iran-Israel conflict, on February 28, 2026, the Islamic Revolutionary Guard Corps of Iran announced the closure of the Hormuz Strait, prohibiting any vessels from passing through. This strait is a strategic throat of global international trade and shipping, and its navigational stability directly determines global trade order and supply chain security. Therefore, the blockade of the Hormuz Strait directly impacts the normal performance of international trade contracts, thereby triggering international trade risks.

This article will, from a practical perspective, analyze risk points for international trade enterprises by combining commonly used UK law, international trade practices, and international conventions, and provide actionable response plans.

I. Core Regulations Overview

In international trade practice, parties often agree to apply common law case law (represented by UK law), relevant international conventions, and international practices. This section provides a brief introduction to relevant provisions under UK law and international conventions/practices regarding obstacles to contract performance.

Rules	Core Content	Application Scenario
UK Law	Contractual Force Majeure Clause; Doctrine of Frustration	Contract governed by UK law
CISG	Article 79: Exemption for non-controllable, unforeseeable, unavoidable, and insurmountable impediments	Contracting state parties have not expressly excluded application
Hague Rules	War, government acts, etc. as carrier exemptions	Bill of lading issued in a contracting state or contract expressly references
Incoterms	Various trade terms allocating risk transfer and rights/obligations	Contract expressly references

A. UK Law

1. Force Majeure Clause

Under UK law, for a party to invoke force majeure as an exemption, the contract must contain an express force majeure clause, and the circumstances claimed must fall within the contractual definition.

In such cases, the affected party may be exempted from liability, with loss allocation handled as agreed, but remains subject to:

• Notice obligation: Notify the other party of the force majeure event and its impact on performance
• Burden of proof: Demonstrate that the invoked grounds meet contractual requirements and have a causal link with the non-performance
• Mitigation obligation: Act in good faith and exercise reasonable diligence to mitigate losses to the other party

2. Doctrine of Frustration

Where a force majeure clause cannot be invoked, a party may claim exemption under the frustration doctrine.

Frustration occurs when after contract formation but before full performance, an event for which neither party is at fault and which was unforeseeable renders performance impossible, illegal, or radically different from what was contemplated, resulting in automatic termination of the contract and discharge of future obligations.

Legal consequences:

• Contract automatically terminates; neither party bears liability for breach
• Only future obligations are discharged; past non-monetary obligations are not retroactively affected
• Pre-frustration payments may be recoverable, but the other party may deduct reasonable expenses incurred
• Post-frustration payments need not be made
• Courts may order reasonable compensation for non-monetary benefits already provided

B. CISG

Under CISG Article 79, exemption requires satisfaction of the following conditions:

(1) The impediment is beyond the party’s control;

(2) The impediment was not reasonably foreseeable at the time of contract conclusion;

(3) The impediment could not be avoided or overcome.

Where the conditions of CISG Article 79 are satisfied, the non-performing party may claim exemption from damages.

C. Hague Rules

Under Article IV(2) of the Hague Rules, loss or damage arising from acts of war, detention or seizure by rulers, authorities, or the people, or judicial seizure, are exempted from carrier liability.

Important Note: China’s Civil Code can only serve as the governing law when the contract expressly stipulates its application. International trade contracts typically specify UK law or international conventions/practices, so domestic law thinking should not be applied to cross-border disputes.

II. Trade Term Classification: Risk and Responsibility Quick Reference

Group	Terms	Transport Responsibility	Blockade Impact
E Group	EXW	Buyer bears full responsibility	Once goods delivered at factory/warehouse, subsequent transport disruption and cost increases are borne by the buyer; seller has minimal risk
F Group	FOB/FAS/FCA	Buyer arranges transport	Risk transfers to buyer at delivery point (e.g., FCA at carrier, FOB on board); delays and cost increases during transit borne by buyer
C Group	CIF/CFR/CIP/CPT	Seller arranges transport	Risk transfer point is at shipment; although seller arranges transport, transit risks are borne by buyer, so buyer bears greater risk in blockade events
D Group	DPU/DAP/DDP	Seller bears full responsibility	Risk remains with seller until goods reach destination and are placed at buyer’s disposal; seller bears all transit delays, cost increases, and loss risks, making seller’s risk greatest in extreme blockade scenarios

III. Practical Response to Four High-Frequency Dispute Scenarios

Scenario 1: Buyer Refuses Payment Citing Strait Blockade

Scenario Description:

Contract uses FCA terms, goods have been delivered to the carrier, and the buyer refuses payment citing “inability to receive goods due to the strait blockade.”

1. Payment Obligation Analysis

Core criterion: The strait blockade does not in principle prevent the buyer from performing payment obligations; therefore, the buyer cannot refuse payment citing the blockade. Whether the buyer’s payment obligation is triggered depends on whether the contractual conditions for payment are satisfied. If payment is conditioned on delivery to the carrier, the buyer remains obligated to pay.

However, under the frustration doctrine, if payment conditions are only partially satisfied, the buyer may claim contract termination, discharging future performance without liability.

2. Seller’s Remedies

Step	Action	Applicable Circumstances
First	Demand performance + set deadline	Buyer refuses payment without justification
Second	Initiate arbitration or litigation claiming fundamental breach	Deadline passes without payment and no statutory exemption applies
Third	Resell goods + claim price difference to mitigate losses	Goods already produced or shipped

Scenario 2: Seller Received Deposit but Cannot Deliver Goods

Scenario Description:

After contract signing, buyer pays 20% deposit; goods have not been shipped. Due to the blockade, goods cannot be delivered, and the buyer demands contract rescission and deposit refund.

Situation	Deposit Treatment	Key Considerations
Force Majeure	Follow contractual terms; if not specified, refund minus reasonable necessary costs	Under UK law, must fall within contractual force majeure definition; under CISG, must satisfy Article 79
Frustration	Refund minus reasonable necessary costs	Under UK law, where contract lacks force majeure provision or circumstances not covered, but frustration doctrine applies
Ordinary Commercial Risk	May be retained	Blockade only causes minor freight increases or brief delays, not reaching the level of impossibility

Scenario 3: Goods Produced but Not Shipped

Scenario Description:

Goods have been produced at the factory but cannot be loaded for shipment as planned due to the strait blockade.

1. Contract Performance Assessment

Goods produced but not shipped represents an intermediate state where the seller has fulfilled its primary production obligation but not its delivery obligation. Key assessment dimensions:

Assessment Dimension	Key Question	Legal Significance
Risk Transfer Point	Which trade term does the contract use?	Determines when risk transfers to buyer
Payment Conditions	Is payment conditional on shipment/delivery?	Determines whether buyer’s payment obligation is triggered
Performance Feasibility	Blockade duration, alternative transport feasibility	Assesses whether contract can continue

After completing the above assessment, both parties can determine whether the contract can continue. If performance is impossible, they may claim rescission and invoke force majeure or other exemptions.

2. Practical Recommendations

• Step 1: Both parties should immediately assess the blockade’s actual impact, including expected duration, alternative transport costs, and goods characteristics (perishability, seasonality)
• Step 2: Review the contract’s force majeure clause; parties claiming exemption must also prepare evidence under CISG Article 79 or UK frustration doctrine
• Step 3: The party claiming rescission and exemption should promptly issue written notice describing the event, its impact, and expected duration, retaining delivery evidence
• Step 4: Both parties should actively negotiate, maintain communication records, and fulfill mitigation obligations
• Step 5: If negotiations fail, promptly initiate arbitration or litigation

Scenario 4: Goods Damaged During Transit Due to Blockade

Scenario Description:

Goods in transit are damaged due to the strait blockade and extended voyage, and the bill of lading holder seeks compensation from the carrier.

Carrier Defense Strategies:

• Invoke statutory exemptions: Prove damage resulted from war, government acts, or lawful seizure
• Demonstrate reasonable care: Prove vessel seaworthiness before sailing, appropriate crew, and reasonable route planning
• Establish lack of causation: Prove damage was not caused by carrier’s conduct
• Claim limitation of liability: Seek unit liability limits under Hague/Visby Rules

IV. Risk Prevention and Response Plan

A. Contract Clause Optimization

Clause	Optimization Recommendation
Force Majeure	Expressly include “strait blockade, war, armed conflict” within force majeure scope; detail notice periods, evidentiary requirements, exemption scope, and loss allocation
Governing Law	Specify applicable law and dispute resolution body to avoid conflicts of law and jurisdictional disputes in cross-border disputes
Insurance	Based on route risk characteristics and respective rights/responsibilities, procure appropriate coverage expressly covering cargo loss, transport interruption, voyage delays, and inability to dock at destination port caused by strait blockade

B. Core Response Measures by Party

Party	Response Measures
Seller	Review exemption claims: After receiving buyer’s force majeure notice, strictly review compliance, focusing on causation, fulfillment of requirements, notice and mitigation obligations. If buyer’s evidence is insufficient, issue a demand letter and seek remedies after deadline. Fulfill mitigation obligations: Act in good faith with reasonable diligence to minimize the blockade’s impact on contract performance. Pursue appropriate solutions: Prioritize negotiation with proposals for price adjustments or delivery extensions; if negotiation fails and contract purpose cannot be achieved, exercise rescission rights; if buyer unjustifiably refuses payment, issue demand letter and initiate arbitration/litigation
Buyer	Review exemption claims: After receiving seller’s force majeure notice, strictly review compliance as above. Properly exercise rights and obligations: Determine whether payment obligation is triggered per contract; for goods where risk has transferred, coordinate with insurers and carriers to track goods, take mitigation measures, and pursue claims to reduce losses
Carrier	Review exemption claims: After receiving force majeure notice, review compliance as above. Promptly invoke exemption clauses: After receiving claims, submit official announcements, voyage records, and seaworthiness certificates to claim statutory exemptions. Strictly fulfill seaworthiness obligations: Before sailing, comprehensively review route risk dynamics, develop contingency plans for diversion, suspension, or nearest port discharge, and ensure vessel compliance with navigation safety requirements