LettersDon’t be complacent about contracts in times of shipping disruptions

For Hong Kong’s shipping boardrooms and trading community, these disruptions are much more than logistical hurdles. They represent a stress test of commercial contracts governed by English common law, which forms the bedrock of our city’s legal and arbitration framework.

A common misconception in corporate boardrooms is that geopolitical chaos or skyrocketing transport costs automatically excuse a party from fulfilling a contract. Legal history offers a sobering reality check.

When the Suez Canal was closed in the 1950s, courts firmly established that merely re-routing a vessel around the Cape of Good Hope did not legally frustrate an agreement. Unless performance is rendered physically or legally impossible, or radically different from what was contracted for, commercial impracticability is generally treated as a commercial risk rather than a legal defence. Increased bunker fuel prices, inflated insurance premiums and extended transit times alone will not get a charterer off the hook.

Instead, the true legal battleground lies in specialised clauses. Under time charters, the safe port warranty is continuous and dynamic. Where a previously nominated port becomes unsafe, charterers may be required to issue alternative lawful and safe orders, failing which they may incur liability under the charter party. Similarly, under voyage charters, bottlenecks that leave berths inaccessible upon arrival can trigger severe demurrage costs if contracts are not meticulously structured.