Background
 
Ongoing hostilities involving the United States, Iran, and Israel have disrupted the Strait of Hormuz  — one of the world’s most critical maritime chokepoints —  triggering shocks to energy markets, maritime transport, and global supply chains. Malaysia has not been spared, as the blockade at the Strait of Hormuz has affected the country’s importers and exporters, who have suffered shipment delays and higher logistics costs.
 
These developments underscore the extent to which geopolitical crises disrupt global trade and commercial contracts. Companies across the globe have responded by declaring force majeure on energy shipments, while maritime insurers have cancelled war risk coverage for vessels entering conflict zones. Such circumstances have brought contractual relief and risk allocation mechanisms into focus, given the critical role these mechanisms play in safeguarding commercial interests.
 
Force majeure under Malaysian law
 
In Malaysia, force majeure operates as a contractual risk-allocation mechanism, used to address events beyond the reasonable control of contracting parties, which prevent or hinder the performance of a contract. Relief from performance is only available if the contract contains an express force majeure clause (Gogung Fusion Restaurant (KLCC) Sdn Bhd & Ors v Suria KLCC Sdn Bhd [2021] MLJU 2345 (HC)). In the absence of a force majeure clause, relief may only arise under section 57(2) of the Contracts Act 1950, which codifies the doctrine of frustration. However, invoking frustration presents a high evidentiary burden for the party seeking to rely on it, as it applies only where performance has become impossible, not merely more difficult or more costly.
 
Being a creature of contract, there is no general rule or doctrine as to what constitutes force majeure. Instead, its scope and application would depend on what the parties in their agreement have provided for (Aldama Foods (Malaysia) Sdn Bhd & Anor v Mtrustee Bhd (sebagai pemegang amanah bagi Pavillion REIT) [2022] MLJU 1318 (HC)). A force majeure clause would typically include an illustrative list of events, such as war, hostilities, and shipping delays, which may be applicable to the ongoing conflict affecting the Strait of Hormuz. In this regard, clear, broad and precise wording is essential to reduce uncertainty, particularly because the party invoking the clause bears the burden of proving the following: 

(Intan Payong Sdn Bhd v Goh Saw Chan Sdn Bhd [2005] 1 MLJ 311 (HC)).
 
From the above, a causal link between the force majeure event and non-performance must be established for force majeure relief. The threshold for the causal link would depend on the precise wording of the force majeure clause. This may range from a high threshold where performance is “prevented” or “impossible” to a lower threshold where performance is “delayed” or “hindered”. In any case, mere inconvenience or difficulty in performing a contract is unlikely to suffice (Litasco SA v Der Mond Oil & Gas Africa SA & another [2023] EWHC 2866 (Comm)). Similarly, a more costly or less profitable contract caused by a change in economic or market circumstances would generally not excuse performance under a force majeure clause (Global Destar (M) Sdn Bhd v Kuala Lumpur Glass Manufacturers Co Sdn Bhd [2007] MLJU 91 (HC)). Accordingly, increased logistics costs arising from the Strait of Hormuz crisis in the shipment of goods is unlikely to qualify for force majeure relief.
 
Malaysian courts expect proactive mitigation measures such as alternative sourcing, routing changes, or operational adjustments in mitigating the effects of a force majeure event (Crest Worldwide Resources Sdn Bhd v Fu Sum Hou dan satu lagi [2019] MLJU 512 (HC)). Notably, force majeure clauses would typically include an obligation to exercise reasonable endeavours to overcome or avoid the effects of the alleged force majeure event. Such an obligation, however, does not require a party to tender or accept a mode of performance not contemplated in the contract (RTI Ltd v MUR Shipping BV [2024] UKSC 18). Thus, in the context of the Strait of Hormuz crisis, a supplier may not be required to adopt an alternative shipping route or method of delivery if the supply contract specifies a particular unloading port or shipping route. Ultimately, legal consequences differ across contracts, depending on their precise wording.
 
Risks of declaring force majeure
 
Declaring force majeure is rarely straightforward and inevitably comes with both legal and commercial risks.
 
As a start, legal disputes may arise if a force majeure clause is relied upon incorrectly or is drafted ambiguously. It may be the case where the precise wording of the force majeure clause may not appropriately address non-performance of a contract caused by the Strait of Hormuz crisis. Moreover, the reasonableness of measures taken to overcome or avoid the effects of the alleged force majeure event would also likely be scrutinised. Accordingly, careful review and consideration is necessary before seeking to invoke force majeure relief.
 
Even if legally justified, invoking force majeure relief may lead to strained commercial relationships, as it could signify unreliability and a shift of risk to the counterparty. On that basis, businesses may instead seek to negotiate pragmatic solutions, including where possible, adjusting pricing, shifting schedules, and finding alternative means of performance, that secure the commercial interests of both parties.
 
From a broader perspective, invoking force majeure may also have knock-on effects on the supply chain due to contractual misalignment. For example, force majeure relief may be available to suppliers upstream but not to downstream parties, leaving them exposed to contractual liability for non-performance to customers.
 
Insurance and exclusion clause
 
The Strait of Hormuz crisis has also had a significant impact on global insurance markets. Notably for marine insurance, the heightened financial risk of insuring shipments through conflict zones has led marine insurers to cancel war coverage and/or renegotiate higher war premiums. These developments carry important implications for policyholders and put additional strain on global shipping.
 
Against this backdrop, it is crucial for insurers, reinsurers, and assureds to carefully review the scope of coverage provided (if any) in respect of war-related claims. Standard marine insurance would typically exclude war-related coverage. In this regard, shipment delays due to route closures, loss or damage caused by war-related events, and supply chain disruption losses, among others, are generally not covered. Accordingly, protection against such risks would normally require a standalone war risk policy.
 
The extent of coverage of an insurance policy is, much like a force majeure clause, determined by its drafting (Malayan Banking Bhd v Basarudin Ahmad Khan [2007] 1 MLJ 613 (FC)), which must be given its natural and plain meaning (Wee Lian Construction Sdn Bhd v Ingersoll-Jati Malaysia Sdn Bhd [2005] 1 MLJ 162 (HC)). Clear and precise drafting is therefore essential to provide the intended protection and/or to safeguard against unanticipated liabilities. Any ambiguity in an insurance policy would be construed against and be detrimental to the party that put forward the clause in question (Malaysia National Insurance Sdn Bhd v Abdul Aziz bin Mohamed Daud [1979] 2 MLJ 29 (FC); Malaysian Motor Insurance Pool v Tirumeniyar a/l Singara Veloo [2020] 1 MLJ 440 (FC)).
 
Recommendations
 
Some steps that businesses can take to mitigate their exposure to force majeure risks are as follows:
 

Article by Loo Peh Fern (Partner) of the Insurance and Reinsurance Practice and Loo Junyuan (Associate) of the Dispute Resolution Practice of Skrine.