Since the conflict in the Middle East began in February this year, Australian manufacturers have experienced a range of related business disruptions and have had to navigate complex legal and contractual issues.
Businesses with operations in the region are paying close attention; however, as readers will appreciate, the impact extends well beyond manufacturers with direct exposure to Iran or the Middle East. Disruptions to shipping routes, access to critical raw materials, and the increasing costs of doing business are also affecting manufacturers whose contractual relationships and arrangements are outside the conflict zone.
Australian manufacturers need to carefully consider their existing contracts and the terms to be included in any new contracts to ensure they understand, and protect as best they can, their legal position.
Outlined below are some examples of the key contractual terms that manufacturers navigating disruptions caused by conflict in the Middle East should consider.
Force majeure
Force majeure clauses specify the circumstances under which a party to a contract can temporarily avoid compliance with certain contractual obligations. Although it is ultimately for the parties to decide those circumstances, they ordinarily include the occurrence of any unavoidable or unforeseeable events that are outside of the parties’ control and prevent one of, or all, the parties from fulfilling their obligations. These might include, for example, natural disasters, civil disturbances or war.
Whether contracting parties can rely on force majeure largely depends on the language of the relevant clause, the parties’ intentions and the related circumstances under which a party wishes to rely on force majeure. More specifically, how ‘force majeure’ is defined in the contract, the rights and obligations of the parties if a force majeure event occurs (including in relation to notifying the other party of a force majeure event), whether the defaulting parties’ failure to perform is attributable to the force majeure event, and whether they could have mitigated the impact.
Ordinarily, a force majeure clause will provide that if the clause is triggered, the relevant obligations of the parties will be suspended for a specified period of time and if the force majeure event subsists for longer than that period, either party may terminate the contract. So, manufacturers need to understand their rights and the rights of counterparties under the force majeure clauses in their existing contracts, ensure compliance and carefully draft the force majeure clauses in new contracts to protect their interests as disruptions persist.
Price reviews
Energy, raw material and freight cost volatility caused by the conflict continues to place pressure on manufacturers.
Businesses should understand first whether they have fixed price manufacturing contracts or contracts containing mechanisms that permit prices to be adjusted in response to certain things (including changes in fuel, freight and commodity prices, exchange rates or other input costs). Of course, from a manufacturer’s perspective — the former would be preferrable for contracts between manufacturers and their suppliers, and the latter would be preferrable for contracts between manufacturers and their customers.
Where they can, manufacturers should ensure that their new manufacturing contracts include carefully considered price review clauses that contemplate increases to materials and manufacturing costs that are outside of the manufacturer’s control. Simultaneously, manufacturers need to ensure that those clauses are not unconscionable or ‘unfair’ in breach of the Unfair Contract Terms Regime under the Australian Consumer Law (in which case they would be unenforceable). They should also ensure that they are comfortable with any price review clauses which might allow their suppliers to review their supply pricing.
Manufacturers seeking to rely on a price variation clause in an existing contract should carefully consider provisions relating to notice periods, trigger events and calculation methodologies to ensure that they do not undermine an otherwise legitimate claim or miss an opportunity to revise their pricing.
Where a manufacturer’s suppliers are seeking to rely on a price variation clause in an existing contract, manufacturers should understand that, generally, where the contract does not include a price review mechanism, their suppliers cannot unilaterally increase their prices simply because the supplier’s costs have increased. However, parties to the relevant contract may wish to temporarily renegotiate prices anyway to maintain their commercial relationship.
There was an opportunity for parties in the road transport contractual chain to pursue cost recovery of additional fuel costs from 21 April 2026 under the Fair Work Commission’s Road Transport Contractual Chain Order — Fuel Cost Recovery 2026, but it ceased on 7 June 2026. It is possible that it will be re-enlivened.
Termination or renegotiation
Termination clauses dictate how and when parties can legally end a contract. All contracts should include provisions that set out when the parties can terminate ‘for cause’ (for example, because the other party has breached their obligations under the contract).
Some will also include when the parties can terminate the contract without cause (for example, for no reason whatsoever but on the basis that they will provide the other party with a specific period of notice).
Within the context of the disruptions caused by the conflict in the Middle East, manufacturers should understand:
- how much notice they need to give counterparties where they wish to terminate a contract because, for example, the counterparty has breached or the related arrangement is no longer commercially viable as a result of, say, increased manufacturing costs;
- how much notice their counterparties need to give them if they wish to terminate;
- what acts or omissions will amount to a default event giving rise to a right to terminate; and
- any other procedural steps that must be followed before a party is able to terminate.
Consequential loss
Finally, it is very important for manufacturing businesses to understand whether, and to what extent, their liability to counterparties (and the liability of counterparties to them) is limited by their contracts. In particular, whether the parties could be held liable for ‘indirect’ or ‘consequential’ losses suffered by the other party (for example, loss of profit) in the event that they are unable to fulfil their contractual obligations.
This is particularly important where delays in supply (i.e. upstream obligations) may cause manufacturers to breach their obligations to their customers (i.e. downstream obligations) and vice versa.
Beyond those listed above, key clauses also include:
- the provisions in manufacturer’s insurance policies (in particular, business interruption insurance policies);
- clauses relating to delivery obligations and how the parties should deal with delays; and
- dispute resolution provisions.
Contact us
If your business has experienced significant disruptions as a result of the Middle East conflict and you require assistance with navigating your contractual rights and obligations, please contact a member of our Manufacturing or Corporate & Commercial teams.
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