Navigating fuel increase levies: contractual considerations amid Middle East crisis
The ongoing conflict in the Middle East is having a pronounced effect on global fuel prices, with flow-on impacts for Australian businesses across a range of industries.
As fuel costs surge, many businesses are considering the introduction or enforcement of fuel increase levies under their commercial contracts. It is crucial for businesses to understand their contractual rights and obligations in this rapidly changing environment, and to ensure that both existing and future agreements are robust enough to withstand such disruptions.
Business Law WA discusses some key contractual clauses businesses should review.
Road Transport Contractual Chain Order
The Road Transport Contractual Chain Order – Fuel Cost Recovery 2026 came into effect on April 21, 2026. It applies throughout road transport contractual chains and requires fuel cost increases to be passed on through the supply chain at least at least twice a month. Rates can be adjusted by changing the rate or a component of the rate, introducing a fuel increment or levy, making a direct reimbursement or offset of money spent on the increased cost of fuel, or any combination of these three measures.
Commercial contracts should be reviewed promptly to identify the effect of the order on existing arrangements and to consider whether new agreements or amendments to current terms are required. Businesses covered by the order will need to make their first rate adjustment by May 5, 2026.
Force majeure
A force majeure clause is designed to address unforeseen events that prevent parties from fulfilling their contractual obligations. Traditionally, these clauses cover events such as natural disasters, industrial action or war, including the current Middle East crisis.
If fuel shortages or price spikes are impacting your ability to perform under a contract, a force majeure clause may provide relief. However, the operation of these clauses can be complex, and their effect will depend on the precise wording and the circumstances at hand. It is advisable to seek legal advice before invoking or responding to a force majeure notice.
Rise and fall
Rise and fall clauses are contractual provisions that allow for adjustments in the fees paid under a contract based on fluctuations in labour, material and other input costs, which may include fuel.
If your contract does not already include a rise and fall mechanism, consider negotiating one to ensure both parties share the risk of volatile fuel prices.
If your contract does include a rise and fall clause consider whether a supplementary fuel levy clause may be appropriate to address specific increases in fuel costs.
Termination for convenience
Some contracts include a termination for convenience clause, allowing either party to end the agreement without cause by providing notice. This can be a useful tool if the cost of performance becomes unsustainable due to fuel price increases.
However, the right to terminate and any associated costs or penalties will depend on the contract’s terms.
Insurance
Insurance requirements in contracts may provide some protection against losses arising from supply chain disruptions or increased costs.
Businesses should review their policies and consult with their brokers to confirm the scope of cover, particularly in relation to events triggered by geopolitical conflict.
Governing laws
The law governing your contract can affect how clauses such as force majeure and rise and fall are interpreted.
If your contract is subject to a foreign jurisdiction, be aware that local laws may provide additional rights or defences in the event of disruption.
Suspension
Suspension clauses allow a party to temporarily halt performance under the contract in response to specified events, such as fuel shortages or government-imposed restrictions.
Variation
Ensure that any changes to contract terms, including the introduction of a fuel levy, are made in accordance with the contract’s variation clause. Ideally, variations should require the written agreement of all parties to avoid disputes.
Practical steps for businesses
- Review existing contracts: Identify whether your contracts contain force majeure, rise and fall or suspension clauses, and understand how they operate.
- Negotiate new terms: For new contracts, consider including specific provisions to address fuel price volatility and supply chain risks. For existing negotiate new terms and formalise by way of variation.
- Check notice requirements: Ensure you comply with any notice provisions before seeking to enforce or rely on contractual clauses.
- Seek legal advice: Given the complexity and potential financial impact, obtain legal advice before taking action.
Business Law WA can provide strategic legal advice, assist with drafting new terms or review your commercial contracts to assist mitigate risk. If you would like further information or to discuss how to better ensure your legal position, please contact [email protected] or call 08 9365 7560.
This article is authorised by Business Law WA, an incorporated legal practice and wholly owned subsidiary of CCIWA. The content of this article is general in nature and is not legal or professional advice and should not be relied upon as such.
