The UK is amongst a host of countries that have been issuing a number of targeted sanctions against Russia and Belarus in response to the conflict in Ukraine, including financial sanctions, trade embargoes and export controls. Prior to the crisis, Russia and Ukraine enjoyed good trade relations with the UK; Russia in particular being a key trade partner to a number of UK businesses with trade in goods and services amounting to £15.9 billion in the four quarters to the end of Q3 2021.
The introduction of sanctions has had an immediate impact on the ability of some businesses to trade in Russia and Belarus, and we have witnessed performance delays and termination of contracts as businesses seek to ascertain how they are affected by these sanctions and the consequences for their contractual relationships.
What does the contract say?
In order to determine the rights and remedies of the parties, you should first consult your contract and pay attention to each party’s performance obligations, and check if the contract allows a party to avoid or limit its liability because of an inability to perform caused by specific events. A force majeure clause would have such an effect so it is important to look out for that in the contract. Although it is common for force majeure provisions to include acts of war, impositions of sanctions or embargoes, or export controls, it may not necessarily mean that the clause is triggered.
This is because the underlying reason to suspend or delay performance must be the operative cause impacting performance and not just an event that makes performance more expensive or troublesome.
It is thus vital for commercial parties to analyse the contract in order to understand their rights before seeking to trigger a force majeure clause. This is because an incorrect assertion of force majeure could pave the way for the other party to claim a repudiatory breach of contract.
Is your contract frustrated?
Although not an absolute rule, the English courts usually consider frustration only if the contract doesn’t contain a force majeure clause or other similar provisions. The threshold for establishing whether or not a contract is frustrated is extremely high and if a claim is successful, it will bring the contract to an end automatically. This means that it would release the parties from their obligations with no further liabilities and therefore you should consider carefully whether that is the end result you want before seeking a claim for frustration.
Can you rely on illegality?
Each contract is unique in nature and requires its own analysis to consider arguing illegality. Having said that you may be able to rely on illegality to discharge an English law governed contract where performance of a key contractual obligation is illegal due to any applicable sanctions, embargoes or export controls.
As the sanctions imposed against Russia and Belarus are strengthened on a regular basis, it is pivotal for businesses to monitor updates to ensure continued compliance and use of an external screening service would be a sensible approach. As mentioned above, it is also important to know your rights under the existing contract before making any decision.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.