A code of conduct - a reason to terminate a contract?

Blogs March 7, 2022

As many companies want to terminate their contractual relationships with Russian entities as to show their support and to act in a responsible way, the force majeure clause seldomly gives – at least an immediate-  right to terminate a contract. It merely gives right to postpone your obligations and then possibly later on, if the situation continues, the right to terminate the contract. Also, if the war situation (and/or the sanctions) does not affect your actual contractual responsibilities, there is no force majeure situation at all. In situations where companies cannot rely on the force majeure clause or don´t have a trade sanctions clause and want to terminate the contract sooner than could be according to the terms of the contract,  it might be possible to refer to the company´s supplier´s code of conduct or a similar code of conducts if you have taken them as a part of your agreements.

Codes of conduct are a set of rules and recommendations that can be adopted by companies, organizations, private groups, etc. Their purpose is to guide the behavior of their members by establishing ideals and values, describing what is considered moral, ethical, and honorable, offering recommendations and support in the face of sensitive situations, and providing channels for communicating abuse. Their aim is to deter corruption and contribute to a more ethical environment.

A supplier code of conduct not only helps to protect a company’s brand image in the event of an incident at a supplier’s site but also can give a reason to terminate a contract when the continuing of an agreement relationship can be seen unethical. A supplier code of conduct is very important if your company sources materials and products from countries where environmental, labor laws and/or human rights are either lacking or underenforced. Sometimes you, as a business partner, can guide your business partner to work in a more ethical way even when the laws in that country do not require that.

We at Fondia have expertise in assessing the legal impacts of international sanctions on businesses. We can also help drafting guidance on screening the customers/co-operation partners, checking the sanction clauses in agreements and on a case-by-case basis, also checking the background information of counterparties, the termination terms, force majeure terms and code of conducts.

Read more about the topic: Trade Sanctions and their effect on contracts when doing business in Russia & Can war be considered a force majeure?