Trade Sanctions and their effect on contracts when doing business in Russia

It seems unlikely that Russian courts would see EU or US sanctions as a force majeure reason or be willing to apply sanctions as a ground for declaring the contract invalid. They would almost certainly decline a request to give effect to the sanction regimes directed against Russia for declaring a contract null and void. This has already been demonstrated in a court case where a seller agreed to deliver products prohibited by the EU sanctions to a Russian buyer and these products ended up in the territory of Crimea. The seller unsuccessfully attempted to use the EU sanction against Russia as part of the misrepresentation claim. The Russian court predictably refused to apply the EU sanctions on the grounds of the forum’s public policy and according to the court, the accepting of sanctions would damage the sovereignty of the Russian state (The Decision of the Commercial Court of the City of Moscow Jan 17 2018, case No A40-171207/2017).

Therefore, when drafting an agreement, it is important to carefully decide the governing law and jurisdiction as it can have an impact on the possibility to terminate a contract based on sanctions.

To tackle the sanctions issue in your sales agreement, consider adding a trade sanctions clause in which you reserve the right to suspend your performance and keep the right to terminate the contract, with immediate effect and without liability, if your customer doesn´t comply with the sanctions and export control laws, it becomes a sanction’s target or any bank refuses to receive or otherwise process any payment under the contract. You may also want to consider another governing law & jurisdiction than Russia relative to the sanctions.

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: A code of conduct - a reason to terminate a contract? & Can war be considered a force majeure?