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As known, many political and economic sanctions have been imposed on the Russian Federation related to the current situation in Ukraine by international organizations, states and transmission companies. For instance, banning the “SWIFT “global interbank payment system aimed at hindering the operation of some Russian banks, ceasing operations of the brand companies in this country and so on.

In this case, there is a need to examine whether such conflict affects the enforcement of the contract. If so, will any liability occur for not fulfilling a contractual obligation?

The party may not bear the liability if it proves that it does not foresee or is not able to foresee the event that precludes from performing its contractual obligation. In addition, the event should be out of control of the party.

Meanwhile, such events are defined as the “Force-Majeure” event and mostly set out under the “Force-Majeure” clause of the contract.

May the Ukraine-Russia conflict be regarded as the “Force-Majeure” event?

In response to the above question, the party shall bear in mind the following matters:

Is there a force-majeure clause in the contract? If so, does a force-majeure clause cover an event that is a real reason for non-fulfillment of obligation?

It depends upon the terms and conditions under the contract. In wide-spread practice, the parties set out a force-majeure clause in the contract. For the avoidance of any doubt, it is preferable to list all events that are relevant to mentioned conflict in the contract such as “armed conflict”, “war” and “trade sanction”. Moreover, there is a need to check whether the respective events are indicated in the contract.

If this event really hinders the performing of the contractual obligation?

If so, the party must elaborate that there is no alternative possibility for performing the contractual obligation. For instance:

• may the payment obligation be performed in an alternative transaction instead of a bank transfer?
• does the buyer have a right to offset the amount from the seller under any other contracts instead of making a payment?
• is the supplier able to supply the goods in an alternative source by foreseeing the event?

Obligation to notify the counterparty

If so, when the party realizes that it is not able to perform its obligation, it shall promptly notify the other party.

In general, the term of performing of obligation is delayed till the date of the end of the event. Otherwise, the contract may be terminated early. In any case, there is a strong need to revise all terms and conditions of the contract for preventing potential risks.

About the author: Imamverdi Novruzlu is a lawyer with over 2 years of experience in the area of law. He specializes in dispute resolution, corporate, contracts, intellectual property and especially customs law. He currently is a lawyer at Legalize Law Firm. For more information about the author please see the following link: https://legalize.az/en/team/imamverdi-novruzlu

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