News March 2022: War in Ukraine - May the performance of current contracts be suspended for Force Majeure?

Reminder :

Since the end of February, the war in Ukraine - besides the humanitarian disaster arising therefrom  and which should be of great concern to all of us - is also starting to impact international trade, due to the adoption of international sanctions against Russia, over the last few days, by the European Union and the United States,

In addition to the freezing of Russian assets, the various international sanctions also affect exports and imports of goods to and from Russia and the Dombass regions, even if, as for now, sanctions explicitly strike products related to strategic and sensitive sectors (such as armaments, aeronautics, telecommunications and energy....). The retaliatory measures against Russia are probably not over, as the adoption of a fourth "package" of sanctions is imminent...

However, international transport and logistics services are aleady partially paralyzed, roads to Ukraine and Russia are gradually closing, which will necessarily impact the general transport of goods to or from this region.

The question that may arise is the following: in this most serious and unstable geopolitical context and faced with the impossibility (or even the great difficulty) of performing the contract concluded with a Ukrainian or Russian supplier or customer, may the French exporter or importer raise a case of "Force Majeure" to suspend the performance of its contractual obligations and thus to avoid being held liable?

What to remember :

As a reminder, and based solely on French law (Article 1218 of the French Civil Code), "Force Majeure" allows a co-contractor to escape from contractual liability if it is "prevented" from performing its contractual obligations due to an event (i) "beyond the debtor's control" (ii) "which could not reasonably have been foreseen at the time of the conclusion of the contract", and (iii) "the effects of which could not be avoided by appropriate measures".

If the related event meets the three cumulative conditions referred to above and the impediment is temporary (which hopefully will be the case in the present context), the performance of the contractual obligations is automatically suspended.

In the present case, the state of war in Ukraine and the international sanctions adopted against Russia could be regarded, in certain respects, as an event of "Force Majeure" within the meaning of Article 1218 of the French Civil Code, at least for contracts concluded probably beforeFebruary 20, 2022; provided, however, that such circumstances genuinely prevent the co-contractor from performing its contractual obligations (which could be debated if the international sanctions do not specifically prohibit the import-export of the contractual goods concerned).

What to do in practice?

For a contractor linked to a Ukrainian or Russian partner which is currently prevented from performing its contractual obligations due to the current geopolitical crisis, it is recommended:

1) to check precisely, in the related contract:

• what is the applicable law (the previous thoughts are particularly relevant if French law applies - even though under many other legal systems, there exists a similar concept which may, if necessary, be also raised according to the contractual governing law;

• whether a specific "Force Majeure" provision exists. If such a clause does not exist and French law is the governing law, Article 1218 of the French Civil Code may apply by default (or after checking, its equivalent concept provided for by the other governing law)

2) to notify promptly in writing to its co-contractor the occurrence of the event constituting "Force Majeure". If a dedicated clause exists, its terms and conditions (related to notably the notification process) shall be carefully  comlied with.

It is also possible that the contractor may not be literally "prevented" from performing the contract but is obly actuallt facing great difficulties to perform it. In such a case, the use of Article 1218 may be compromised, insofar as this legal provision only targets events that "prevent" the performance of contractual obligations.

Hence the importance of keeping in mind  that a contractual "Force Majeure" clause can always be custom-made, particularly in B2B relationships:  it is always possible to provide, within this clause, a specific definition of "Force Majeure" and a broader scope of application allowing to escape from contractual liability if the contract cannot be performed, without evidencing necessarily that the failing contractor has been "prevented" from performing in the restrictive meaning of article 1218 of the civil code.

After the Covid 19 pandemic, the war in Ukraine once again highlights the importance of a careful drafting of the "Force Majeure" provision in contracts, in particular in the context of international trade with countries that may present risks of political or financial instability.

Sarah Temple-Boyer

Attorney at law