In the blog series on Russian sanctions, the legal implications of trade between Russia and the West were discussed in detail through four scenarios. This blog considers whether the Russian sanctions can be seen as unforeseen circumstances or force majeure, on the basis of which performance of an obligation can simply no longer be required. It should be noted that this blog looks only at the legal definition. The contractual definition of unforeseen circumstances or force majeure (to which the contracting parties can and may give their own interpretation) will not be considered. Therefore, if the contract does not provide anything about unforeseen circumstances, the legal regime discussed in this blog applies.
What are unforeseen circumstances?
Unforeseen circumstances are circumstances that were not or could not have been foreseen when the contract was concluded. The question is: were the circumstances foreseeable? That includes, therefore, that although a circumstance could not have been foreseen with certainty, it is not necessarily a unforeseen circumstance. If such an opportunity was foreseen, then there is no unforeseen circumstance.
The law says that unforeseen circumstances may cause the contract to be dissolved or modified. However, it is not enough if there are only unforeseen circumstances, because some unforeseen circumstances are at the risk of the parties. Therefore, the unforeseen circumstances must be such that unchanged maintenance of the contract cannot be expected by the standards of reasonableness and fairness. If this is not the case, dissolution or modification is not possible (Article 6:258 of the Dutch Civil Code).
The question that arises is whether the Russian sanctions qualify as unforeseen circumstances under which a contract can be dissolved or modified. As outlined in previous blogs, the sanctions have resulted in Dutch companies being unable to make payments to their Russian counterparties. As a result, existing agreements cannot be fulfilled. May these agreements be dissolved or modified?
As just mentioned, the sanctions prohibit, among other things, making payments to Russian companies. In this case, fulfillment of this contractual obligation cannot reasonably be required. This is because these are circumstances that are not the responsibility of the terminating party. This also applies if the contract does not provide for the possibility of interim termination. Even then, the presence of unforeseen circumstances will result in the contract being able to be dissolved or modified. However, an appeal to this will have to be assessed by the court and will differ from case to case.
The second article that contracting parties can invoke in this situation is that of force majeure. With force majeure, the non-performing party cannot be blamed for failing to fulfill its contractual obligation. The law defines force majeure as being a shortcoming that cannot be attributed to the debtor if it is not due to his fault, nor for his account by virtue of law, legal act or common opinion (Article 6:75 of the Dutch Civil Code).
The export sanctions against Russia can be considered force majeure. This is because these sanctions prevent the Dutch contracting party from delivering to the other party in Russia. The export sanctions cannot be attributed to him. The difference with unforeseen circumstances is that a successful invocation of force majeure means that the contractual obligation entered into does not have to be fulfilled. With unforeseen circumstances, this obligation is modified or cancelled.
The law provides some options for the contracting party that cannot fulfill its obligations due to Russian sanctions. Both unforeseen circumstances and force majeure have a chance to succeed in this situation. Again, it is stressed that this blog has only outlined the legal regime. The parties can define unforeseen circumstances and force majeure in the contract itself. If this is done, the contractual definition takes precedence. Is nothing settled? Then the law as described in this blog will have to be followed.
Want to know more?
Do you have questions about the impact of Russian sanctions on your business? Or do you have questions about international trade law, customs law or contract law in general? If so, please feel free to contact one of our lawyers.