Economic sanctions imposed by the European Union, the USA and a number of other countries against the Russian Federation have a significant impact on the ability of Russian legal entities to perform their obligations according to contracts with their Russian counterparties.

Difficulties in recognizing economic sanctions as force majeure

According to the applicable laws, a person who has not performed or has improperly performed an obligation when carrying out business activities bears liability if he fails to prove that proper performance was impossible as a result of force majeure circumstances (force majeure).

At the same time, item 3, Article 401 of the CC RF (Civil Code of the Russian Federation) expressly provides that force majeure does not include, but not limited to, violation of obligations on the part of the debtor’s contractors and absence of goods necessary for the performance in the market. These provisions of the legislation prevent recognition of these circumstances as refusal of foreign suppliers to supply goods subject to sanctions and absence of these goods in the Russian market or in the market of the countries that have not joined the economic sanctions against the Russian Federation as force majeure in the execution of contracts with counterparties.

Occurrence of difficulties in recognizing the events described above as force majeure is referred to in letter No. PR/0181 of the CCI RF (Chamber of Commerce and Industry of the Russian Federation) dated 22.03.2022.

When confirming force majeure with respect to foreign trade transactions and international treaties of the Russian Federation, the RF CCI recognizes, inter alia, the following circumstances as force majeure: prohibitive measures of states, prohibition of trade operations, including those with individual countries, as a result of adoption of international sanctions (paragraph 1.3 of the Regulation, annex to resolution No. 173-14 of the Board of the RF CCI dated 23.12.2015).

Changes in the legislation providing the possibility of recognizing economic sanctions as force majeure

However, in regard to the activities of competent chambers of commerce and industry which confirm force majeure in respect of contracts, international sanctions are not classified as force majeure (para 1.3 of the Regulation approved by Resolution No. 7-2 of the Board of the RF CCI dated 24.06.2021).

In view of the above, there is no unified approach in the legislative and regulatory compliance practice to the question of whether sanctions and restrictive measures imposed by foreign states against the Russian Federation, its citizens and legal entities constitute force majeure in the performance of domestic agreements.

Currently, several draft laws have been prepared on amendments to the current legislation that will allow recognizing the economic sanctions of foreign states against the Russian Federation, Russian legal entities and individuals as force majeure. These draft laws are under discussion in the Government of the Russian Federation, the Central Bank of the Russian Federation and the State Duma of the Russian Federation.

According to draft law No. 92282-8 introduced by the Member of Parliament (the State Duma) of the Russian Federation P.V. Krasheninnikov, it is proposed to terminate, in full or in part, the obligations which performance “reasonably becomes permanently impossible, in full or in part” as a result of foreign sanctions against Russian citizens and legal entities. If the performance of the obligation “reasonably turned out to be temporarily impossible” in the context of unfriendly actions of foreign states, the debtor’s obligation does not terminate; however, the debtor is not liable for improper performance of the obligation (e.g., the debtor is not liable to the creditor for the losses caused by late performance of the obligation). There will be no negative implications for this debtor related to enforcement of the obligation (e.g., there will be no need to pay default charge). In addition, the draft law provides that the creditor will be entitled to withdraw from the agreement if the debtor has failed to perform his obligation or performed it improperly, since such performance “reasonably appeared to be temporarily impossible” as a result of economic sanctions of foreign states. The party authorized to withdraw from the agreement shall notify the other party of the intention to exercise its right to withdraw within a reasonable time before withdrawal.

The above rules will not apply to the persons who contributed to the imposition of sanctions against citizens of the Russian Federation and Russian legal entities.

It is provided that amendments come into force from the moment of their publication in the form of a federal law and are subject to application to legal relations arisen since 24.02.2022, as well as to obligations in which respect the due date for their performance occurred after 23.02.2022, including obligations arising out of agreements executed before 24.02.2022.

After the adoption of the federal law, the RF CCI will prepare and send to chambers of commerce and industry the guidelines on its application in respect of agreements executed in the framework of domestic economic activity.

Suspension of consideration by the CCI of applications for issuance of opinions on force majeure in connection with the introduction of economic sanctions

By letter No. PR/0181 of the RF CCI dated 22.03.2022, it was proposed to suspend consideration by chambers of commerce and industry of applications for issuance of opinions confirming occurrence of force majeure in respect of contracts as a result of introduced sanction restrictions on foreign components and equipment pending the adoption of this law.

In this regard, respective explanations have been published on the official websites of certain chambers of commerce and industry. Thus, the website of the St. Petersburg Chamber of Commerce and Industry states that “currently, the following applications can be accepted for consideration:

  • For failure to execute contracts as a result of sanctions, if the applicant has a direct import contract and products, if he acquired services or work for the purposes of “own production” (not for resale), and as a result of the imposed restrictions, supply of finished products under the contract appeared to be impossible or the established time limits are not met;
  • Based on the facts of occurrence of force majeure on the territory of the Russian Federation (acts of God, the impact of restrictions as a result of COVID-19 pandemic, etc.)”.

At the same time, the St. Petersburg Chamber of Commerce and Industry explains that “until the RF CCI determines the list of documents and conditions for recognizing sanction restrictions as force majeure for Russian companies, applications for confirmation of the existence of force majeure will be considered according to the procedure currently in effect, which does not provide for the possibility of issuing opinions in respect of the above circumstances, i.e. the application may be dismissed”.

What should the companies do in the current situation?

Until adoption of the relevant federal law and development of guidelines by the RF CCI for its application, Russian companies should be guided by explanations of competent chambers of commerce and industry regarding consideration by them of applications for issuance of opinions on force majeure in the existing environment.

Upon introduction of new rules for issuing opinions on force majeure, it should be borne in mind that recognizing sanction restrictions as force majeure at the legislative level cannot be a “universal” basis for exemption from liability of any Russian legal entity or any individual entrepreneur. When confirming force majeure, chambers of commerce and industry assess the impact of economic sanctions on inability to perform obligations under a specific contract and the actual existence of a cause and effect relationship on a case-by-case basis.