3 minute read
Working with Russia in the Brave New World
As the awful events in Ukraine have unfolded on our screens over recent weeks, so the economic response by the UK, EU and other western countries has evolved. By Lee Hills
This has culminated in the UK government imposing a raft of trade sanctions on Russia, Belarus and on named individuals, some of which may have a direct impact on UK businesses importing goods from or exporting goods to these countries.
As the conflict in Ukraine continues, so the depth and breadth of sanctions has increased. It is important for UK businesses dealing with these countries to understand not only where they can turn to for guidance but also the legal and reputational impact of falling foul of sanctions.
Failure to comply, even inadvertently, may lead to criminal conviction, financial penalty, civil liability and reputational damage.
For businesses trading or intending to trade with Russia or Belarus, it is important to undertake due diligence to confirm the identity of the party on the other side of a contract. Sanctions can apply not only to businesses operating out of the countries concerned but also those that are owned, operated and or controlled by those to whom sanctions would otherwise apply. UK businesses engaged in the import or export, supply or distribution of goods in the sectors specified by the UK government and which include chemicals, construction, defence, electronics, energy, digital technologies and transport. And given the rapidly escalating situation, those which are not presently affected by the sanction regime but could well be at some point in the future, should be reviewing the terms of their commercial contracts.
Careful consideration should be given to the existence and wording of force majeure clauses and the impact, if any, that sanctions may have on the ability of either party to perform its obligations under the contract.
Even if a force majeure clause exists, its wording will be critical in determining whether the impact of sanctions and the corresponding consequences of a failure to perform the contract can benefit from the protection of a force majeure clause, irrespective of any separate legal arguments that performance of the contract has been frustrated by the imposition of sanctions or rendered unenforceable through illegality.
UK businesses already trading with Russia or Belarus or intending to trade with businesses which themselves may be impacted by the effect of global sanctions and which may have a knock-on effect further down the supply chain, should give urgent consideration to the termination provisions contained within their commercial contracts, the payment terms and ability to tighten these. And in the event to non-payment the existence of and ability to rely upon retention of title clauses and their practical effect.
Where the possibility exists of sanctions being extended to countries or trading entities with whom UK businesses may trade at some point in the future, consideration should be given to a sanctions specific clause within any contract addressing what the effect of sanctions being imposed will be on the performance and continuation of that contract.
In anticipation of difficulties arising, a review of existing insurance policies including trade, credit and travel would be advisable and whether such policies can continue to be relied upon in the context of not only sanctions but the conflict as a whole.
Although the UK government has issued guidance in respect of the potential impact of the key pieces of legislation, namely the Sanctions and Anti Money Laundering Act 2018 and the Russia (Sanctions) (EU Exit) Regulations 2019 with individual guidance notes being issued in respect of Import Controls, Trade Restrictions on Exports and Russian Sanctions Guidance, this will be of little comfort to individual directors or companies falling foul of this legislation and who find themselves the subject of criminal investigation, civil action or, perhaps more importantly public scrutiny.
Ongoing due diligence and review of contractual dealings with any business directly or indirectly affected by UK sanctions is and is likely to remain for the foreseeable future, sound business practice.
