Russian sanctions and contract termination

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Gateley Legal

The situation in Ukraine is shocking and we are deeply saddened by the events of the past week.

In response to the escalating conflict in Ukraine, significant sanctions and export controls have been imposed by the UK, EU, USA and other allies. In particular, the UK has imposed sanctions on numerous Russian banks and oligarchs and frozen their assets. Sanctions are also being considered in the energy, finance and transport sectors.

Many businesses have concerns about the effects of the ongoing turmoil on their operations.  Companies are considering terminating contracts with Russian companies, or contacts that involve Russian companies in their supply chain. Your business must be careful to not fall foul of restrictions and seek to terminate contracts where sanctions do apply. It is important to review your contracts and current business dealings to establish whether these may be impacted by the restrictions. If they are impacted, or at risk of impact, you should consider potential mitigation actions now. Failure to comply with the international sanctions can impact your reputation and comes with the risk of criminal and financial penalties. Aside from the obvious risks, your business could be impacted in its capability in fulfilling contractual obligations, which could incur wasted time and costs in handling the fallout. Gov.Uk have updated their guidance on the sanctions and further information can be found on the website here

If your business wants to terminate contracts with a company because of, understandable, ethical and moral concerns, a global view must be taken. When considering terminating a contract, care needs to be taken in relation to the impact of sanctions, with particular attention taken where the sanctions do not apply. It is crucial that companies avoid rushing into such termination and consider their contractual obligations and the subsequent implications if such contracts are in fact terminated. Companies should consider obtaining legal advice, to identify their exposure to the Russian economy, businesses and individuals and to also identify any sanction regimes that may be applicable to their businesses. Where sanctions do not have an effect on the contract, clauses may be included which allow businesses to withhold or suspend their performance in certain circumstances. Your business should proceed with caution and consider the commercial and reputational impact alongside the financial implications of exiting the contractual relationship. Obtaining legal opinion on the valid technical grounds for contract termination alongside a cost/ benefit analysis would be advisable.

What should businesses do next?

In these ever-changing circumstances, it is vital that businesses remain vigilant and have a thorough understanding of their contracts and business relationships.

  • Consider the sanction regimes that may have an impact on your business

  • Consider your contractual obligations 

  • Take extra care when deciding whether or not to terminate contracts, if you are ever unsure of your position, please seek legal advice. 

  • Remain vigilant 

If you have any further questions or need any assistance with implementing these next steps, please do not hesitate to contact a member of the Gateley Legal team.

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