The war in Ukraine and the resulting supply chain disruptions dominate the news. Numerous Ukrainian suppliers cannot perform under their contracts because of ongoing fights, the closure of ports and other restrictions.
At the same time, sanctions imposed against Russia render illegal the sale of certain goods/services, restrict methods of payment or prohibit business dealings with certain companies altogether. Major shipping companies suspended cargo bookings to and from Russia.
The above brings back a ghost we encountered so often at the outset of the Covid-19 pandemic: force majeure. Numerous Ukrainian and Russian companies have already declared force majeure. If your company is the recipient of such notice, you must protect your rights and avoid a dispute.
1. Understand what force majeure is
Force majeure excuses liability for non-performance in case of unforeseeable, unsurmountable and irresistible events, which render performance impossible. Generally,
the force majeure event needs to be unforeseeable at the time of contract conclusion;
be beyond reasonable control of the affected party; and
the effects of the event should be of the type which cannot be avoided or overcome.
Mere “difficulty” (more admin work, lower margins, losses, etc.) is not force majeure.
2. Review your contract
Your contract will likely contain a force majeure clause. Read it carefully to understand everyone’s rights and obligations and when/how to invoke force majeure. Without any clause in the contract, force majeure will likely apply as a matter of statutory law unless the laws of a common law country (UK, USA, etc.) apply.
3. Demand clear information
Don’t accept a notice that does not clearly state the force majeure reason. “We are having problems and cannot deliver” or “We had an incident which is causing disruptions” leaves you completely in the dark. Insist on being given an appropriate explanation and description, so that you can assess the situation.
4. Can your supplier truly not perform?
If your supplier only has a factory in Ukraine, very likely, performance will indeed be impossible. However, if your supplier has a factory in another country or could purchase the goods elsewhere, there generally is no case of force majeure (even if your contract partner now loses money under the contract). You can insist on performance.
You want to insist on your legal rights, but keep in mind that the war in Ukraine is a humanitarian tragedy. The people you are dealing with may fear for their lives or have lost loved ones. Emotions run high and you must communicate carefully. Do this out of human decency as well as to not let this become a fully-fledged dispute. Put yourself into your supplier’s shoes to better understand them.
6. Get advice from a force majeure expert
Force majeure situations are often complex on facts and law and cross-border contracts add further difficulty. Be sure to get advice from an expert lawyer early on. Lawyers aren’t cheap, but what you spend now to assess your rights and communicate professionally will save you tens or even hundreds of thousands in an avoided dispute.
☛ Harald Sippel is an international lawyer and founder and principal at sippel.legal. He co-runs the LinkedIn group Force Majeure & Hardship in Int'l Contracts & Disputes.