The war in Ukraine and the sanctions to Russia imply a modification in the economic consequences and juridical relationships between companies, especially regarding the possibility to perform the contractual obligations as per any contracts already stipulated. This situation falls under the category of hardship clauses as a largely unforeseen event.
Adverse events can be caused by:
- personal sanctions, such as assets freeze;
- financial sanctions whereby it is not possible to finance the Russian Federation, its government and central bank;
- sanctions imposing restrictions on Russia’s access to the EU capital market;
- territorial sanctions, banning imports and exports in the controlled non-governmental areas of Donetsk and Luhansk;
- sanctions to trade, specifically with bans on the supply and export to Russia of specific goods and technologies connected to oil refining, on the export of goods and technology connected to the aviation and space sectors, in exports of so-called dual-use goods and technologies;
- sanctions connected to the use of ordinary payment methods by Russian citizens and companies.
Despite this being just a brief overview of the sanctions, their effects on international contracts between Russian and Italian companies extend to the increase in prices of raw materials, exchange rates, logistics costs, transports methods and itineraries. Many an Italian company are waiting to find out when they will receive goods or payments by a Russian counterpart.
Juridical solutions for contracts. Applicable law
The first thing to consider is the obligations stated by the single contracts and ad-hoc clauses to manage certain scenarios, such as the one that is now happening, by foreseeing the situation and excluding liability in case of non-fulfilment.
The law applicable to international contracts in case of disputes involving obligations
Having examined the contractual obligations and clauses, the next step is to identify the law applicable to the contract, which implies significant consequences. The most evident example is the institute of force majeure, which in Italy exempts from liability in the event of non-fulfillment. Force majeure, however, is applicable to a contract subject to British law, only if expressly stated by the parties.
Law provisions favouring Italian companies within contracts between Russia and Italy, Ukraine and Italy
Our companies can benefit from certain juridical institutions to mitigate the effects of the exceptional situation involving Russia and Ukraine. In such a situation, in case of non-fulfilment it is possible to recur to contingent incapacity to perform, i.e. impossibility to fulfil due to causes not attributable to the debtor (art. 1256 civil code), extending to:
- a war conflict;
- factum principis, i.e. an authority’s order or restriction hindering fulfilment.
In these conditions the obligation has to be deemed as discharged. In case of contracts between Russia and Italy or between Ukraine and Italy, the principle of force majeure is applicable to the current situation, both with Ukraine and with Russia, with all the consequences on Ukrainian or Russian counterparts’ supplies, coming from the no-fly zones in those territories and the impossibility to deliver goods and materials. The principle of factum principis, on the other hand, has to do with the sanctions imposed on Russia, given that an Italian company who is no longer allowed to export goods and technologies to Russia can certainly not be deemed as liable.
The Vienna Convention for the regulation of international contracts
The Italian laws ruling international contracts are mainly valid in most international legal systems and similar rules are established by the Vienna Convention, i.e. the document of reference in the field of international contracts. Art. 79 of the Convention establishes that a legitimate impediment to the execution of the obligation subsists when the event is:
- unforeseeable at the time of the conclusion of the contract;
- out of the party’s control;
- such as not to allow the fulfilment of any of the obligations of the contract.
Price increase of raw materials and its effects on obligations and services performance
The increase in the prices of raw materials is not connected to the supervening impossibility to fulfil the service. This is an occurrence that is not only linked to contracts between Russia and Italy or between Ukraine and Italy, but can relate to various other areas of the world. As a consequence of the increase in prices of raw materials, the service agreed in the contract might become too burdensome. On the other hand the principle of fairness of the contract (or that of good faith) can be applied in court or in front of the international bodies appointed to resolve this type of disputes, whereby contracts are renegotiated. Certainly, everything that happened in the last few years should make us more aware of the implications of international contracts, in order to mitigate the effects of events of this magnitude.