The Ukraine conflict - force majeure and similar mechanisms

With the impacts of the Ukrainian conflict changing rapidly, especially as regards implementation of international sanctions, it is easy to overlook some key considerations when reviewing FM provisions. In this note, we list the pitfalls to avoid based on the common issues we have seen with contractual FM clauses.

1.  Stick to the time frames, beware of potential pre-conditions, and reserve rights

• Adhere to any time limits and notice requirements; they may operate as pre-conditions to relief (be conservative with "prompt" notification obligations).
• Many FM clauses include an obligation on the party giving notice to report periodically on the relevant FM event; these requirements too may constitute conditions.
• Failure to respond to FM notices runs the risk of acquiescence/waiver/estoppel; even if the FM clause does not expressly require a response, a clear rejection should be sent where FM is not accepted, including a reservation of rights.

2.  Is the conflict an "FM event"?

• Whether the conflict is an FM event will depend upon the drafting of the contract. Many clauses will list "armed conflict" or "war" as an FM event which is fairly straight forward.
• Where this is not the case, consider whether the conflict and impact of the conflict falls within the wider definition of an FM event as expressed in the contract. Terms such as "circumstance not within the reasonable control of the parties" may suffice. Case law suggests that "war", in principle, can fall within the general meaning of FM however the courts have been clear that this will depend upon the precise wording and nature of the contract.¹
• Consider whether it is the armed conflict itself which has impacted performance of the contract, or whether it is an event ancillary to the conflict such as sanctions, legislation, or other acts of government. Whether those events, and in particular sanctions, constitute an FM event will depend upon the wording of the contract and may fall under the definition of "government action" or, again, terms such as "circumstance not within the reasonable control of the parties".
• Generic notices are unlikely to suffice in common law governed clauses; specificity as to the event, its effect and the nature of the impact on performance is generally important. Establishing a causal link between specific events and the inability to perform may be required, such that it will be necessary to demonstrate how it is that the invasion of Ukraine and subsequent circumstances in turn preclude contractual performance.

3.  Is the impact of the FM event sufficient to trigger suspension or termination?

• Consider whether the FM event has, in fact, impacted the performance of the contract. Does the clause require that performance has become impossible, or merely hindered?
• If performance is suspended, check whether related payment obligations are also similarly suspended. (They are often not suspended, especially in "take-or-pay" structures).
• Is there an express obligation to mitigate – if not, consider whether one can be implied. Also, does mitigation need to be evidenced?

4.  Beware of termination rights

• Consider the contractual termination rights which might be triggered by an FM notice; sometimes these arise soon after a declaration of FM. We have seen these triggered after a period as short as 20 days.

5.  Civil law position

• Where a contract is governed by a civil law (eg French, Swiss, Swedish etc) then the position as regards application of FM may be quite different to that under common law systems. In addition to whatever express contractual provision there may be, there is a separate legal doctrine of FM which is recognised by civil law systems. This will often impose a high threshold (closer to impossibility of performance) than is frequently found in common law drafting of contractual FM clauses.
• It is also relevant that relief may be available in some civil law systems through application of hardship doctrines (where a court or arbitral tribunal may vary a contractual bargain because of unforeseeable changes rendering performance greatly more economically onerous).

6.  Consider all potentially applicable laws and remedies

• Consider whether any legal doctrines (such as frustration under English law) are applicable and commercially attractive.
• Laws other than the governing law of the contract may also be relevant and provide additional remedies. The law of the place of performance can apply under public policy mandatory application rules. Where civil laws might apply, consider: a) obligations of good faith, b) doctrines of hardship, and c) FM legal doctrines.

1. Lebeaupin v Crispin & Co [1920] 2 K.B. 714.