Contract Clauses for the Sanctions Era

Contracts with Russian counterparties written before 2022 often fail when sanctions block a payment or a shipment. Standard force majeure wording may not cover new restrictions. A currency clause may name a currency that can no longer move between the banks involved. A dispute clause may point to a forum the other side will not accept. Revising these clauses now is cheaper than litigating them later.

Attorney Elena Petrova drafts and reviews Russia-related contracts for businesses in California and other jurisdictions, with attention to Russian law and court practice.

Force Majeure Under Russian Law

Article 401 of the Civil Code releases a party from liability for breach caused by extraordinary circumstances that could not be prevented. The Supreme Court Plenum resolution of 2016 on liability for breach explains the test. The event must be unavoidable for any participant in similar conditions, not just harder or more expensive for this party.

Russian courts do not automatically treat sanctions as force majeure. Practice differs depending on whether the restriction was foreseeable when the contract was signed. A clause should list sanctions, export controls and payment blocks expressly. It should set a notice period and state what happens if the event lasts beyond an agreed time.

Currency and Payment Mechanics

The Civil Code allows a price to be fixed in foreign currency and paid in roubles at an agreed rate. Russian currency control rules and presidential decrees impose extra conditions on payments to residents of unfriendly states. Some payments require special accounts or approvals.

Compliance Warranties

Each party should confirm that it and its owners are not on relevant sanctions lists. It should also promise to notify the other side promptly if that changes. Ownership thresholds should be defined, since several regimes look at control and not only direct listing.

Russian counter-sanctions also apply. Certain deals with persons from unfriendly states need government approval, and a contract signed without it may be challenged.

Termination and Suspension Rights

The Civil Code allows unilateral refusal of a contract where the law or the contract provides for it. A party may also seek changes or termination due to a material change in circumstances, but courts apply this rule narrowly.

A well-drafted clause gives a right to suspend performance when sanctions intervene, followed by a right to terminate after a set period. It also settles returns of advances and delivered goods.

Dispute Resolution and Forum Choice

The Arbitrazh Procedure Code gives Russian courts exclusive jurisdiction over disputes with sanctioned Russian parties. It lets them block foreign proceedings. An arbitration clause with a Western seat may therefore be ignored in Russia.

Options include a neutral seat that both sides can reach, a Russian arbitral institution, or a tiered clause with negotiation first. The right choice depends on where the counterparty's assets are.

Choosing the Governing Law

Parties to a cross-border contract may choose a foreign law. A Russian court will still apply mandatory Russian rules, including currency control and counter-sanctions measures.

Choosing Russian law gives more predictable enforcement in Russia, but the clauses above must then be drafted to fit Russian court practice.

Reviewing Existing Contracts

Start with an inventory of active Russia-related contracts. Check each for force majeure wording, currency, governing law and forum. Prioritise contracts with open advances or long delivery schedules.

The main channel of communication with the attorney is email: attorneypetrova1@gmail.com.