This document discusses the impact of sanctions between Russia and the EU on commercial contracts. It outlines the various sanctions decisions made by the EU against Russia and Russian countermeasures. Key areas that are at high risk of exposure due to sanctions include government procurement, food exports, financing, infrastructure, energy, telecommunications, transport, oil, and military/dual-use goods. The document also examines force majeure clauses in contracts and recommends including special anti-sanctions clauses to regulate obligations when sanctions make performance impossible. It provides examples of how European companies have had to suspend services to Russian clients due to EU sanctions.

1. Impact of Sanctions on Commercial Contracts:
Russian Legal Aspects
by Artem Usov August 27, 2014
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2. March 17, 2014
Council Decision 2014/145/CFSP
May 12, 2014
Council Decision 2014/265/CFSP
June 23, 2014
Council Decision 2014/386/CFSP
July 30, 2014
Council Decision 2014/508/CFSP
Council Decision 2014/507/CFSP
July 31, 2014
Council Decision 2014/512/CFSP
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3. •Canada
•Japan
•Switzerland
•Australia
•Norway
•Montenegro
•Ukraine
•Albania
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4. •Restrictions on:
•Purchase or sale of bonds, equities or similar financial instruments with a maturity exceeding 90 days issued after 1 August 2014
•Provision of specific services and technologies
•Import
•Export
•Supplies
•Investments
•Applicable to:
•EU companies
•EU nationals
•Other persons operating in EU
•With respect to:
•Specifically sanctioned Russian entities
•Entities incorporated in Crimea and participating in infrastructure and other specific types of projects conducted in Crimea
•Specific activities and services (including those related to deep water and arctic oil exploration and production)
•Specific products (including dual- use)
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5. Current Russian Sanctions
•Ban on importation of certain foods from EU
•Government procurement system bans specifically listed foreign-produced products
•Hidden sanctions (government checks and audits)
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6. Areas of High Risk Exposure
•Government procurement system
•Food export
•Financing
•Infrastructure projects
•Energy sector
•Telecommunication sector
•Transport sector
•Oil sector
•Military products and technologies
•Dual-use products
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7. Risks in Commercial Contracts
•Disruption of activities
•Unpaid invoices
•Penalties
•Losses
•Other
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8. Scenarios of Further Escalation
•Further expanding the list of products, technologies and services banned from exporting to Russia in the following areas:
•Government procurement system
•Infrastructure projects
•Energy sector
•Oil sector
•Financing sector
•Further retaliatory measures taken by Russian Government
•Ban on funds transfers (in Euro or Rubles) from and to Russia
•Other
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9. Case Study (1)
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Irish leasing company Irish SMBC Aviation Capital had to suspend its performance under a contract with Russian low-cost airline operator, Dobrolet, due to EU sanctions. Also, other European companies including Lufthansa Technik had to suspend services provided to Dobrolet. Under EU sanctions, no funds or economic resources shall be made available, directly or indirectly, to or for the benefit of sanctioned persons including Dobrolet (EU Council Decision March 17, 2014, 2014/145/CFSP and EU Council Decision July 30, 2014, 2014/508/CFSP).

10. Case Study (2)
Russian Sub entered into a contract to perform a type of service for its Russian client that requires provision of some advanced technologies by its European parent company. Subsequently, provision of this type of service and technology to end-users in Russia was sanctioned by EU. EU nationals including those employed by EU parent company or Russian Sub are prohibited from participating in performance of sanctioned services including contracts of Russian Sub with its Russian clients.
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11. Force Majeure (FM) in Commercial Contracts (1)
Generally, the entity that has not properly performed an obligation in a transaction is liable, unless it is proved that proper performance was impossible due to force majeure, that is, extraordinary and unavoidable conditions (Article 401 (3) Civil Code of Russia). Under Russian court practice:
•Embargo, sanctions, etc. are covered by FM
•Actions of third parties are NOT covered by FM
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12. Force Majeure (FM) in Commercial Contracts (2)
It is uncertain whether a Russian Sub can apply force majeure in case of EU sanctions. It may depend on the following: - Whether EU sanctions apply to contractual relations of Russian Sub with Russian clients - Whether Russian Sub, being a Russian legal entity and operating only in Russia, can be considered as an entity subject to EU sanctions - Whether there is a direct connection between the imposition of EU sanctions and the inability of Russian Sub to perform its obligations - Whether there was a way for Russian Sub (as a Russian legal entity operating only in Russia) to continue to fulfill its obligations despite EU sanctions - Whether Russian Sub sent to the Client notice of the occurrence of force majeure circumstances and whether deadlines for such notice were met.
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13. Special Anti-Sanctions Clause
It is recommended to introduce so-called Anti-Sanctions Clause to regulate obligations and avoid liability in the case of EU and Russian sanctions:
•It applies in case Force Majeure is not applicable
•It may provide for:
•Representations and warranties
•Conditions resolute (or conditions subsequent) (terminates rights and obligations under contract)
•Exclude or limit contract liability
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14. Other Practical Aspects
•Using neutral jurisdictions in structuring contractual arrangements
(import of banned-by-Russia products through Belarus and
Kazakhstan or other countries is NOT permitted)
•Opening neutral currency bank accounts (Bank of China, etc.)
•Localization of production in Russia or in Belarus and Kazakhstan
•Advance payments
•Global insurance
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15. Recommendations
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•Proactively analyze your risk exposure
•Put in place a compliance program
•Review your commercial contracts
•Consider other practical aspects

16. Artem Usov
Artem.Usov@awaragroup.com
Call-center for all offices:
+7 495 225 30 38
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