Ukraine-Related Sanctions: Contract Disputes Under Business Agreements Governed by US Law

March 16, 2022

The conflict in Ukraine has resulted in the disruption of innumerable commercial agreements between and among financial, manufacturing, and other entities. The sanctions imposed by nations and international bodies on various Russian and Belarusian persons and entities as a result of the conflict (Ukraine-Related Sanctions) are in many ways exceptional in their coordination, breadth, and speed. Russia has imposed initial countermeasures in response to the Ukraine-Related Sanctions, which could also affect the performance of commercial agreements by parties across the globe. Many US businesses are considering whether (and if so, how) the operations in Ukraine or the Ukraine-Related Sanctions might impact their and their counterparties’ obligations under agreements that require performance by or with sanctioned entities.

This is certainly not the first time that international sanctions have played a role in litigation over contract performance issues. Sanctions applied in the context of geopolitical situations in nations including the former Yugoslavia, Iran, Venezuela, and Libya have led parties to invoke force majeure provisions and common law doctrines like impossibility, illegality, and frustration of purpose to excuse nonperformance. Firms can anticipate that Ukraine-Related Sanctions will be no different. As a result, US companies should evaluate their current contractual relationships and identify any agreements and/or counterparties that are impacted by Ukraine-Related Sanctions now or could be affected in the future. They should also anticipate that counterparties may invoke Ukraine-Related Sanctions in an attempt to excuse their performance under commercial agreements, and consider if and how these sanctions may impede their own ability to perform.

Despite the exceptional nature of international sanctions, their ability to excuse contractual performance generally follows traditional common law principles. This White Paper is limited to US law, which can vary based on the relevant state law at issue, and firms should engage in a multijurisdictional analysis to determine their duties and options (and those of their counterparties) under the laws of other relevant foreign nations and US states.