ANALYSIS: A Force Majeure Redux in Ukraine and Russia

Force majeure is again in the news, due to the Russian invasion of Ukraine.

The invasion, as well as Western government responses (including imposing sanctions on Russian institutions, companies, and individuals), have interrupted ongoing business operations in both Ukraine and Russia. As the crisis enters its second week, affected entities have begun to issue force majeure notices to customers.

Traditionally, contractual force majeure clauses provide an excuse to a party’s performance obligations that have become impossible or impracticable due to causes outside the control of the party—such as war, natural catastrophes, or “acts of God.” When a listed force majeure event occurs, the only issue is whether the requisite causal connection between the claimed event and the inability to perform exists.

Ferrexpo, a Swiss commodity trader and iron ore miner with operations in Ukraine, sent force majeure notifications to customers on Feb. 28 after port authorities suspended exports from a southern Ukrainian port as a result of the ongoing war actions.

On March 1, Metinvest, an iron ore and coal mining company and steel products manufacturer with several locations in Ukraine, declared force majeure in a communication to clients and partners, citing the Russian invasion, closing of sea ports, the introduction of martial law, and moratorium on cross-border payments as triggering events. The Chamber of Industry and Commerce of Ukraine has confirmed the facts underlying the force majeure declaration.

It’s likely that many other local operations as well as regional trade partners are also reviewing the boilerplate provisions of their commercial agreements. This time, government prohibitions on transacting business with Russian-owned entities will be the likely cause of a party’s inability to perform, with “war” and payment moratoriums claimed as the cause of the party’s inability to transact business in Ukraine or with a Ukrainian entity.

Additional force majeure notifications can be expected as the Russian assault continues. Furthermore, sanctions have led several international energy conglomerates and automakers to suspend joint-venture operations in Russia. Litigation, as always, is likely to follow, although this time the question of whether force majeure has occurred is indisputable.

Bloomberg Law subscribers can find related content on our Practical Guidance: Force Majeure page and in our Coronavirus (Covid-19) Toolkit.

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