Events in Ukraine | Top tips for your commercial contracts

1. Background

The events in Ukraine are having a profound effect on the global economy. Businesses with interests either in or linked to the region could find it challenging or even impossible to fulfil their contractual obligations. In that context, we set out below a guide as to how to analyse a contract in order to assess what remedies or relief are available, and to take account of the risks and issues associated with the events in Ukraine.

Set out below are:

(a) a flowchart which illustrates the approach to be taken when reviewing contracts;

(b) an explanation of the approach summarised in the flowchart; and

(c) issues to take into account when amending existing contracts or negotiating new ones.

2. Events in Ukraine - contractual checklist flowchart

3. Existing contracts: what should you be doing?

Check the governing law of the contract

The first issue is: “is the contract governed by English laws?” If so, there is no free-standing principle of “force majeure”, so any clause will turn on its specific wording and the usual principles of contractual interpretation.

If the contract is governed by the law of another jurisdiction, advice should be sought from local counsel. Although there are similarities between the application of force majeure in common law jurisdictions, the position in civil law jurisdictions can be very different. Advice should be taken in the relevant jurisdiction.

It is also important to consider where the parties to the contract are based and where the contract is due to be performed. This will help to identify the relevance of any other applicable laws (such as illegality in the place of performance).

Analyse the specific contractual concerns

The critical question is: “what obligations do the parties have under the contract which might be affected by the events in Ukraine, and are there any contractual or other mechanisms capable of relieving them of those obligations?”. In the context of the events in Ukraine, the issue is likely to be, for example, whether a party can avoid making a specific payment, or accepting a delivery of goods.

It is therefore important to confirm the precise scope of the relevant contractual rights and obligations. For instance, force majeure may be a moot point if a party's obligations are limited under the contract. For example, if a party is only required to use reasonable endeavours to deliver goods to the affected region, a party would not need to rely on a force majeure provision if the events in Ukraine meant that the delivery could not go ahead as planned, so long as it took reasonable steps to try to discharge its obligation.

Is there a force majeure clause?

A force majeure clause will typically be found under a “Force Majeure” or “Termination” heading, or in the boilerplate provisions. But it could also be buried somewhere unexpected, or refer to “Acts of God”, “exceptions”, “exclusions”, “unforeseen events”, “excusable delay”, etc.

What is the scope of any force majeure clause?

Once the clause has been identified, it is then necessary to carefully consider the scope of any force majeure clause, particularly any definitions or lists of force majeure events and any catch-all provisions. The question which then arises is: “Does the scope of the force majeure clause cover the events in Ukraine, just its consequential effects, or neither?”

If there is a list of force majeure events after a reference to “include” or “including”, check whether the interpretation clause in the contract limits or expands this definition. Some interpretation clauses may state that all such references mean “including but not limited to”, while others might restrict the clause to only those specific events referred to.

The force majeure clause may not expressly address armed conflict, the suspension of diplomatic relations, sanctions or other accidental or deliberate consequences of conflict (such as nuclear or chemical spillages). If that is the case, a party should assess whether the knock-on effects of the events in Ukraine fall within the other limbs of the clause e.g. government actions, shortage of materials, lockouts or civil disorder. Does the clause contain any general language that might apply, such as “any other cause beyond the control of the parties”?

A party may only be able to rely on a “catch-all” provision such as “any other cause beyond the control of the parties”. If so, this increases the scope for argument about whether the force majeure clause applies; given the risks associated with wrongful notification of force majeure (which can give rise to a claim for damages for breach of contract, a right to terminate and a claim for damages) additional care must be taken.

If there is no force majeure clause, or a very limited clause, consider whether the doctrine of frustration could apply. In most cases, frustration will not apply where there is a force majeure clause in the contract. In fact, if a force majeure clause is intended to deal with the specific event in question, then English law will typically exclude the application of frustration. Even where arguable, it is important to recognise that, given the high bar associated with frustration and the difficulties in proving it, the prospects of successfully arguing frustration are generally low.

Can the force majeure clause be triggered?

A force majeure clause usually requires performance of contractual obligations to be “prevented”, “impeded”, “hindered” or “delayed”. “Prevent” typically equates to impossibility of performance - e.g. it becomes physically impossible or legally impermissible to perform the contract. However, “impede”, “hinder” and “delay” are likely to import a lower threshold than impossibility, and the courts have found force majeure clauses subject to those thresholds to be triggered where the relevant obligation becomes “substantially more onerous” to perform.

In all cases, the relevant obligation becoming more expensive or simply more difficult is unlikely to suffice (unless the force majeure clause has unusually low threshold requirements). A common mistake is to think that force majeure is relevant to a party's loss of utility from a contract (which is usually irrelevant) as opposed to a party's ability to perform (which is usually relevant).

Force majeure clauses typically include a requirement for the party seeking relief to show that the impact of the event on the performance of the party’s obligations could not have been mitigated or avoided by preventative action. Such clauses may also require causation to be proved, i.e. that the relevant event prevented or delayed performance, not simply that the event exists, has caused economic hardship, or makes performance more difficult or expensive.

What are the consequences of a force majeure event?

The consequences of the force majeure event have to be considered. This may vary according to the duration of the force majeure event. For example, does the contract allow the parties to suspend the contract, extend the time for performance, or does it give rise to a termination right (whether in and of itself, or following a particular period of time)?

Contractual notice requirements and ongoing obligations

The next step is to consider: “What are the notice requirements for declaring a force majeure event?”. Check the relevant time limits and any requirements as to the form of notice required (including the usual notice provisions of the contract). In particular, consider whether a party is required to submit supporting details and evidence of the force majeure event with its notice. In addition, consider whether there are there any additional practical steps that a party needs to take to comply with the notice requirements in light of the triggering event.

Does a party have any ongoing obligations to update its counterparty as to the force majeure event, or to take reasonable steps to mitigate the effects of the force majeure event?

Consider other provisions in the contract and any related contracts

What are the party’s other relevant rights and obligations under the contract or related contracts? Is it able to achieve the same result (suspension of the relevant obligations or termination of the contract) via other or easier means? In particular, a party should check for:

(a) termination clauses;

(b) material adverse change clauses;

(c) variation or change of law clauses;

(d) price adjustment or liquidated damages provisions;

(e) most favoured/preferred customer clauses;

(f) minimum volume/spend commitments;

(g) customer dependencies and “Excusing Cause” & “Relief Event” provisions;

(h) any step in or set-off clauses;

(i) business continuity and disaster recovery clauses; and

(j) any liability limitations or exclusions.

In anticipation of a potential dispute, it is also worth considering what the dispute resolution provisions in the contract(s) are (including notice and escalation provisions)?

Commercial drivers

Whether or not to trigger a force majeure provision to excuse or suspend performance - particularly where there may be doubts as to whether a force majeure event under the particular contract has occurred - may be driven by commercial factors. For example, it may be preferable to have a discussion about performance and negotiate a variation with your counterparty rather than run the risks of wrongly relying on a force majeure clause.

4. Amending existing contracts and entering into new contracts

Waiver and inadvertent change

Before embarking on negotiations to change an existing contract, make sure that you:

(a) reserve all of your rights and remedies in respect of the existing contract to avoid any risk of affirmation and/or waiver etc. and check for any amendment formalities;

(b) avoid inadvertently amending the contract by:

(i) continuing to perform the contract strictly on its terms; and

(ii) diligently documenting any agreed changes to it.

Force majeure clauses

Carefully consider how the events in Ukraine should be addressed in the force majeure provisions of any new or renegotiated contract. As described above, consider the scope of the clause, the trigger events, and the consequences of a force majeure event. The precise wording will be important. In particular, it is now foreseeable that the events in Ukraine could prevent or delay future contractual performance, but they could still be covered by a suitably worded force majeure clause.

Execution process/formalities

Travel restrictions, limited communications and security on the ground may mean it is necessary to plan how you will execute any new or renegotiated contracts remotely, e.g. by using counterparts clauses, an exchange of signatures by email, or electronic solutions (such as Docusign). If a contract needs to be witnessed, who will witness it and how? Give particular consideration to contracts requiring “wet ink” signatures.

Contract management

The events in Ukraine are rapidly evolving, so it is important to closely monitor developments and understand how these may affect your commercial contracts. Ensure that you communicate effectively with all of your stakeholders, both internally and externally, in relation to developments, and ensure that you familiarise yourself with any variation/change of control procedures in your contracts, so that you can deploy them quickly if required.

5. Contact us

We are already advising clients in a wide range of sectors on issues relating to the events in Ukraine. If you have any questions on how the events in Ukraine might be affecting your contracts, or how you should be liaising with your counterparties, please contact:

You may also find our recent article on force majeure and frustration in commercial contracts useful.