Russia’s armed attack on Ukraine caused not only companies subject to economic sanctions to withdraw from Russia or suspend their activities. Many companies not subject to sanctions decide to sever economic relations with Russian entrepreneurs. So what can Polish companies, bound by contracts with Russian contractors, do to “exit” such a contract without risking any liability for damages.
“First of all, we should refer to the provisions of the contract to check whether there are any provisions that would enable its premature termination or at least a temporary suspension of its performance. However, I would not expect the parties to regulate their relations with each other in the event of the situation in which we find ourselves now. If anything, it would probably include general force majeure provisions (ie hostilities, changes in legislation, etc.) preventing or temporarily obstructing the performance of the contract. Undoubtedly, the military invasion of Ukraine from Russia and Belarus and the resulting financial and economic sanctions caused huge problems with the supply chain, payments and transport of goods to Russia,” says Joanna Gąsowski, Counsel from Wolf Theiss law firm.
Experts emphasize that if a contract governed by Polish law is silent as to the possibility of withdrawal by one of the contractors or as to other rights to terminate it early, the general provisions of the Civil Code will apply. One of such instruments is the possibility of withholding the performance by one party, which is obligated to provide earlier performance, until the other party offers consideration or provides no security.
-Polish law grants the creditor a special right to refrain from paying the benefit in certain situations. The supplier, who is obliged to deliver the goods to the buyer in Russia, will be able to withhold the performance until the buyer offers payment at the same time as the delivery or presents a security, e.g. a bank guarantee. In addition to the logistical difficulties caused by the invasion of Ukraine, the fall in the value of the ruble and the sanctions imposed on Russian banks affected the Russian contractor’s ability to make payments in foreign currencies. After the sanctions were introduced, it became at least more difficult for Russian contractors to conduct financial operations in foreign currencies. All this may lead to the conclusion that the payment of the price by the buyer in Russia in a foreign currency is very doubtful. Especially when we take into account the deepening armed conflict and the threat of introducing further economic sanctions – points out Marcin Rudnik, Counsel from Wolf Theiss law firm.
Lawyers also point out that additional powers are provided for in the United Nations Convention on Contracts for the International Sale of Goods (CISG), which applies to sales or deliveries, if the parties to the contract have not expressly waived its validity. According to the CISG, if it turns out that the buyer does not pay for the goods before the contract performance date, the supplier will be able to withhold the contract or terminate the contract. However, these are not all the tools at the disposal of a Polish entrepreneur. Specialists also point to such institutions as the inability to provide or the clause of extraordinary change of relations.
“If the party cannot perform the performance due to circumstances for which it is not at fault, the obligation shall expire. It is about a state of permanent impossibility, which is manifested in the fact that not only the debtor, but also no one else, is able to perform the payment under the given circumstances. It can be assumed that such a situation has arisen as a result of numerous financial and economic sanctions or Russian regulations in retaliation for those sanctions that may make the services of both parties impossible to perform. On the buyer’s side, this may be the inability to make payments in the currency provided for in the contract, for example due to the disconnection of the Russian entrepreneur’s bank from SWIFT, and on the part of the Polish supplier, the inability to transport goods due to force majeure, such as airspace closure or restrictions on inland transport as a result of military operations conducted from the territory of Russia and Belarus,” points out Joan-na Gąsowski.
“As in the case of the COVID-19 pandemic, the war in Ukraine and its effects may justify the application of the clause of extraordinary change of relations (the so-called rebus sic stanti-bus). In a situation where, due to an extraordinary change in circumstances, the performance of the service would be associated with excessive difficulties or threatened one of the parties with a gross loss, which the parties did not envisage when concluding the contract, the court it can even terminate the contract. Our practice shows that so far the courts have been quite cautious about the possibility of applying this institution and, consequently, far-reaching interference in contractual relations. However, the war in Ukraine and its consequences are an unprecedented situation, which gives grounds for looking for new legal arguments and may contribute to the emergence of a new line of jurisprudence based on these events,” adds Marcin Rudnik.
It should be pointed out that the above legal solutions apply to a situation where the contract has not been breached by the Russian side. If this were the case, e.g. the buyer would not make the timely payment, then the Polish entrepreneur could withdraw from the contract after giving him an additional deadline for making the payment.
Lawyers emphasize, however, that the provisions of each contract should be subject to individual legal analysis, taking into account the circumstances of its conclusion and performance. There is no single key here that would fit every situation and create unquestionable rights to end the contractual relationship. Ultimately, the decision to “exit” the contract must also be related to the consideration of the Polish entrepreneur’s risks related to possible claims for damages on the part of the Russian contractor.
