If an embargo is imposed or sanctions are introduced, trade with a state can be severely disrupted. The Iran sanctions in particular are a long-running issue among the sanctions. For some years now, the sanctions against Russia have also been included. If new sanctions are introduced, the question often arises for companies as to how existing supply contracts should still be fulfilled with the trading partner.
Caution: A distinction must always be made between total embargo, partial embargo and mere sanctions.
First of all, of course, it is necessary to distinguish whether there is actually an embargo or only sanctions. An embargo is a comprehensive ban on trading with a particular state. An embargo in the form of a total embargo is extremely rare. In most cases, the embargo only applies to a sub-area, such as an arms embargo or a financial embargo.
In the past, only the United States of America had imposed a total embargo on Cuba.
In most cases, only individual sanctions are imposed, so that certain lines of business are to be cut off from economic activity. Even the measures against Iran or Russia are only sanctions for certain areas and not a total embargo. Trade with these countries is therefore possible in principle, albeit sometimes severely restricted in detail.
In the event of unexpected sanctions or embargoes, the following shall apply under German contract law
- In accordance with German law, the impossibility exists, the performance obligations are revoked
- Whether German law applies but must first be determined
- if neither party can do anything for the sanctions, claims for damages under German law are excluded
- if the seller does not receive a mere export licence from BAFA and if he owes the export according to the contract, he will be liable for damages if the contract does not contain an export clause.
Force majeure in embargoes
If sanctions or an embargo are imposed, merchants often try to invoke force majeure (force majeure).
Whether this is possible depends on various conditions. First of all, the question arises as to which law is applicable to the contract at all. This does not necessarily have to be German law, but can also be the UN Convention on Contracts for the International Sale of Goods, for example, in cross-border trade.
Once the applicable law has been determined and German law has been established, in the case of a export ban sanctions or embargos usually result in a so-called impossibility. This releases the party from its obligation to perform. Claims for damages are also excluded because, in the event of impossibility, the German company is generally unable to prove that sanctions have been imposed.
German case law has recognised that impossibility can be applied in principle to the subsequent introduction of export bans, import bans or trade embargoes.
A mere increase in tariff rates is not a case of force majeure under German commercial law
However, it should be noted that a mere complication of imports, e.g. by increasing customs duties (as in the trade conflict between the EU and the USA), does not lead to force majeure. Force majeure is only present if import is simply impossible, but not if it has merely become more difficult or uneconomical.
In these cases, so-called Hardship clauses are relevant, provided the contract for the has been included.
Trade agreement may be null and void in case of sanction violation
The courts have also considered that under certain circumstances an entire supply contract may be null and void if it can only be fulfilled by disregarding the provisions of the Foreign Trade and Payments Act. It may also be possible that the contract is null and void due to immorality. In the case of sanctions, it is also conceivable that the business basis could be omitted. But this is always a question of the individual case.
If German law does not apply, but for example the UN sales law, this also knows a provision according to which the performance obligations are suspended in the event of force majeure. Here, too, trade sanctions are generally recognised as a reason of force majeure.
Force majeure clause prevails
However, the companies concerned should always check whether the negotiated contract also includes a force majeure clause. Sometimes these clauses are formulated in such a way that an appeal to force majeure is only possible if notification is given in good time. Here, too, risks may exist in individual cases.
No force majeure in the absence of an export permit
The situation may look different, however, if the delivery is not generally blocked due to an embargo or concrete sanctions, but the seller simply receives no export licence from BAFA and therefore cannot deliver. If the seller also owes the export according to the contract conditions or Incoterms, then he bears the risk under German law, if he does not receive the export licence. To this extent, the international trade agreement must contain an export control clause so that the seller can withdraw from the agreement if he has not received the export licence. Otherwise he shall be liable for damages.
This clause is particularly important if long-term or framework agreements are concluded. This is because the political and legal situation can change during the lifetime of a contract, so that an export permit is no longer issued for subsequent deliveries.
Keep an eye on the drafting of the contract clauses in good time
If it becomes apparent that new sanctions are threatening international trade, companies are well advised to consider this constellation when drafting contracts and to take it into account in the context of a special clause or when adjusting the force majeure clause.
Your contact person
Dr. Tristan WegnerABC-Str. 2120354 Hamburg