(Anti)sanctions Clause: How To Minimize Sanction Risks – Corporate/Commercial Law

Bizar Male

The number of unilateral economic sanctions of the EU, US and
other countries is considerably growing. As a matter of recent
example, on 7 December 2020 the EU Council adopted Decision
(2020/1999) and Regulation (2020/1998) concerning restrictive
measures against serious human rights violations and abuses, which
will subsequently “simplify” the introduction of certain
types of sanctions in connection with human rights violations1.

Sanctions (restrictive measures) may apply both to government
officials and entities, as well as to private companies.

However, after the introduction of sanctions, counterparties
from the EU and US are still being contracted with sanctioned
companies which have to perform their obligations. In case of
non-performance the sanctioned company is still subject for
judicial enforcement. On the other hand, counterparties from EU and
US often refuse to perform their obligations before sanctioned
companies, as far as the due performance is restricted by the
respective sanction regime.

In view of this, one of the most effective mechanisms for
managing sanctions risks is the inclusion of so called
(anti)sanctions clauses into commercial contracts. Hence, two types
of such clauses can be distinguished, depending on nature of
consequences for the parties’ obligations in result of the
introduction of restrictive measures: anti-sanctions clause and
sanctions clause.

Anti-sanctions clauses

According to the anti-sanctions clause, the parties are obliged
to perform their obligations, despite the imposition of sanctions.
The performance of obligations is not suspended or extended.
Moreover, the imposition of sanctions is identified as not a force
majeure. In result, the party in default is responsible for the
undue performance of obligations.

The possibility to define the scope of circumstances that
constitute force majeure is provided by general contract law
provisions and particularly by the principle of freedom of contract
(art. 1.1 of UNIDROIT Principles), as well as by other regulations.
As an example of such regulation, para 1.3 of the Regulation on the
procedure for establishing the circumstances of force majeure of
the Russian Chamber of commerce and industry No. 173-14 dated 23
December 2015 provides that the circumstances that the parties
directly excluded do not constitute force majeure.

Moreover, the parties are free to agree on the circumstances
that will not be considered as a ground for contract adaptation,
including under the provisions of hardship (adjust) clauses.

For example, Germany is recognized as very adaptation-friendly
in view of a quite broad wording of section 313 of BGH, which
allows to adapt the contract in the circumstances which became the
basis of a contract have significantly changed. However even this
provision is still subject to the principle of good faith and
foreseeability criterion which may well be interpreted if the
parties directly define in contract those circumstances that do not
constitute the “significant change of

The regulation of contract adaptation in Belarus and Russia is
provided by para 1 of art. 421 of Civil Code of Belarus and para 1
of art. 451 of Russian Civil Code respectively, which expressly
stipulates that parties may agree in contract on “other”,
derogating from the general rule of contract adaptation based on
concept of “significant change of

Moreover, if to consider lex mercatoria, as provided by art.
6.2.2. of UNIDROINT Principles, the parties may allocate the risks
of changed circumstances on one party as one of criterion for
hardship. That as well may be regulated by the parties in the
framework of sanction clause.

Thus, if the parties expressly define “sanctions,
restrictive measures, or other mandatory regulations of the same
nature […]
” as being not unforeseen circumstances that
do not undermine the balance of contract and parties’ interests
and shall not affect the performance and initial conditions of
contract, this will make a strong prerequisite for the courts in
favor of non-adaptation of the contract.

Sanctions clauses

The essence of the sanctions clause is that in case of the
imposition of sanctions, the parties do not acquire additional
obligations and are released from any liability for undue
performance once it is caused by the imposition of sanctions. In
addition, under this clause, the performance of the contract is
suspended for the duration of the sanctions.

Thus, the purpose of the sanctions clause is to preserve the
balance of the parties’ interests and the status quo
in contractual relations, despite the original contractual

The clause on force majeure and (or) the hardship (adjust)
clause serve as a ground for achieving this purpose.

In this regard, the position of English High court in case
Lamesa Investments Ltd v. Cynergy Bank Ltd [2019] EWHC 1877 (Comm)
(12 September 2019) is indicative2.

In this case, the court resolved the dispute between LIL
(Cyprus) and CBL Bank (London) as to whether the performance of
contractual obligations by CBL continues in the events that had
happened (i.e. imposition of US sanctions against Mr. Viktor
Vekselberg (VV) who is the owner of LGI, which owns LIL

At the same time, art. 9.1 of the Facility Agreement between LIL
and CBL provides that “…[CBL] shall not be in default if
during the 14 days after [LIL’s] notice is satisfies [CBL] that
such sums were not paid in order to comply with any mandatory
provision of law, regulation or order of any court of competent

The court (Judge Pelling) interpreted the provisions of the
agreement quite broadly and held that art. 9.1 of the agreement
allows CBL to suspend the performance of its obligations to make
payments in favor of LIL for as long as VV remains a SDN and LIL
remains a Blocked Party by reason of it being controlled by VV,
since the wording of art. 9.1 of the agreement “any
mandatory provision of law
” embraces the US

Therefore, in case of presence of such contractual provisions as
art. 9.1, the imposition of sanctions may be considered as a ground
for non-performance as far as sanctions remain in force. This also
in some extent represent the effect of adjust clause which adapts
the term of performance (i.e. the contractual provisions).

From the other side, in court practice the definition of a
properly-written force majeure clause as a part of sanctions clause
will allows the non-performing party to avoid liability for late
performance or other undue performance. For example, by the
decision of Moscow city court dated 22 December 2015 in case No.
4?-12995/2015 Bank was released from liability for freezing of
funds on correspondence-account bank (STANDARD CHARTERED BANK).
Generally, in Russia banks are often recognized as being not in
default in case of freezing of funds by other banks that are
obliged to comply with sanctions regulations (see e.g. Arbitrazh
court decisions in cases No. N ?40-222224/2016 dated 13.11.2017,
case No. 4?-12995/2015 dated 22.12.2015 and case No. ?56-56974/2017
dated 07.03.2018).

In Belarus the possibility to define the scope of force majeure
clause was recognized inter alia by decision of Appeal
economic court of Minsk region dated 23 September 2020 in case No.

The description of (anti)sanctions clause, including
abovementioned force majeure and hardship (adjust) clauses.


Sanctions clauses

Anti-sanctions clauses

Purpose of clause

The performance of the contract is suspended for the duration of
the sanctions.

The parties are not responsible for the imposition of sanctions
and improper performance of contractual obligations.

The parties remain to be obliged to perform their obligations,
despite the imposition of sanctions on one of them.

The party in default bears all liability for the improper
performance of the obligation.

Which party needs these clauses

1. A company that works with individuals (including as owners or
executive authorities) or companies which may be subject to

2. A person (company) that may be the subject of sanctions.

As a result, the performance of the contract is suspended for
each party, and sanction regime is not violated be either of

1. A person (company) that may be the subject of sanctions.

In fact, it obliges the counterparty to perform the obligation
on the initial condition, despite the sanctions (i.e. in violation
of sanctions regime).

Common conditions

–    guaranty (statements) that the parties are
not included in the sanctions lists at the time of conclusion of
the contract, and none of their members, management, affiliates are
included in the sanctions lists;

–    guaranty (statements) that the parties are
not associated (do not cooperate) and will not be associated with
entities (persons) included in the sanctions lists;

–    obligations of the parties to immediately
submit the information related to the imposition of sanctions
against one of the parties, its members, management and

–    the responsibility for violation of the
abovementioned obligations.

Specific conditions

When the sanctions are imposed that prevent one of the parties
from properly performing its obligations (to deliver goods, make a
payment, etc.):

1. the performance of obligations under the contract is

2. the imposition of sanctions is considered as force

3. parties are released from any liability for improper
performance of the obligation.

When the sanctions are imposed that prevent one of the parties
from properly performing its obligations (to deliver goods, make a
payment, etc.):

1. despite the imposition of sanctions, the parties are obliged
to perform the obligation on the initial conditions

2. the imposing sanctions shall not be considered as force

3. if the counterparty does not perform its obligation, the
other party acquires the following rights:

– to suspend its performance;

– to recover compensation;

– to unilaterally avoid the agreement.


Available at Official Journal of EU: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:L:2020:410I:TOC

2. Full
text is available at: https://www.bailii.org/ew/cases/EWHC/Comm/2019/1877.html

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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