Risks Including Russian Sanctions Abound... "Add 'Disclaimer Clause' to Overseas Trade"

Discussion on Russia Sanctions Risk and Response Measures on the 7th
Risk of Default Disputes... Difficult to Exempt Delayed Payment
Essential to Add Economic Sanctions Clauses When Signing International Contracts

Russian President Vladimir Putin. (Photo by EPA Yonhap News)

[Asia Economy Reporter Moon Chaeseok]

#1. Company A, which purchases raw materials from Ukraine, is currently in dispute with shipowners over raw material transportation. Since Russia's invasion of Ukraine, maritime transport near Ukraine has become difficult, causing ships that were previously anchored waiting for loading to evacuate to safe ports and anchor at third locations, increasing costs. Issues such as demurrage charges for ships that departed with only partial cargo loaded are also troublesome. The conflict over who should bear the additional costs continues to escalate.

#2. Company B, which signed a sales contract with a Russian company last year, faces payment issues for the received goods because the contract stipulates payment in US dollars. Due to US financial sanctions against Russia, payment has become impossible. As payments are delayed, the company is preparing for legal disputes including arbitration and litigation. They must prove 'exemption' due to US sanctions, but success is uncertain.

It has been suggested that companies should include more exemption clauses related to economic sanctions when entering overseas contracts to prepare for unavoidable risks such as Russian sanctions, as legal disputes over non-performance liabilities are expected to increase.

On the afternoon of the 7th, the Korea Chamber of Commerce and Industry (KCCI), together with the Korean Commercial Arbitration Board, held a roundtable discussion titled "The Impact of Russian Sanctions on International Contracts and Legal Response Measures." Panelists included international legal affairs officers from manufacturing, trade, construction, and shipbuilding sectors such as Hyundai Mobis, POSCO International, Hyundai Heavy Industries. Legal professionals including Professor Jeong Hongsik of Chung-Ang University Law School, who chaired the session, as well as lawyers Lee Hyunggeun from Kim & Chang, Park Hyomin from Sejong Law Firm, and Jo Eunjin from Yulchon LLC also attended. Professor Jeong stated, "The Russian sanctions have significantly impacted industries such as automotive manufacturing, trading companies, shipbuilding, and construction," adding, "It is important to carefully examine relief measures that can minimize the negative effects caused by the sanctions."

First, in manufacturing, companies are seeking third-country rerouting export options to avoid non-performance issues caused by parts supply stoppages, which was a major topic of discussion. Lawyer Lee commented, "Unlike Iranian sanctions, Russian sanctions are quite limited, so rerouting exports may not be impossible unless the transaction is specifically prohibited by administrative orders," but added, "Since advanced countries have high participation in export controls and the US has expanded the scope, a detailed review is needed regarding whether related technologies and certain parts are also controlled."

In trade, the possibility of exemption due to force majeure such as war when delivery delays occur was discussed. Most experts believe that sanctions are considered illegal within Russia, making it difficult to recognize them as force majeure. Even when jurisdiction lies in different countries, courts differ in their interpretation of force majeure, so the likelihood of winning lawsuits is low. It was also examined whether a contractor in a construction project in Russia can claim exemption against a Russian client if subcontractors or vendors based in the European Union (EU) fail to perform or supply due to Russian sanctions. Lawyer Lee explained, "If US or EU companies participating in sanctions can be replaced by Chinese or domestic companies, claiming exemption is difficult," adding, "Even if there is an illegal sanctions clause, it is not recognized if the Russian client is not a sanctioned party."

Many experts also believe that exemption for delayed payments is unlikely. Lawyer Jo said, "Currently, the Financial Services Commission of Korea allows remittances to non-sanctioned Russian banks, and in practice, money is being sent from Korea to Russia through domestic banks’ Moscow branches and foreign-affiliated banks that are not sanctioned, so proving exemption for delayed payments is likely to be difficult."

Regarding contracts stipulating payment in US dollars, Lawyer Park recalled, "There has been much dispute over whether economic sanctions constitute force majeure." He explained, "Earlier this year, the UK High Court’s arbitration panel initially ruled that even if payment was to be made in US dollars, payment in euros at the same value, a practical alternative, meant it was not force majeure. However, the appellate panel ruled that the force majeure criterion is the 'contractual obligation,' so it applied. The specificity of the force majeure clause in the contract is crucial."

Risk Management Measures for Our Companies in International Transactions. (Source: Korea Chamber of Commerce and Industry)

Measures to minimize contractual risks were also proposed. Experts suggested that companies should include more detailed force majeure clauses and add unilateral termination and suspension clauses before entering international contracts. They also recommended selecting jurisdictions favorable to changes in circumstances or force majeure when choosing governing law. Lawyer Park advised, "The US is likely to maintain current levels of sanctions against Russia for a considerable period even after the situation moves toward peace," adding, "our companies should include special provisions related to economic sanctions in contracts to establish legal grounds for favorable rulings in future disputes and always manage sanction risks."

Woo Taehee, Executive Vice President of the Korea Chamber of Commerce and Industry, said, "The Chamber has been receiving difficulties from companies since the situation began, and we judged that establishing strategies for legal disputes and responses is urgent, so we organized this meeting," adding, "We hope this roundtable helps companies manage risks, and the Chamber will continue to strive to resolve corporate difficulties."

This content was produced with the assistance of AI translation services.