Can Sanctions On Russia Provide A Defence For Non-performance Under Cayman Islands Law Contracts?

• Published date: 08 July 2022
• Subject Matter: Government, Public Sector, International Law, Government Contracts, Procurement & PPP, Export Controls & Trade & Investment Sanctions
• Law Firm: Walkers
• Author: Mr Luke Petith, Cate Barbour, Carly Kilshaw, Michael Testori and Tania Diab

The Insolvency and Dispute Resolution team at Walkers in Dubai continue to advise on the impact of the recent sanctions imposed on Russia in an offshore context, including whether such sanctions can give rise to a defence for non-performance under Cayman Islands law contracts. We set out below a summary of the position.

Force Majeure

Commercial contracts will often contain a "force majeure" clause which in general terms provides for a party affected by an unforeseen external event to escape liability for breach of contract. Ordinarily after a given time period the counterparty can terminate. Force majeure can include any circumstance not within a party's reasonable control and in many contracts the clause will specifically name trigger events including an act of God, terrorism, war, explosions, civil disturbance and rebellion.

The Cayman Islands Courts respect the contractual agreements of parties, including whatever list of categories of events they determine should constitute a force majeure event. Accordingly, where an agreement contains a force majeure clause which details the events that constitute force majeure, then such a clause is likely to be valid, binding and enforceable between the parties to that agreement. Parties may have chosen a broad or narrow definition of what constitutes a force majeure event. Where the force majeure clause does not specifically reference sanctions, the Court will look to determine whether the definition of a force majeure covers this particular scenario.

To date the Cayman Islands Courts have not been asked to address this issue in relation to sanctions. However, the Cayman Islands Courts would likely take into consideration the position of the English Courts which in a recent decision in MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm) held that the particular wording of the force majeure clause covered sanctions because it contained the wording "any rules or regulations of governments or any interference or acts of governments" and "restrictions on monetary transfers and exchanges". The relevant event in that case was that a party could not pay the other in US dollars as required under the contract. The force majeure clause was subject to the affected party using reasonable endeavours to overcome that issue. The Court found that reasonable endeavours would not extend to requiring the seller to accept payments in another currency (here Euros) which would mean a variation or non-performance of the contract. Whilst...