Contract Disputes Arising From The Ukraine Conflict: Issues, Defenses And Lessons For The Future (Podcast)

Published date05 August 2022
Subject MatterCorporate/Commercial Law, International Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Export Controls & Trade & Investment Sanctions, Trials & Appeals & Compensation, Civil Law
Law FirmMayer Brown
AuthorMr Julian M. Dibbell, James Ferguson and Valerie Vanryckeghem

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The ongoing conflict in Ukraine has had a significant impact on commercial activity for many organizations on a local and international scale. Organizations with commercial operations in the region (both Ukraine and Russia) may face challenges in sustaining their contractual obligations. Mayer Brown partner Jim Ferguson and associate Valerie Vanryckeghem, along with host Julian Dibbell, will discuss common issues that certain organizations may face as a result of the crisis and practical considerations for drafting contractual protections with a view to avoiding the specific business risks of the Ukraine conflict.

Transcript

Announcer:
Welcome to Mayer Brown's Tech Talks Podcast. Each podcast is designed to provide insights on legal issues relating to Technology & IP Transactions and keep you up to date on the latest trends in growth & innovation, digital transformation, IP & data monetization and operational improvement by drawing on the perspectives of practitioners who have executed technology & IP transactions around the world. You can subscribe to the show on all major podcasting platforms. We hope you enjoy the program.

Julian:
Hello and welcome to Tech Talks. I'm your host, Julian Dibbell. I am a senior associate in Mayer Brown's Technology & IP Transactions practice. I'm joined today by Jim Ferguson and Valerie Vanryckeghem. Jim is a partner in Mayer Brown's Litigation and Intellectual Property practices in our Chicago office. Valerie is a senior associate in Mayer Brown's London office in the firm's Intellectual Property & IT Group.

Our topic today, the conflict in Ukraine and its impact on commercial operations and what contracts have to do with that. Particularly, we're talking about what contractual or other protections may be available to business contract parties that find themselves in a situation where a party is no longer able or willing to perform its contractual obligations.

Today we are going to hear from two practitioners in international outsourcing transactions about the common issues organizations are facing as a result of this conflict, and what legal remedies are available to those types of organizations and how proper drafting of contractual protections may help businesses that are seeking to exit or be excused from performing an existing relation.

Setting the scene - Factual scenarios

Julian:
Jim, why don't you start by explaining briefly what kinds of issues businesses may be facing as a result of the Ukraine conflict?

Jim:
Thanks Julian, and hello everyone. You're absolutely right, Julian, that the Ukraine conflict has led to a growing number of contractual disputes, and I think a good place to begin our discussion today is by grouping these disputes into three major categories based on their causes. The first category consists of disputes resulting from the decision that many Western companies made to withdraw from doing business in Russia. The second category consists of disputes resulting from non-performance'contractual non-performance'because of the sanctions imposed on Russia by Western governments. And a third category of disputes result from contractual non-performance because of the actual hostilities (in other words, the "acts of war") between Ukraine and Russia.

Failure to Perform Following Voluntary Withdrawal from Russia

If we look at this first category, the voluntary withdrawal from Russia, in some cases, companies have ceased performance on contracts after deciding to withdraw from Russia because of reputational concerns or because the invasion was simply incompatible with their core values. In these cases, the companies' decision to withdraw from Russia has led them to suspend or withdraw from certain contracts. In fact, Valerie, I believe you encountered this issue in a recent project you worked on?

Valerie:
That's right, Jim. Actually, a client of the firm with facilities in Russia had contracted with a service provider to provide certain services on-site at the premises of our client in Russia. And this service provider decided'as a consequence of the conflict in Ukraine'that it no longer wished to be associated with Russia in any way. And so, this service provider decided to withdraw completely from Russian territory, which meant that it would no longer provide the contracted services at our client's facilities in Russia.

And as you can see right here, this issue is problematic for both the service provider and the customer, because they are both trying to limit reputational damage: (1) the service provider by retreating from the region and no longer providing services in Russia (2) but also our client, who is very aware that it may face public backlash if it attempts to hold the service provider to its contractual engagements in Russia.

Jim:
Yes, that's a great illustration of how complex these situations can be.

Failure to Perform Due to Sanctions Imposed by Western governments

Let's turn now to the second category of cases, which consists of companies who have failed to perform contractual obligations because of sanctions imposed by Western governments. We had a recent example involving a supplier who failed to deliver contractually required goods because of EU sanctions barring access to European ports by any ship that last docked at a Russian port. In these cases involving sanctions, a key issue is going to be whether the sanction directly prevented the party from performing its contractual obligations or simply made performance more onerous or costly.

Failure to Perform Due to "Acts of War" Between Ukraine and Russia

The third category of cases focuses on the actual "acts of war" between Ukraine and Russia. In this category, companies fail to perform their contractual obligations as a direct result of the hostilities'the "acts of war"'between the two combatants. As an example, some suppliers might not be able to deliver certain contractually...

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