COMMERCIAL DISPUTES ARISING FROM INTERNATIONAL SANCTIONS

CD: How would you characterise the impact international sanctions are currently having on business relationships and contractual obligations?

Wolber: Sanctions, writ large to include export controls and other trade-based restrictive measures, are creating ever-increasing friction in the business and financial services communities. As rule changes become more complex, widespread and frequent, and the legal, commercial and reputational stakes become much higher given the large-scale economic impact and geopolitics at play today, we see a lot more time and effort being spent up front in the negotiations of sanctions clauses in commercial and financial agreements. In an environment of quickly shifting sands, commercial parties are increasingly struggling with how best to both mitigate potential current and future sanctions risks – legal and otherwise – while proceeding in a relationship that affords some predictability and level of certainty.

Sengupta: Depending on the nature of the business, international sanctions can significantly affect business relationships and contractual obligations. For most cross-border financing transactions, for instance, the obligation of the parties to comply with applicable sanctions – typically those applied by the US, European Union (EU) and the UK – has become standard, with violations typically triggering remedies for the counterparty that can range from an obligation to cure to an event of default. In some cases, international sanctions can also relieve a contract party from the performance of its obligations if they render the performance impossible. Courts and arbitral tribunals must carefully assess the impact of sanctions within the framework of private international law and the governing law of the contract. The complexity of these issues often requires a nuanced analysis, as the application of sanctions by domestic courts and arbitral tribunals can vary significantly. The legal landscape is further complicated by the varying maturity of sanctions regimes across different jurisdictions, with varying degrees of enforcement.

Jul-Sep 2024 issue

Gibson Dunn

Latham & Watkins LLP

Mayer Brown