According to announcements made by the Federal Government and the European Union, the military conflict in Ukraine will result in further wide-ranging economic sanctions being imposed on the Russian Federation. The EU had already imposed sanctions on Russia in July 2014 because of the annexation of the Crimean peninsula. These were last extended by the EU on 11 October 2021 and are now reaching a new high level.
In response to President Vladimir Putin’s recognition announced on 21 February 2022 of the independence and sovereignty of the self-proclaimed People’s Republics of Donetsk and Luhansk the EU expanded the existing list of sanctions on 23 February 2022 and issued a new sanction regulation at the same time. The EU responded to the Russian military invasion of not only the Donetsk and Luhansk oblasts but all of Ukraine, which began on the morning of 24 February 2022, by imposing additional sanctions and restrictions on 25 February 2022 and continued to announce further measures on 26 February 2022 and over the following days.
The following remarks are intended to outline an initial assessment for German companies.
As a result of the armed conflict in the Donetsk and Luhansk oblasts of eastern Ukraine (regions that emerged from the Euromaidan protests in the spring of 2014) supported by the Russian Federation and the annexation of Ukraine’s Crimean peninsula in March 2014, but also because of the human rights violations committed by the former government of Ukraine under President Viktor Yanukovych, the European Union imposed numerous sanctions against Russia and Ukraine as recently as 2014, which have been continuously expanded and extended and are still in force today.
In response to President Vladimir Putin’s recognition announced on 21 February 2022 of the independence and sovereignty of the self-proclaimed People’s Republics of Donetsk and Luhansk the EU expanded the existing list of sanctions on 23 February 2022 and issued a new sanction regulation at the same time. The EU responded to the Russian military invasion of not only the Donetsk and Luhansk oblasts but all of Ukraine, which began on the morning of 24 February 2022, by imposing additional sanctions and restrictions on 25 February 2022 and then continuously announced and implemented further measures, not only against Russia, but also against Belarus.
Our experts will advise you on all legal consequences in the context of sanctions.
Your contact: Ole-Jochen Melchior
German companies with business relationships with Russia or the oblasts concerned are urged to comprehensively review existing or prospective business relationships in light of the latest sanctions. First and foremost, this applies to services that are subject to the new Council Regulation (EU) No 2022/263 (also referred to as Sanctions Regulation here). Affected in particular are - but not only - goods originating from the Donetsk and Luhansk oblasts and the export of so-called dual-use goods and other comparable defence- and security-sensitive technologies.
It is true that the principle of "pacta sunt servanda" applies - contracts must be honoured. It establishes the principle of contractual compliance and states that there is no arbitrary right to terminate contracts. Naturally, this principle does not apply to an unlimited extent. For example, if a German company's contractual relationship is affected by the economic sanctions, the question arises as to what fate this contract will meet and whether there are any legal options or even obligations to extricate itself from its contractual obligations. It is also worth knowing what legal options are available to cushion entrepreneurial arrangements made in anticipation of executing the contract. Furthermore, it is often of interest to assess whether this may give rise to a liability for damages.
Our experts can advise you, inter alia, on relevant contractual clauses, possible solutions under the UN Convention on Contracts for the International Sale of Goods (CISG), the impact of statutory prohibitions on existing contractual relationships and other legal options for action.
Ihr Ansprechpartner: Dr. Kuuya Chibanguza, LL.B.
The war in Ukraine has led to significant disruptions in many areas of the economy. In view of the unusual circumstances, which can also lead to the fact that the necessary persons to represent the company are not always available, companies should examine whether and which adjustments to representation rules, signing rights or organ representation can be useful in order to always be able to act legally to the necessary extent. This concerns the handling of everyday business as well as the question of how the representation of management bodies should be organised.
Our legal experts will help you to secure your company's ability to act.
Your contact: Prof. Dr Jörg Rodewald
Many companies that are directly or indirectly linked to economic relations with Russia will be confronted with considerable economic problems in the coming days, weeks and months. The supply of goods to and from Russia has almost completely collapsed as a result of the events in Ukraine. It is often questionable whether a necessary reduction in capacity or the establishment of a replacement supplier can still be financed in the long term. It is important to assess the resulting risks quickly and as comprehensively as possible. German insolvency law offers companies that get into a crisis "through no fault of their own" a wide range of instruments to overcome the crisis not only unscathed but strengthened. It is important to start preparing for proceedings at an early stage.
Although the EU, unlike the USA, is currently still refraining from sectoral sanctions against the Russian energy industry, market prices for oil, natural gas and electricity are constantly reaching new highs. The reason for this is the expectation of the markets that there is a high probability of either import restrictions by the West, alternatively export restrictions by Russia or technical supply interruptions in transit through Ukraine due to acts of war. Even if the situation eases - which is not foreseeable at present - it is unlikely that energy prices will fall significantly overall. Companies must now actively examine their options for action themselves and work on them in a sustainable manner.
Your contact: Gerd Stuhlmacher
German energy policy is facing a turning point. The trigger is the realignment of German security policy in light of the events in Ukraine.
The Federal Government’s goal is “energy sovereignty.” This means overcoming the dependence on Russian imports for fossil fuels over the short to medium term. 55 percent of all gas supplies, 50 percent of coal and 35 percent of crude oil are currently imported from Russia.
In order to become self-sufficient in terms of energy, Minister Habeck had already presented the “Precautionary Plan - Strengthening Crisis Preparedness to Ensure Security of Supply” on 24 February 2022.
The key points are:
On 27 February 2022, Minister Habeck did not generally reject the obvious question of a “withdrawal from the nuclear withdrawal”. All options would be on the table. However, he indicated that, to his knowledge, there were probably insurmountable technical obstacles. Further developments are still expected here.
To effectively address these drastic developments, companies must immediately stress test their current fossil fuel supply situation and adapt their decarbonisation plans to the new realities and, most importantly, incorporate them in an accelerated phase-out plan. The clock is ticking.
Russia’s invasion of Ukraine also raises questions of the protection of foreign investments in Ukrainian territory under international law. German companies in particular are active in various sectors in Ukraine. Should such German investments be damaged, destroyed or expropriated in the course of the current military conflict or an occupation of parts of Ukrainian territory, the question of legal protection options arises.
Your contact: Dr Richard Happ
The sanctions imposed on the Russian economy will not only affect business relationships, but also the settlement of disputes arising from them through arbitration courts.
The far-reaching EU sanctions also have an impact on the actual conduct of the arbitration proceedings, so that the parties to the arbitration must be prepared for some special features and adjustments.
An arbitration agreement with a Russian party affected by sanctions is no longer the unproblematic best way forward for dispute resolution (although better than court proceedings). Even the initiation of proceedings can be difficult. In certain circumstances, the Russian party may not contribute to the costs of the proceedings and a sanctioned Russian party may unilaterally rely on the jurisdiction of Russian courts despite a valid arbitration agreement, without having to demonstrate (practical) difficulties in participating in the arbitration outside Russia. It may also seek to have the conduct of the foreign arbitration proceedings prohibited.
This fundamentally creates the risk of conflicting decisions. Careful planning of the process strategy is therefore required.
Your contact: Dr Richard Happ
The military conflict in Ukraine is not only affecting business relationships of companies with Russia or in the areas affected. In fact, the conflict could disrupt the entire supply chain from suppliers of raw materials to end consumers. Energy, raw materials, transport and means of production are becoming more expensive and are no longer available to a sufficient extent. Production costs are increasing, and production and delivery times are being extended. In the worst-case scenario this will result in supply disruption.
In this situation the pressure on companies is high and the potential for conflict between trading partners increases. This gives rise to questions such as: Can performance obligations or delivery deadlines be adjusted or cease to apply entirely due to the scarcity of energy and raw materials? Is there an entitlement to a price adjustment? Is the supplier liable to pay damages where deliveries are not made or are delayed as a result of the crisis? Do disruptions in the supply chain give rise to liability? Substantive issues such as impossibility, frustration of contract, force majeure and attribution of fault play a crucial role with regard to these questions.
From a procedural perspective the involvement of several parties in an international supply chain raises a number of complex legal issues concerning multi-person relationships. Furthermore, different contractual dispute resolution mechanisms, legal systems or jurisdictions may have to be taken into account. We provide advice and support on asserting or defending claims both out of court and in court or before arbitration tribunals.
Your contact: Dr Stephan Bausch, D.U.
Key Contact >>