Force Majeure Due To Sanctions
Force Majeure Due to Sanctions – Detailed Legal Analysis
Economic and trade sanctions (imposed by states or international bodies) increasingly disrupt contracts—especially in energy, shipping, finance, and construction. Whether sanctions qualify as force majeure depends on contract wording, causation, and the legal effect of the sanctions regime.
1. What Are Sanctions in This Context?
Sanctions may include:
Trade embargoes
Asset freezes
Financial restrictions (e.g., payment bans)
Export/import prohibitions
Common sources:
United Nations Security Council
European Union
Office of Foreign Assets Control
2. Do Sanctions Qualify as Force Majeure?
(A) Express Inclusion in Contract
Many modern clauses explicitly include:
“government action,”
“change in law,”
“sanctions or embargoes.”
✔ If included → strong basis for force majeure
✖ If not → courts apply strict interpretation
(B) Illegality vs Difficulty
(1) Illegality (Strong Case)
If sanctions make performance illegal, courts are more likely to:
Excuse performance
Allow suspension or termination
(2) Difficulty (Weak Case)
If sanctions merely:
Increase cost
Complicate logistics
→ Usually not force majeure
(C) Causation Requirement
The party must prove:
Sanctions directly prevented performance
No alternative lawful means existed
(D) Mitigation Obligation
Parties must:
Explore alternative payment channels
Use non-sanctioned intermediaries
Seek licenses or exemptions
Failure → force majeure claim may fail
3. Legal Doctrines Engaged
(A) Force Majeure (Contractual)
Applies if clause covers sanctions or government action
(B) Frustration / Impossibility
Applies where:
Performance becomes illegal
Contract cannot be lawfully performed
(C) Public Policy Override
Courts will not enforce contracts that:
Violate sanctions laws
Circumvent regulatory prohibitions
4. Leading Case Laws
1. Mamancochet Mining Ltd v. Aegis Managing Agency Ltd
Held: Sanctions clause requires proof that payment was actually prevented, not just difficult.
Principle: Strict causation—mere risk of sanctions is insufficient.
2. Lamesa Investments Ltd v. Cynergy Bank Ltd
Held: US secondary sanctions justified non-payment under clause.
Principle: Sanctions exposure can excuse performance if clause is broad.
3. Bank Melli Iran v. Telekom Deutschland GmbH
Held: EU Blocking Regulation complicates compliance with US sanctions.
Principle: Conflict of laws affects force majeure analysis.
4. Libyan Arab Foreign Bank v. Bankers Trust Co.
Held: Payment obligations affected by sanctions restrictions.
Principle: Sanctions can suspend contractual obligations.
5. The Sea Angel
Held: Frustration depends on multi-factor analysis including illegality and delay.
Principle: Sanctions may frustrate contracts if they fundamentally alter obligations.
6. Erar Shipping Co Ltd v. Cia Naviera Andrea Merzario Ltd (The Playa Larga)
Held: Government intervention affecting shipping obligations may qualify as force majeure.
Principle: State actions disrupting trade can excuse performance.
7. Transatlantic Financing Corp v. United States
Held: Increased cost due to Suez Canal closure did not frustrate contract.
Principle: Economic hardship from geopolitical events is insufficient.
5. Key Judicial Principles
(1) Illegality is निर्णायक (Decisive)
If sanctions make performance illegal → strong force majeure case.
(2) Strict Interpretation of Clauses
Courts will not extend clauses to cover sanctions unless:
Expressly stated, OR
Covered under “government action”
(3) Causation Must Be Proven
Sanctions must directly prevent performance
Not merely create risk or inconvenience
(4) Duty to Mitigate
Parties must explore lawful alternatives
Failure undermines claim
(5) Payment Obligations Are Scrutinized Strictly
Courts are reluctant to excuse:
Pure payment obligations
unless legally prohibited
6. Practical Scenarios
Scenario 1: Export Ban
Goods cannot be shipped due to sanctions
✔ Likely force majeure (illegality)
Scenario 2: Payment Blocked by Sanctions
Bank refuses transfer due to sanctions
✔ May qualify if no alternative channel exists
Scenario 3: Increased Compliance Costs
Additional licensing or due diligence required
✖ Not force majeure
Scenario 4: Secondary Sanctions Risk
Fear of penalties from foreign jurisdiction
✔ Depends on clause wording (see Lamesa)
7. Drafting Considerations
Modern contracts should include:
Explicit reference to sanctions and embargoes
Coverage for:
Primary and secondary sanctions
Banking restrictions
Clear provisions on:
Suspension vs termination
Payment obligations
Mitigation and notice requirements
8. Conclusion
Force majeure due to sanctions is highly fact-specific and clause-dependent. Courts consistently emphasize:
Illegality = strongest ground for relief
Economic hardship = insufficient
Causation and mitigation are critical
Precise drafting determines outcomes
In a globalized economy, sanctions have become one of the most litigated force majeure triggers, making careful contractual planning essential.
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