Contract not frustrated by Russian ban
Posted: 21st February 2013
In the context of an abortive contract for the sale of a substantial quantity of grain, the Commercial Court has ruled that the agreement was not necessarily frustrated by a temporary ban on wheat exports from Russia. The seller failed to convince the court that, on a proper interpretation of a standard term incorporated in the contract, the agreement was automatically terminated on announcement of the ban.
The seller had been ordered to pay substantial damages by arbitrators after purporting to cancel the contract on the basis that the export ban imposed by Russian Prime Minister, Vladimir Putin, made it incapable of execution. The seller was found to have wrongfully repudiated the contract.
On appeal, the seller argued that the ban covered the entirety of the period during which the goods could be delivered in accordance with the contract and that a standard ‘prohibition clause’ incorporated within it meant that the agreement was terminated forthwith by the unexpected action of the Russian government. It was submitted that it was unnecessary to show any causal connection between the export ban and the failure to perform contractual obligations.
Dismissing the seller’s appeal, the court noted that such export bans are often introduced by governments for domestic policy reasons without the wider international ramifications being thought through. It was ‘always possible’ that the ban would be lifted before expiry of the delivery period under the contract and, on a true interpretation of the prohibition clause, it was for the seller to prove that its cancellation of the contract was necessitated by the ban.