Restrictive measures against Russia

Report
Restrictive measures against Russia
Effect on new and existing contracts
Oslo, 9 September 2014
Jon Christian Thaulow and Trond Lingaas
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Agenda
1. Background and legal framework
2. Main content of the sanctions against Russia
3. Asset freeze sanctions
4. Sectorial sanctions
5. Impact on new and existing contracts
6. Summary and conclusion
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International trade sanctions
- Resolutions adopted by the UN Security Council under Chapter VII of
the UN Charter
• Binding on UN member states
- Resolutions adopted by the EU Council under the framework of the
Common Foreign and Security Policy
• For instance if there is a deadlock in the Security Council
• Standard building blocks, general guidelines
• Binding on EU member states, not part of the EEA Agreement, not binding for Norway
- Introduction and implementation of restrictive measures must be in
accordance with international law
• Human rights and fundamental freedoms
• Free trade agreements / WTO Agreements
• The General Agreement on Tariffs and Trade (GATT) include specific conditions for
when restrictive measures that affect trade my be imposed
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Norwegian trade sanctions
- Implementation in national law through specific legislation passed by
Parliament
• Examples: specific acts concerning trade restrictions with Argentina, South Africa and
Namibia and Yugoslavia.
- Norwegian Trade Sanctions Act of 2001
• General authority to pass secondary regulations
• The original intention of the Trade Sanctions Act was to be able to mirror/implement
EU sanctions, but the government is granted certain flexibility
• Public law / contract law ?
- Violating regulations passed under the Trade Sanctions Act is a criminal
offence.
• This includes willful and negligent violations, as well as any person who aids or abets
such an offence.
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Agenda
1. Background and overview of the legal framework
2. Main content of the sanctions against Russia
3. Asset freeze sanctions
4. Sectorial sanctions
5. Impact on new and existing contracts
6. Summary and conclusion
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Current sanctions regime
- Theme: EU and Norwegian trade sanctions against Russia
• Purpose
- Certain related topics that will not be addressed:
• The politics behind the introduction of the restrictive measures
• United States or other national governments sanctions against Russia
• Russian sanctions
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Overview of applicable sanctions
EU and Norway have implemented three main categories of restrictive
measures:
1. An asset freeze programme:
• Prohibiting transactions that involve the funds or economic resources of natural and legal persons
designated by a sanctions list
2. Sectoral sanctions targeting the Russian energy, defence and financial
sectors:
• Prohibitions in relation to export of arms and dual use goods for military end users
• Restrictions on the export of certain types of oil E&P technologies and related services
• Prohibitions on dealings in certain financial instruments issued by listed Russian financial
institutions and related services
3. Restrictions targeting Crimea and Sevastopol:
• Prohibitions in relation to financing, import of goods and export of certain key equipment and
technology
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Main legal framework (EU)
- EU imposes sanctions via Decisions and Regulations
- Council Regulation No. 269/2014 (asset freeze)
- Council Regulation No. 625/2014 (Crimea and Sevastopol)
- Council Regulation No. 833/2014 (sectoral sanctions Russia)
- 17 March (asset freeze)
31 July (sectoral sanctions Russia)
• New EU sanctions adopted 8 September
- The EU sanctions do not have direct legal effect in Norway
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Main legal framework (Norway)
- Regulation of 15 August 2014 no. 1076
• Issued by royal decree pursuant to Act of 27 April 2001 no. 14 (the Trade Sanctions
Act)
- Translated and compiled in one regulation
- 21 March (asset freeze)
15 August (sectoral sanctions)
- Mainly the same content as the EU sanctions, some key differences
• Some clauses have not been included
• Different jurisdiction
• Different effective dates
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Agenda
1. Background and overview of the legal framework
2. Main content of the sanctions against Russia
3. Asset freeze sanctions
4. Sectorial sanctions
5. Impact on new and existing contracts
6. Summary and conclusion
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The asset freeze sanctions
- What is prohibited (§ 3)?
• All funds and economic resources belonging to, owned, held or controlled by any listed natural or
legal persons, or natural or legal persons associated with them shall be frozen.
- “Funds” and “economic resources”
• No funds or economic resources shall be made available, directly or indirectly, to or for the
benefit of the listed natural or legal persons or natural or legal persons associated with them.
- Who are targeted?
• Directly - Natural and legal persons listed in an annex to the regulations
• Indirectly - Persons owned, controlled or associated with a listed natural or legal person
- Impact on new and existing contracts
- Some limited exemptions
- Practical advice
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Agenda
1. Background and overview of the legal framework
2. Main content of the sanctions against Russia
3. Asset freeze sanctions
4. Sectoral sanctions
5. Impact on new and existing contracts
6. Summary and conclusion
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The sectoral sanctions targeting the Russian energy sector
- Who are targeted?
• Whole sectors of the Russian economy, including the energy sector (finance
and defence sector is not addressed)
- Sanctions imposed on the Russian energy sector
• Prior authorization is required for direct or indirect export, supply, transfer
etc. of 30 listed technologies for use in the oil industry to natural or legal
persons in Russia or for use in Russia, cfr. § 17.
- The listed technologies
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The sectoral sanctions targeting the Russian energy sector
- Prior authorization is also required for direct or indirect provision of:
• technical assistance (typically oil service)
• brokering services (third parties facilitating transactions)
• financing and financial assistance (finance sector)
- related to the listed technologies to natural or legal persons in Russia
or for use in Russia, cfr. § 18 (3) and § 1 g) and h)
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The sectoral sanctions targeting the Russian energy sector
- An authorisation system has been implemented
- Authorisation will not be granted for exports, transfers etc. of the listed
technologies to deep water, Artic or shale oil projects in Russia
- Prior authorisation may be granted for contracts entered into prior to 16 August
(Norway) and 1 August (EU)
- Some practical reflections
• Frame agreements
• Options
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Agenda
1. Background and overview of the legal framework
2. Main content of the sanctions against Russia
3. Asset freeze sanctions
4. Sectorial sanctions
5. Impact on new and existing contracts
6. Summary and conclusion
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Legal effects between the parties - some high level
reflections
- Assumption: A Norwegian company is prevented from performing under a
contract with a Russian company – what will be the impact on the contractual
relationship?
A
Norwegian
company
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Russian company
Legal framework
- The EU Regulation contains a «no claims and no liability» clause:
• No claims may be enforced by a Russian party against EU parties who fail to perform
under a contract due to EU trade sanctions
- The Norwegian trade sanctions against Iran from 2007 contained a «no
claims and no liability» clause.
- The «no claims and no liability clause» was indirectly included in the
sanctions against Libya and Syria of 2011.
- The «no claims and no liability» clause has been omitted from the
sanctions against Russia
- Contractual sanctions must be determined based on applicable
background law
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Contracts entered into prior to the trade sanctions
- Non-performance under a contract due to trade sanctions will
normally be considered and «impediment beyond control» or a «force
majeure event»
• See Sale of Goods Act Section 27 / CISG Art. 79
- Risk of being black-listed has also been accepted as a force majeure
event (see Rt. 1923 I. s 40)
- Traditional case law focuses on place of «delivery» and whether
«delivery» as such is prevented by trade sanctions (see Rt. 1921 s 142,
Rt. 1937 s 1005)
- Discussion: is it a requirement that the party has made reasonably
efforts to obtain an exemption / permit from the Ministry?
- Discussion: should each party bear the risk of their «own» sanctions»
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Contracts entered into after the trade santions
- Existing / known sanctions and trade restrictions have traditionally not
recognized as an «unforseeable event» or which could «not reasonably
have been taken into account»
• Rt 1962 s 175 (Import of a Penta diesel engine required a permit, which was not
granted, which was considered a seller risk)
- Seller can be held liable to pay compensation
- Are further developments in trade sanctions foreseeable and therefore
a seller risk?
• Rt 1922 s 562 – seller should have anticipated the German “submarine blockade” of Great Britain
• Rt 1934 s 507 – seller should have anticipated ice on the Rhine river
• More liberal approach in new case law
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Agenda
1. Background and overview of the legal framework
2. Main content of the sanctions against Russia
3. Asset freeze sanctions
4. Sectorial sanctions
5. Impact on new and existing contracts
6. Summary and conclusion
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Clear contractual regulations are required
- The scope of the current trade sanctions are unclear, and the seller
will have the «interpretation risk» if a reservation is not made in the
contract
- New trade sanctions may be imposed during the life of the contract, in
which case the seller will need a clean way out
- Norwegian background law is not clear in all instances with respect to
allocation of risk for trade sanctions, and this represents a risk if there
is no clear contractual regulation
- Contracts may be governed by non-Norwegian law and with dispute
resolution outside Norway, and in such case Norwegian trade sanctions
may not be recognized without clear contractual regulations
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When in doubt, an exemption should always be applied for
- Very broad wording leaves room for discretionary assessments
- The Ministry of foreign affairs may give exemptions from the
Norwegian regulation in special circumstances, cfr. § 21
- Prohibited to participate in activities that seek to circumvent the
sanctions, cfr. § 20
- Breaches are punished through fines and imprisonment, cfr. § 22
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The road ahead……
• New sanctions to be implemented?
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Contact info
Jon Christian Thaulow
Trond Lingaas
Oil & Energy
Oil & Energy
+47 21 016 662
+47 90529550
[email protected]
+47 21 016 694
+47 92044674
[email protected]
Advokatfirmaet BA-HR DA
Tjuvholmen allé 16, NO-0252 Oslo | PO Box 1524 Vika, NO-0117 Oslo
T: +47 21 00 00 50 | E:[email protected] | www.bahr.no
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Extra
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Who the sanctions apply for
- The EU sanctions apply:
a) within the territory of the Union;
b) on board any aircraft or any vessel under the jurisdiction of a Member State;
c) to nationals of a Member State;
d) to legal persons incorporated or constituted in a Member State;
e) to any legal person in respect of business done within the Union.
- The jurisdiction of the Norwegian sanctions is identical as above, save that
the Norwegian sanctions apply for Norwegian natural and legal persons, for
business performed within Norway etc.
- EU jurisdiction: Some practical implications for Norwegian companies
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EU gas imports – not yet affected
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