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You, as a business owner, may be asking yourself whether you can terminate your contracts with businesses in sanctioned foreign countries. Perhaps you’re concerned that the sanctions may be levied on you, or perhaps you’re concerned about the court of public opinion. Regardless of your reasoning, don’t rush feet first into cancelling your contracts. You should always consult with your lawyer first as there are many factors you may want to consider.

First, do the sanctions impact your business?

You should look into whether the sanctions apply to your business or impact your supply lines. If the sanctions have the risk of applying, you should move very quickly and carefully. You always need to ensure you and your business comply with sanctions laws and regulations. Violating sanctions law can impact your reputation and carry significant financial and criminal penalties.

If you’re looking for some publicly available information concerning the sanctions imposed on countries, check out the Canadian Government’s instructions and the U.S. Department of the Treasury.

Second, what does your agreement with the foreign business say?

You should also consider your rights and obligations under your contract with the foreign business. The ideal situation for a frictionless contract termination is when all parties to the contract wish to terminate the relationship. Your lawyers can then draft a short and simple mutual termination and release agreement, and then you all can walk separate ways. However, termination becomes an issue when the other party does not want to terminate the relationship.

If sanctions legislation impacts the contract, you may be able to resort to your force majeure clause. However, careful attention needs to be given to how it’s worded to ensure it applies in your particular circumstances (and that it permits termination rather than simply allowing your contractual performance to be delayed). Your contract may also have an explicit sanctions clause that allows you to terminate or pause the performance of obligations.

If the sanctions do not apply to your business dealings nor do they impact your ability to perform under the contract, then termination unfortunately may become more difficult. Maybe your contract has a termination for convenience clause that allows you to terminate the contract. However, beware if there are any liquidated damages that could accompany a termination for convenience. There’s also usually a notice period associated with such terminations as well that you need to look out for. There may also be other tools in your belt; however, to know what those tools are would require a careful reading of the contract.

Finally, if your contract does not explicitly include any right for you to terminate the contract early but you choose to do so anyway, you will risk facing damages for breach of contract. It is important to note that your ability to rely upon geopolitical events and sanctions to terminate the contract, as well as the determination of any possible damages if your termination is found to be a breach, will depend on which laws apply to the contract (for example, the foreign law or Canadian law).

Be prepared and prudent by asking your lawyer for help.

Importantly, you need to take extra care when you’re terminating your contracts. If you have questions about your ability to terminate or are unsure of any potential consequences, please contact Siskinds’ Business Law Group. You can also reach out to me, Savvas Daginis—a Canadian and American Business and Privacy Lawyer—at [email protected] if you have any questions.

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