The Impact of International Sanctions on the Performance of International Commercial Contracts A Legal Analysis in Light of Force Majeure and Hardship Principles

Abstract

International sanctions—particularly unilateral economic sanctions—have emerged as one of the most significant challenges to the performance of international commercial contracts in recent decades. These sanctions, whether directly or indirectly affecting contractual relations, have triggered complex legal disputes across jurisdictions. This article examines whether sanctions may constitute legal grounds for exemption from contractual liability under the doctrines of force majeure and hardship. The analysis is conducted within the framework of Iranian law, the United Nations Convention on Contracts for the International Sale of Goods (CISG), the UNIDROIT Principles of International Commercial Contracts, and relevant international arbitral jurisprudence. The article also explores the role of choice-of-law and jurisdiction clauses in sanction-related disputes and proposes contractual risk management strategies

Keywords: International sanctions, force majeure, hardship, commercial contracts, international arbitration, UNIDROIT Principles, CISG

1. Introduction

In the era of globalization, international commercial contracts serve as the backbone of cross-border economic transactions. However, geopolitical dynamics and foreign policy instruments—particularly economic sanctions—have increasingly disrupted the performance of such contracts. Sanctions, often imposed unilaterally and without multilateral consensus, raise serious questions regarding their legitimacy and legal consequences.

The central question addressed in this article is whether international sanctions can be deemed impediments to contractual performance, thereby justifying exemption from liability under doctrines such as force majeure or hardship. This inquiry is pursued through a comparative legal analysis involving Iranian law, international instruments, and arbitral practice

2. International Sanctions: Concept and Classification

2.1. Definition and Legal Nature

Sanctions are coercive measures adopted by states or international organizations to exert political, economic, or security pressure on targeted entities. In public international law, sanctions—particularly those authorized under Chapter VII of the UN Charter—are considered legitimate enforcement tools.

2.2. Types of Sanctions

• Multilateral Sanctions: Imposed by bodies such as the UN Security Council, enjoying international legitimacy.

• Unilateral Sanctions: Imposed by individual states or regional blocs (e.g., U.S. or EU sanctions), often lacking universal recognition and subject to legal contestation

2.3. Impact on Contractual Performance

Sanctions may:

• Render performance legally or factually impossible (e.g., export bans).

• Significantly increase the cost or delay of performance.

• Create legal risks for parties subject to domestic enforcement of sanctions.

3. Legal Qualification of Sanctions: Force Majeure and Hardship

3.1. Force Majeure under Iranian Law

Article 229 of the Iranian Civil Code provides that if a party is unable to fulfill its obligation due to an event beyond its control, it shall not be held liable for damages. This provision aligns with the general concept of force majeure in comparative legal systems

3.2. Force Majeure in International Instruments

• Article 79 CISG: Exempts a party from liability if performance is prevented by an impediment beyond its control.

• Article 7.1.7 UNIDROIT Principles: Recognizes exemption from liability for non-performance due to uncontrollable impediments, subject to notice and mitigation requirements.

3.3. Sanctions as Force Majeure

Sanctions may qualify as force majeure if they:

• Are imposed after contract formation.

• Render performance objectively impossible.

• Are unforeseeable and unavoidable.

International arbitral tribunals have accepted sanctions as force majeure in cases where these criteria are met

3.4. Hardship Doctrine

Where sanctions do not make performance impossible but render it excessively onerous, the doctrine of hardship may apply. Under Iranian law, concepts such as “impossibility of delivery” and “undue hardship” in Islamic jurisprudence provide analogous relief.

The UNIDROIT Principles (Articles 6.2.2 and 6.2.3) allow for renegotiation or termination of contracts in cases of fundamental alteration of equilibrium due to unforeseen events.

4. Comparative Analysis: Selected Jurisdictions

4.1. French Law

Under French law, force majeure requires externality, unpredictability, and irresistibility. Sanctions imposed by France or the EU are generally not considered force majeure, but foreign sanctions may qualify

4.2. English Law

In common law, the doctrine of frustration replaces force majeure. Sanctions that render performance illegal may lead to frustration, though courts apply this doctrine restrictively.

4.3. U.S. Law

U.S. sanctions, particularly those administered by OFAC, prohibit transactions with designated entities. Contracts rendered illegal by such sanctions may be excused under doctrines of impossibility or illegality

5. Arbitral Practice

5.1. Selected Cases

• ICC Case No. 12111 (2003): U.S. sanctions against Iran were deemed force majeure, excusing the seller from performance.

• ICC Case No. 13009 (2004): U.S. sanctions against Libya did not excuse performance, as alternative means of execution were available.

• UNCITRAL Case (Yemen v. Saudi Company): Regional sanctions were treated as hardship, leading to contract adaptation.

5.2. Analytical Observations

Arbitral tribunals assess sanction-related claims on a case-by-case basis, considering factors such as timing, foreseeability, and availability of alternative performance. Blanket acceptance of sanctions as force majeure is rare

6. Role of Choice-of-Law and Jurisdiction Clauses

The governing law of the contract determines whether sanctions can excuse performance. For example:

• Iranian Law: May reject unilateral sanctions as force majeure unless performance is truly impossible.

• U.S. Law: Treats OFAC sanctions as binding, rendering performance illegal.

• Swiss Law or UNIDROIT Principles: More flexible, allowing hardship-based renegotiation.

Jurisdiction clauses also influence the forum’s approach to sanctions and applicable defenses

7. Contractual Risk Management Strategies

7.1. Sanctions Clauses

Explicit clauses addressing sanctions should define:

• Rights to suspend or terminate the contract.

• Procedures for renegotiation.

• Allocation of risk and liability.

7.2. Force Majeure Clauses

Inclusion of sanctions as enumerated events within force majeure clauses enhances predictability and reduces interpretive disputes.

7.3. Hardship and Adaptation Mechanisms

Contracts may include hardship clauses allowing for renegotiation or judicial adaptation in case of excessive burden due to sanctions

8. Conclusion

International sanctions—especially unilateral ones—pose serious challenges to the performance of international commercial contracts. Depending on the circumstances, they may qualify as force majeure or hardship, providing legal grounds for exemption or adaptation. However, the outcome often hinges on the governing law, arbitral practice, and contractual provisions. Parties are advised to incorporate clear sanctions-related clauses and consider the legal implications of choice-of-law and jurisdiction in their contracts