Limited imports of grain and grain products from Ukraine: possible remedies for European importers

Introduction

In 2020 554 million EUR worth of grain and grain products were imported into the Netherlands from Ukraine.[1] Due to the war in Ukraine (and the prevailing shortage of manpower, seed and fertilizer, as well as the scarcity of fuel for agricultural machinery), neither harvesting nor sowing will be possible in the coming period.

European importers who are wholly (or largely) dependent on grain supplies from Ukraine will face difficulties in meeting their supply obligations to their customers. This Trade Update discusses which remedies could possibly help them.

Force majeure

Force majeure relieves suppliers of liability for not performing the obligation of agreements in the event of unforeseeable, insurmountable and irresistible events that make performance impossible. The force majeure situation must be unforeseeable at the time the contract is concluded and also beyond the reasonable control of the party concerned. Purchasing contracts or general terms and conditions are likely to contain a force majeure clause. Without a clause, parties will have to rely on the applicable law.

Force majeure under the agreement
The concept of force majeure is not defined in the law. It is of a regulatory nature. Parties may choose to limit or extend the scope of the force majeure provision in their contract and/or general conditions. Circumstances such as strikes, extreme weather conditions, (since corona also) pandemics and war are usually considered in commercial agreements as situations in which parties are entitled to invoke force majeure. Whether European importers can successfully invoke force majeure in specific situations also depends on the interpretation of the force majeure provision: for example, does the term "war" mean war in a country other than the one in which the parties are established, as a result of which the importer cannot fulfil his obligation(s) under the contract? Also, extreme price increases for materials or raw materials do not, in principle, constitute force majeure as long as materials or raw materials are available, unless the parties have specifically included this in their agreement. It is important to check the contracts and/or general terms and conditions: is there a force majeure provision? Can the current situation in Ukraine be included, specifically for the situation you are facing with the purchase and delivery of grain products?

Force majeure pursuant to Article 6:75 of the Dutch Civil Code
If the parties have not included a force majeure clause in the agreement, then (if Dutch law applies) an appeal to force majeure by virtue of Article 6:75 of the Dutch Civil Code may offer a solution.

Although not stated as a condition or requirement in the law, a claim for force majeure will generally not be possible if the party claiming force majeure is still able to fulfil its obligations. If fulfilment of obligations is not impossible, but to some extent inconvenient for a party, there will be no force majeure. Obstacles alone do not constitute force majeure. For example, there will be no force majeure if European importers could have purchased the grain products in question by other means than via their original (Ukrainian) suppliers in order to be able to fulfil their delivery obligation after all. In this context, it does not make any difference whether this leads to higher costs for the importer (and that the value of his delivery performance towards his customer decreases as a result). The mere fact that a loss is incurred by fulfilling its obligations under the contract does not constitute a force majeure situation. It should be noted that the nature of the product may play a role in this context. For example, it will be easier for the importer in respect of generic products (such as grain, oil, etc.) to obtain these products elsewhere, whereas in the case of specific products he will not be able to find a replacement supplier so quickly.

Nor will force majeure apply if an importer, due to a sudden shortage of the product in question, cannot fulfil his delivery obligation to all his customers at the same time, but can, for example, still deliver to a part of his customers. After all, the importer can still fulfil his delivery obligation towards a part of his customers even if this is at the expense of the other customers.

If the supplier only has a factory in Ukraine, chances are that performance is indeed impossible and a plea for force majeure will succeed. The war (or sanctions) must have created a situation where one party, through no fault of its own, can no longer fulfil the contract.

Unforeseeable circumstances

In the event that an importer can in fact still fulfil his obligation to deliver, and therefore cannot invoke force majeure, he may be able to invoke a hardship clause in the contract. A hardship clause provides for a regulation on which parties can rely in the event of unforeseeable circumstances. The parties may agree that in certain cases they are obliged to renegotiate the contract in order to adapt it to the current situation.

If the agreement does not contain such a provision, or if the parties cannot reach an agreement, they have the option of asking the court to amend or even dissolve the agreement on the grounds of unforeseeable circumstances pursuant to Section 6:258 of the Dutch Civil Code. Unforeseeable circumstances are logically understood to be circumstances which have not been (explicitly or tacitly) included in an agreement and which, at the time the agreement was concluded, were still in the future. However, the mere unpredictability of the situation is in itself insufficient for a successful reliance on unforeseeable circumstances. What is decisive is whether, when concluding the contract, the parties intended to take into account the possibility that the circumstance would occur. For example, in the context of the corona pandemic, a reliance on unforeseeable circumstances did not succeed for a contract concluded at the end of March 2020, but did succeed for a contract concluded at the beginning of 2020. In addition, a reliance on unforeseeable circumstances can only succeed if the party relying on it cannot be expected to maintain the contract unchanged. This is a very severe test and in case law the starting point is that the judge should test a reliance on unforeseeable circumstances reluctantly.

At the moment, no legal judgement has been made as to whether the circumstances in Ukraine and their consequences should be considered as unforeseeable circumstances. The fact that European importers and their customers, at the time of concluding the agreement, wished to anticipate the consequences of the current circumstances in Ukraine is, in principle, not obvious. The question whether the unchanged continuation of the agreement can be expected from the importer depends on the circumstances of the specific situation. This will have to be assessed on a case-by-case basis. We will be pleased to assist you if you have any questions in this respect.

European Commission

In a press release on 23 March 2022, the European Commission indicated that it will take action on global food insecurity, particularly in Ukraine, North Africa and the Middle East. It has indicated that it will help Ukraine to continue to plant and grow cereals and oilseeds. In addition, the Commission will facilitate exports from Ukraine and adjust existing import regulations for example for animal feed in order to reduce pressure on the export market.

About Ploum's International Trade, Customs and Food Practice Team

The specialists of our International Trade, Customs and Food Practice team will be happy to assist you if you have any questions on this topic, or on any other issues related to International Trade, Customs or Food Safety legislation. Thanks to our many years of experience in, among other things, International Trade and Logistics, we can serve you quickly and effectively. If you have any questions on this topic or any other issues regarding International Trade, Customs or Food Safety legislation, please contact one of our team members or contact Marijn van Tuijl directly (m.vantuijl@ploum.nl).