Parties seeking to escape contractual obligations disrupted by economic sanctions face sharply different outcomes depending on the law governing their dispute, a comparative review of doctrine and arbitral and court practice makes clear. The renewed use of sanctions in connection with the conflicts in Ukraine and the Middle East has revived a debate that already accompanied earlier regimes targeting Iran, Libya and Syria, and that debate has produced a body of divergent case law.
Sanctions are now generally treated as part of international public policy, and local courts and arbitral tribunals can give them effect when deciding a case on the merits. Some jurisdictions, including the United Kingdom, have legislated to excuse performance prohibited by sanctions. Beyond that, a party affected by sanctions may reach for several distinct legal mechanisms — force majeure, imprévision or hardship, frustration, illegality and impossibility — whose availability and consequences vary across the French legal tradition, US law and English law.
Force majeure in civil law systems
Statutory force majeure operates as a default regime in many civil law jurisdictions influenced by the Napoleonic Code, including France (art. 1218 of the Civil Code), Italy (art. 1256), Portugal (art. 790/1), Spain (art. 1105) and Switzerland. To excuse non-performance, the triggering event must be unforeseeable, external to the party and irresistible. Parties can also displace the default rule through their own force majeure clauses.
ICC practice illustrates how much turns on the applicable law and the facts. In ICC case No. 18192, decided on 4 April 2014 under Swiss law, the tribunal gave effect to a contractual force majeure clause and held that an embargo flowing from UN Security Council Resolution 757 against the former Yugoslavia qualified as a force majeure event, excusing delayed delivery of industrial equipment. By contrast, in National Oil Corp. v. Libyan Sun Oil (ICC No. 4462/AS/JRI), the tribunal applied Libyan common law on a supplementary basis and rejected the defence, holding that sanctions must completely preclude performance to constitute force majeure.
Imprévision and hardship
The doctrine of imprévision, or hardship, addresses an unforeseeable change of circumstances that profoundly unbalances a continuing contract and makes performance far more onerous. It is recognised across civil law systems, including France (art. 1195 of the Civil Code), Italy (arts. 1467–1468), Portugal, Spain and Mexico. Reported applications in sanctions contexts remain scarce, though the Spanish Consejo de Estado (Dictamen nº 1980/2024) confirmed that imprévision may be invoked for cost increases caused by the COVID crisis and the events in Ukraine, subject to strict conditions.
Remedies differ by jurisdiction. Under French law, the default is renegotiation and modification rather than discharge, with judicial termination reserved for exceptional cases. Other Napoleonic-influenced systems provide for termination, amendment, or either — for example under the Argentine, Mexican, Brazilian and Bolivian codes. As with force majeure, parties may contract around the default through hardship clauses.
Common law: frustration, illegality and impossibility
Common law doctrines apply more narrowly, reflecting the primacy of contractual sanctity. In Salam Air SAOC v Latam Airlines Group SA, an English court held that government action affecting one party's benefit under a still-lawful contract did not amount to frustration; in Sage Realty v. Jugobanka, a New York court found sanctions blocking Yugoslavian assets reasonably foreseeable.
On illegality, English and New York courts diverge despite the shared label. In Mamancochet Mining Limited v Aegis Managing Agency Limited, the English court held that paying a marine insurance claim would not expose the insurer to a sanction and confirmed the claimant's entitlement. New York courts have proved more receptive, as in Nat'l Petrochemical Co. of Iran v. M/T Stolt Sheaf, where enforcement was barred as part of a plan to violate the US trade embargo.
Both jurisdictions have been reluctant to accept impossibility where performance remains feasible. English case law (Gravelor Shipping Ltd v GTLK) declined to treat sanctions as absolute impossibility, and in Red Tree Invs. LLC v. Petroleos de Venezuela a New York court held that sanctions made payment harder, not impossible.
The overarching lesson is that no single defence offers certainty. The choice of mechanism, and its prospects, depend first and foremost on the law applicable to the dispute.