How to Allocate War, Currency, Logistics and Regulatory Risks in a Contract
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During contract performance, an exchange rate may change sharply, a usual delivery route may become unavailable, or a new prohibition may make importing the goods impossible. If the contract does not define the consequences of such events, each party will interpret the situation in its own favor.
For example, a Ukrainian supplier agreed to deliver equipment at a fixed price. After the agreed route was closed, transportation costs increased by 40%. The supplier demands a price increase, while the buyer insists on the original terms. A general force majeure clause does not answer who must bear the additional costs or whether the route may be changed without the buyer’s consent.
To avoid this type of dispute, a contract should not merely list risks. It should allocate them between the parties and establish a procedure for each one: who bears the costs, when the price or deadline may be changed, which documents confirm the event, and under what conditions the contract may be terminated.
Why Should Contract Risks Be Allocated Between the Parties in Advance?
The phrase “the parties are not liable for force majeure” does not resolve most practical problems. Under Article 617 of the Civil Code of Ukraine, a party is released from liability if it proves that the breach occurred due to an accident or force majeure. This does not mean, however, that the contract automatically terminates, the price is revised, or all losses shift to the other party.
Moreover, the mere existence of war, a currency restriction, or a border delay does not prove that a particular contract cannot be performed. A causal link must be established between the event and the breached obligation.
Contract risks should therefore be allocated in advance: for each material risk, the contract should determine:
- what event is treated as a risk event;
- which party controls the relevant part of performance;
- who bears the additional costs;
- within what limits the price, deadlines, or method of performance may change;
- when performance may be suspended;
- under what conditions a party may terminate the contract;
- how and when the counterparty must be notified;
- which documents confirm the event.
For example, if the seller arranges delivery, it is reasonable for the seller to absorb an ordinary increase in freight rates up to an agreed percentage. If transportation costs exceed that threshold because a route has been closed, the parties may share the additional costs or revise the price.
If the contract involves a substantial advance payment, deferred payment, or a large shipment, risk allocation should be supplemented by checking whether the counterparty has assets and a genuine ability to perform its obligations. We discuss this type of review in more detail in “Checking a Counterparty’s Assets, Encumbrances, and Solvency Before a Major Transaction.”
How Should War Risks Be Addressed?
War risks may include damage to a production facility or warehouse, shelling of a transport route, evacuation of employees, mobilization of key personnel, prolonged power outages, or closure of a port or border crossing.
A force majeure clause should not state that any war-related event automatically releases a party from all obligations. What matters for the contract is how the specific event affected performance.
For example, shelling of the warehouse where goods designated for the buyer were stored may make delivery by the agreed deadline impossible. By contrast, an air raid alert in another region that did not affect production or delivery is not, by itself, grounds for nonperformance.
The contract should address:
- the war-related events that may affect the specific transaction;
- the obligation of a party to take reasonable measures to mitigate the consequences;
- the possibility of using another warehouse, route, or method of performance;
- an extension of the deadline only for the period of the actual delay;
- the maximum suspension period after which the contract may be terminated;
- the settlement procedure for goods already delivered or services already provided.
Force majeure circumstances may be certified by the Ukrainian Chamber of Commerce and Industry and authorized regional chambers under Article 14¹ of the Law of Ukraine “On Chambers of Commerce and Industry in Ukraine”. However, even a certificate does not replace evidence that the specific event prevented performance of the particular obligation.
How Should Currency Risks Be Allocated?
Currency risk may arise from exchange-rate changes, a prohibition on purchasing or transferring foreign currency, bank restrictions, or an inability to make payment through the selected account.
First, the currency clause in the contract should specify the currency in which the price is denominated and the currency of payment. In a contract between Ukrainian parties, the price may be pegged to a foreign currency while payment is made in hryvnias at an agreed exchange rate. The contract should expressly state:
- which exchange rate applies—the National Bank of Ukraine rate, the rate of a specific bank, or another benchmark;
- the date on which that rate is determined;
- whether the amount is recalculated after the invoice is issued;
- what happens if the exchange rate changes sharply.
For example, the parties may agree that an exchange-rate fluctuation of up to 5% does not change the price. If the rate changes by more than 5%, the price is recalculated only for the excess portion, or the parties agree within five business days on a revision of the contract price.
For an international trade contract, the parties should separately specify who pays bank fees and intermediary bank charges, and whether payment is deemed made when funds are debited from the payer’s account or when they are credited to the recipient.
An exchange-rate change and a payment prohibition are not the same thing. If payment cannot be made because of a currency restriction, the contract may provide for another permitted account or a change in the payment deadline or currency. Any alternative payment method must, however, comply with currency and sanctions legislation. Restrictions on certain foreign-currency transactions during martial law are established, among other rules, by Resolution No. 18 of the Board of the National Bank of Ukraine.
How Should Logistics Risks Be Allocated in a Contract?
Logistics risks are not limited to a complete stoppage of delivery. They also include border delays, route closures, carrier refusal, damage to goods, transport shortages, and a material increase in transportation costs.
The contract should clearly specify:
- who selects and pays the carrier;
- the place and deadline for transferring the goods;
- the point at which the risk of loss of or damage to the goods passes;
- who prepares the export, import, and transit documents;
- whether the route may be changed without additional consent;
- who pays demurrage, storage, and redelivery costs;
- what deviation from the delivery deadline is permitted;
- when a delay gives a party the right to reject the delivery.
In international trade contracts, these issues are often allocated using Incoterms® 2020 rules. However, simply stating “FCA” or “DAP” is not enough. The exact place and the edition of the rules must be specified, and the selected term should be checked against the actual transportation arrangements.
For example, the parties agreed on DAP Warsaw, Incoterms® 2020. The seller bears the delivery risks up to the specified place in Warsaw. The contract should still explain what happens if the agreed border crossing is closed and the new route increases costs and delays delivery by two weeks.
A practical solution may be to set a threshold for additional costs. For example, the seller covers an increase in delivery costs of up to 10%, while any excess is agreed separately by the parties. If they cannot reach agreement within the specified period, either party may cancel the unperformed part of the delivery.
Worth reading: Are you entering into a contract specifically with a foreign counterparty? We discuss payment arrangements, delivery, Incoterms, liability, and dispute resolution in more detail in “International Trade Agreement: How to Draft a Foreign Trade Contract That Protects Your Business Interests”
How Should Regulatory Risks and Changes in Law Be Addressed?
After a contract is signed, licensing rules, customs requirements, mandatory payment rates, technical standards, labeling rules, or import and export conditions may change.
Not every change in law constitutes a material change in circumstances or should automatically change the contract. The parties may distinguish between ordinary and material changes.
For example, the supplier may bear the costs of complying with requirements that were in force or officially published on the date the contract was signed. If a new mandatory permit or fee is introduced after that date, the parties determine who obtains it and who pays for it.
The contract should specify:
- which changes are considered material;
- who is responsible for obtaining permits and submitting documents;
- whether new taxes, fees, and costs are included in the price;
- the level of additional costs at which the price may be revised;
- how much time the parties have for negotiations;
- what happens if a new prohibition makes performance unlawful.
If performance becomes not merely more expensive but prohibited, a party should have the right to suspend the relevant transaction. If the prohibition lasts longer than the agreed period or cannot be eliminated, the contract may be terminated in whole or in the affected part.
What Risk Management Mechanisms Should a Contract Include?
Regardless of the type of risk, the contract should contain a clear procedure for responding to it.
Notice
A party should notify the other party of a risk event within a specified period, for example, within three business days. The notice should explain what happened, which obligations are affected, how long the delay may last, and what measures the party proposes.
Supporting Documents
Depending on the event, these may include a certificate from the Chamber of Commerce and Industry, a notice from a bank or carrier, a decision of a government authority, an amendment to a regulation, customs documents, invoices for alternative delivery, or a report documenting damage to the goods.
Revision of Terms
The contract should establish not merely an obligation to “negotiate,” but a specific procedure: the timeframe, the issues to be addressed, and the temporary performance arrangements. For example, the parties may have ten business days to agree on a new price or route, with no new shipments made until then.
The contract may also provide a price-adjustment mechanism: a recalculation formula, an acceptable percentage increase, or a method for sharing additional costs. This works better than requiring the parties to reach agreement only after the problem has already arisen.
Suspension and Termination
The contract should specify which obligation may be suspended and whether penalties accrue during the suspension period. Suspension should not continue indefinitely. After an agreed period, for example 30 or 60 days, the parties should either agree on new terms or obtain the right to terminate the unperformed part of the contract.
The contract should separately define the final settlement procedure, including payment for goods already delivered, return of any unused advance payment, and treatment of goods that are already in transit.
For more on how to build a systematic contracting process, see “Setting Up Contract Management: A System Instead of a Single Contract Template.”
How We Help Allocate Risks in Contracts
Our legal team analyzes not only the general force majeure clause, but the entire contract performance process. We:
- identify the war, currency, logistics, and regulatory risks of the specific transaction;
- determine which party actually controls each stage of performance;
- agree the currency, exchange rate, recalculation date, and allocation of bank fees;
- define delivery terms, the point at which risk passes, and the allocation of additional costs;
- address the consequences of new permits, prohibitions, and other changes in law;
- prepare the notice procedure and list of supporting documents;
- establish a mechanism for revising the price, deadlines, and method of performance;
- define the conditions for suspension and early termination of the contract;
- address the return of advance payments and payment for performance already completed.
If you are entering into a contract with a Ukrainian or foreign counterparty, contact us. We will analyze the risks of the transaction and prepare a contract with a clear procedure for changing, suspending, or terminating obligations.
Learn more about our legal support for contracts on the service page: Contract Practice.
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