The EC recently issued an EU Sanctions Fact
Sheet (Fact Sheet) [see this link] reminding
exporters/sellers of their obligations to comply
with EU sanctions regulations, even when
selling commodities under the Incoterms
EXW sales term or rule.
Incoterms, short for “international commercial terms”, are
published by the International Chamber of Commerce, and
are sets of standards used globally in contracts for the sale
and purchase of commodities. There are 11 different sets of
terms, which define the responsibilities of exporters/sellers
and importers/buyers regarding costs, risks and the point of
delivery.
The EXW Incoterm places the maximum amount of
responsibility on the buyer for the cost and risk of shipping
the goods. The seller’s only responsibility is to make the
goods available at their premises, usually at its factory or
warehouse, with the buyer then handling all subsequent costs
and risks, including transportation, export procedures and
customs clearance.
Compliance with EU sanctions (set out in Council Regulations)
is mandatory for all companies and persons under EU
jurisdiction, including individuals on EU territory, EU nationals
wherever they are located, EU flagged vessels, companies
incorporated in the EU, whether they are doing business
inside or outside the EU and foreign companies regarding
business conducted in the EU.
Consequently, a seller, subject to EU jurisdiction, will remain
under an obligation to carry out due diligence on the identity
of its buyer and the intended destination of the goods,
even when it is selling on EXW terms. The EU evidently felt
compelled to issue this Fact Sheet and guidance because
some sellers were under the mistaken or erroneous
impression that the EXW Incoterm, which normally shifted
the onus for sales, transportation and exports/customs
responsibility to the buyer, also relieved them of responsibility
for sanctions compliance.
The Fact Sheet provides an example of a seller supplying
goods on EXW terms covered by EU sanctions on Russia,
with a Russian importer collecting them from the premises
of the seller in the EU. The guidance confirms that the seller
in question would be required to comply with EU sanctions
irrespective of contracting on EXW terms and would face
liability whether it violates sanctions intentionally or by
negligence.
Further, under several of the other Incoterms, risk passes to
the buyer on loading of the goods on to the carrying means of
transport in the country of origin of the goods, and the seller then
has no further involvement in the shipment process (for example
under the FOB Incoterm), but again a seller will be expected to
undertake appropriate due diligence as to the destination of the
goods in order to satisfy its sanctions obligations.
The EU’s admonishment applies equally to logistics and
transportation companies that are not even in the sales chain
but are simply asked to retrieve the product at a warehouse
and arrange for its transport.
The EC’s message is that commercial parties’ private law
agreements cannot derogate from EU sanctions. Indeed, any
attempt by a private party to limit their sanctions obligations
would also be likely to be contrary to public policy, and
therefore unlawful under the governing law of the sale contract.
Nonetheless every case will turn on its particular facts. Parties at
times wrongly assert that sanctions apply to particular entities
or trades when they do not, to try and avoid their contractual
obligations, for example when the market turns against them,
and they do not wish to perform. It is always prudent to seek
specialist legal advice on any contract which may be affected by
the UK, EU, Swiss, US or other sanctions regimes.
