As Western sanctions against Russia stepped up a further gear last week, a contractual dispute brewing between France and Russia threatens to have legal and economic ramifications.
It all started back in 2011 when Russia commissioned France to build two Mistral navy assault ships (bâtiment de projection et de commandement, or BPCs) for a cost of €1.2 billion. However, in recent months France’s participation in the venture has been brought under increasing scrutiny amid growing tensions over Russia’s continued involvement in the unrest in eastern Ukraine.
Protests at the French Embassy in Kiev, Ukraine, July 2014 - © Igor Golovniov, Shutterstock.com
The French government initially resisted pressure to halt the delivery, saying it would respect the existing contract.
Despite this unwillingness to budge, the mood suddenly changed on the eve of the NATO summit in Wales on 3 September, when France announced it would suspend delivery of the two ships due to concerns over the ongoing unrest, saying in a statement:
‘The recent actions of Russia in the east of Ukraine violate basic security in Europe. The President…has found that, despite the prospect of a ceasefire, which has yet to be confirmed and implemented, the conditions for France to authorise the delivery of the first BPCs are not in place.’
Although France may feel it has grounds to suspend the contract, Co-Chair of the IBA’s Rule of Law Action Group, Justice Richard Goldstone, says it is difficult to determine whether France’s actions are legally justifiable.
'Supervening events are always relevant with regard to complying with contractual obligations,' he said. 'Whether they justify reneging on contractual obligations depends on the terms of the contract and the facts of the case. However, it seems to me to be strongly arguable that Russian violation of international law with regard to the seizure of Crimea and its actions in Eastern Ukraine justify the French government not wishing to aid and abet further violations.”
‘It seems to me to be strongly arguable that Russian violation of international law with regard to the seizure of Crimea and its actions in Eastern Ukraine justify the French government not wishing to aid and abet further violations’
Co-Chair, IBA Rule of Law Action Group
Mark Handley, associate attorney in the London office of Gibson, Dunn & Crutcher, said that the exact legal contractual obligations of both parties were not clear-cut. ‘Without sight of the Mistral contract it is unclear whether France would have any basis for terminating that contract,’ he said. ‘It may simply fail to perform by not delivering the two vessels.
With the construction of one ship – the Vladivostock – virtually complete at the Saint Nazaire shipyard on France’s west coast, and the other – somewhat ironically called the Sevastopol – due to be completed in 2015, the timing of the announcement has raised a few eyebrows.
‘NATO may well have intervened, at least behind the scenes,’ said Handley. ‘The timing of the French announcement just before the NATO summit may not be coincidental. Most EU member states retain significant discretion as to authorising military exports and so have the ability to give effect to NATO policy through this mechanism. Whether France has been convinced to withhold delivery because of the promise of an alternative purchaser from within the NATO alliance will remain to be seen.’
‘It is not the contract rules that change but rather the facts that have to be taken into account in the determination of the rights and duties of the parties’
Co-Chair, IBA Rule of Law Action Group
While Handley says it is difficult to speculate on what exactly prompted France’s change of heart, he said from a legal standpoint there was nothing precedent-setting about this case.
‘It is actually fairly routine for the export control authorities to suspend or cancel export licences due to changed circumstances. To give just one recent example, on 2 September the UK government suspended 12 export control licences for equipment to Israel, having determined that there was a risk that this equipment might be incorporated into military equipment used by the Israeli Defence Forces in Gaza.’
Goldstone stresses that as far as the right for governments to renege on international commercial contracts is concerned, it always comes down to the specifics of a particular case. ‘It is not the contract rules that change but rather the facts that have to be taken into account in the determination of the rights and duties of the parties,’ he said.
In July the Ukrainian ambassador to the EU, Kostiantyn Yelisieiev, claimed France’s decision to grant the contract in the first place could be challenged in the European courts. Although similar challenges have been heard before, whatever happens, Handley says the French courts would be the first port of call.
‘I'm not sure that the challenge would happen in the European courts – at least in the first instance – as the decision is a French one,’ he said. ‘It would be possible to judicially review a decision by the French export control authority – either to challenge the granting of a licence or to challenge the refusal of a licence. This would be in the domestic French administrative courts.
‘There have been examples of these sorts of challenges before, says Handley. Back in 2007/2008, Corner House and the Campaign against the Arms Trade brought a judicial review in the UK regarding arms sales to Saudi Arabia, and just last month the law firm Leigh Day wrote to the British government threatening (on behalf of anti-arms trade groups) to challenge the decision to continue to allow arms exports to Israel. It was partly this threat which prompted the decision I mentioned to cancel the 12 export licences to Israel.’
Ruth Green is a freelance journalist and can be contacted at email@example.com