Serbia: Force Majeure - Hardship in relation to Conflict and Sanctions

Yes. The Law on International Restrictive Measures from 2016 sets out the framework for the implementation of multilateral sanctions in Serbia. In general, Serbia is obliged to implement sanctions stemming from its membership with international organisations (e.g. the UN, OSCE, etc.). Compliance is backed by criminal penalties as well as significant civil fines and forfeiture for regulatory breaches. 

In addition, where it has foreign policy interests, Serbia can and does contribute and enforce sanctions measures of other multilateral organisations even where there is no consensus at the UN level. 

Serbia, as a candidate country, is not obliged to apply the restrictive measures or sanctions imposed by the European Union. However, once sanctions are adopted, the EU usually invites third countries, including candidate countries, to align with its foreign policy declarations and measures. Candidate countries are expected to gradually harmonise its foreign policy with that of the bloc and take part in the implementation of sanctions. However, candidate countries are not formally obliged to harmonise its foreign and security policies with the EU and, consequently, are not obliged to take part in sanctions imposed by the EU.  

The legal consequences of war or sanctions on commercial contracts are not specifically regulated under Serbian law. However, contractual principles of force majeure and unforeseen circumstances may be prompted by the imposition of sanctions.

Article 137 of the Serbian Law on Contracts and Torts (Zakon o obligacionim odnosima or “LCT”) states: (1) Should performance of an obligation by one party in a bilateral contract become impossible due to an event not attributable to either party, the other party's obligation shall be terminated too, while a party performing part of his obligation may request restitution according to the rules of restitution in case of unjust acquisitions. (2) Should partial impossibility of performance be due to events not attributable to either party, one party may repudiate the contract if the partial performance fails to meet his needs; otherwise, the contract shall remain valid, while the other party shall be entitled to request a proportionate reduction of his obligation.

There is no list of force majeure events. Force majeure provisions, contained in the LTC, excuse non-performance of a particular obligation from an external event, which must have been irresistible, unforeseeable, and external to the debtor, and must make performance impossible and not merely more onerous or difficult. 

Parties are free to mutually regulate their rights and obligations under their contracts within the boundaries of the mandatory provisions of the law. The same applies to force majeure clauses. In practice, a standard force majeure clause includes a list of specific force majeure events including a catch-all provision with an aim to cover all other events that are beyond the parties' control. In the war and sanction context, it is best to avoid abstract force majeure wording because of the uncertainty that surrounds its application. Thus, we generally recommend including sanctions in the list of force majeure events that may lead to the termination or suspension of the contract.

Serbian law recognises the doctrine of 'unforeseen circumstances' (hardship), which applies to both civil and commercial contracts. Article 133 of LTC contains rules regarding unforeseen changed circumstances: If circumstances change under which the contract was concluded, the contract may be amended (if an amendment is possible and both parties agree) or terminated (possible only by court order). The main requirement is that the performance of obligations under the contract is harder for a disadvantaged party or that the purpose of the contract can no longer be fulfilled. In both cases, these requirements apply, provided that the disadvantaged party can demonstrate that the contract is no longer in accordance with the parties’ expectations, and it would be unfair for the contract to remain in force.

See the answer to the question 1, above. 

In fairly rare cases, if the foreign law has been declared applicable and a Serbian court has jurisdiction over a dispute, the Serbian court may reject the claim by referring to force majeure or unforeseen circumstances as a result of war and/or sanctions if the Serbian government has taken part in sanctions imposed by the EU.

A Serbian court will likely have to reject a claim brought by an individual or entity from the sanctioned country seeking performance of contractual obligations affected by Serbian government-imposed sanctions.

If the Serbian government does not take part in economic sanctions against Russian individuals and/or entities, Serbian courts will be slow in finding that contractual obligations have been frustrated by the implementation of sanctions after a contract has been concluded. From a practical perspective, we certainly recommend including a specific clause for the current situation in new contracts.