The first set of New Zealand sanctions against Russia came into force on 18 March 2022 (Sanctions). The sanctions are set out in the Russian Sanctions Regulations 2022 (Sanctions Regulations). The framework for the Sanctions Regulations is provided by the Russia Sanctions Act 2022 (Act), which came into force on 12 March 2022.

The Sanctions Regulations and the Act represent New Zealand’s response to the Russian invasion of Ukraine, and more specifically, to threats to the sovereignty or territorial integrity of Ukraine (although the Act can also be applied to other countries).

This article provides a brief overview of the Sanctions and then provides a framework for considering the impact on your commercial contracts.

Current Sanctions

The Sanctions impose restrictions and prohibitions in relation to persons traveling to, entering or remaining in New Zealand, ships and aircraft entering New Zealand and dealing with assets and services.

The last category of Sanctions will be most relevant for commercial contracts. A ‘New Zealand person’ (which includes entities that are incorporated or registered under New Zealand and foreign entities that carry on business in New Zealand) must not:

• deal with a restricted asset, including a restricted asset located outside New Zealand;

• deal with any asset, including an asset located outside New Zealand, if dealing with the asset: 

  • would result in a sanctioned person owning or controlling the asset; or 

  • would otherwise be for the benefit of a sanctioned person;

• deal with services that are: 

  • provided by a sanctioned person; or

  • provided to, or for the benefit of, a sanctioned person.

The Sanctions Regulations provide more detail on who and what constitute a ‘sanctioned person’ or a ‘restricted asset’. The Act also establishes a public sanctions register which lists all individuals, entities, assets or services that are subject to sanctions. For more information, please see this page maintained by the Ministry of Foreign Affairs and Trade.

Specific exceptions to the Sanctions in relation to assets and services are available. These include continuing to use premises that are restricted assets if those premises are a person’s principal place of residence and providing assets or services that are reasonably necessary for personal or household purposes (such as food and clothing). The Act also permits applications to be made for exemptions on the basis of humanitarian need or any other reason.

In addition, the Act requires ‘duty holders’ to make a report within three working days if they suspect they are in possession or immediate control of ‘designated assets’ (or assets owned or controlled by those listed in the sanctions register). ‘Duty holders’ currently include reporting entities under the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009, with the potential for further categories of duty holders to be added by regulations.

Civil or criminal enforcement action may be taken against entities that breach the Sanctions. 

Entities may not contract out of compliance with the Sanctions or the duty to report suspicions.

The Act provides immunity from criminal and civil proceedings for any entity with an obligation or duty imposed under the Act for any act done (or omitted to be done) to comply if that act or omission was:

(a) in good faith; and
(b) reasonable in the circumstances.

Implications for commercial contracts in New Zealand

Against the context detailed above, the framework below provides a starting point for assessing the impact of the Sanctions on your existing commercial contracts:

Are you dealing with any persons, assets or services that are caught by the Sanctions or the Act?

If not, read no further.

If the answer to question 1 is ‘yes’, does the contract provide relief if you cannot perform your obligations or wish to cancel the contract?

For example, does the contract contain ‘Force Majeure’ or ‘Material Adverse Change’ clauses? If so, do the ‘Force Majeure’ or ‘Material Adverse Change’ clauses expressly refer to sanctions? If there is no express reference, can the clauses be interpreted to apply to sanctions?

If there are express contractual mechanisms in place, do those mechanisms enable you to satisfy the requirements of the Sanctions Regulations and the Act?

For example, are you permitted to terminate the contract or only to suspend your obligations? Are there any procedural or notice requirements?

If there are no express contractual mechanisms in place, common law and/or the Contract and Commercial Law Act 2017 may also provide avenues for termination or cancellation.

What if contractual relief is not available to ensure compliance with the Sanctions and the Act?

The immunity conferred by the Act may provide protection but you should evaluate whether the good faith and reasonableness requirements described above are met. You may also want to explore whether the contract can be varied so that some level of performance of the contractual obligations and sanctions compliance are both achieved. This would require the agreement of the counterparty to the contract.

If you have assets located in Russia, how can these be protected?

This may be problematic. The immunity conferred under the Act will be upheld by a New Zealand court, but there is no guarantee it will be upheld by a Russian court. 

Dentons in New Zealand assistance

If you would like advice in relation to any contracts that you are party to, please get in touch with the Dentons in New Zealand contacts listed here or your usual Dentons in New Zealand contact.

Dentons in New Zealand has also written about what boards should consider in light of the Russia-Ukraine conflict for the Institute of Directors and we welcome you to make use of the global Ukraine/Russia support hub at Dentons.com.