#000 Restrictive measures against Russia Effect on new and existing contracts Oslo, 9 September 2014 Jon Christian Thaulow and Trond Lingaas

#000 2 Agenda 1.Background and legal framework 2.Main content of the sanctions against Russia 3.Asset freeze sanctions 4.Sectorial sanctions 5.Impact on new and existing contracts 6.Summary and conclusion

#000 - Resolutions adopted by the UN Security Council under Chapter VII of the UN Charter Binding on UN member states - Resolutions adopted by the EU Council under the framework of the Common Foreign and Security Policy For instance if there is a deadlock in the Security Council Standard building blocks, general guidelines Binding on EU member states, not part of the EEA Agreement, not binding for Norway - Introduction and implementation of restrictive measures must be in accordance with international law Human rights and fundamental freedoms Free trade agreements / WTO Agreements The General Agreement on Tariffs and Trade (GATT) include specific conditions for when restrictive measures that affect trade my be imposed 3 International trade sanctions

#000 - Implementation in national law through specific legislation passed by Parliament Examples: specific acts concerning trade restrictions with Argentina, South Africa and Namibia and Yugoslavia. - Norwegian Trade Sanctions Act of 2001 General authority to pass secondary regulations The original intention of the Trade Sanctions Act was to be able to mirror/implement EU sanctions, but the government is granted certain flexibility Public law / contract law ? - Violating regulations passed under the Trade Sanctions Act is a criminal offence. This includes willful and negligent violations, as well as any person who aids or abets such an offence. - 4 Norwegian trade sanctions

#000 5 Agenda 1.Background and overview of the legal framework 2.Main content of the sanctions against Russia 3.Asset freeze sanctions 4.Sectorial sanctions 5.Impact on new and existing contracts 6.Summary and conclusion

#000 - Theme: EU and Norwegian trade sanctions against Russia Purpose - Certain related topics that will not be addressed: The politics behind the introduction of the restrictive measures United States or other national governments sanctions against Russia Russian sanctions 6 Current sanctions regime

#000 EU and Norway have implemented three main categories of restrictive measures: 1.An asset freeze programme: Prohibiting transactions that involve the funds or economic resources of natural and legal persons designated by a sanctions list 2.Sectoral sanctions targeting the Russian energy, defence and financial sectors: Prohibitions in relation to export of arms and dual use goods for military end users Restrictions on the export of certain types of oil E&P technologies and related services Prohibitions on dealings in certain financial instruments issued by listed Russian financial institutions and related services 3.Restrictions targeting Crimea and Sevastopol: Prohibitions in relation to financing, import of goods and export of certain key equipment and technology 7 Overview of applicable sanctions

#000 - EU imposes sanctions via Decisions and Regulations - Council Regulation No. 269/2014 (asset freeze) - Council Regulation No. 625/2014 (Crimea and Sevastopol) - Council Regulation No. 833/2014 (sectoral sanctions Russia) - 17 March (asset freeze) 31 July (sectoral sanctions Russia) New EU sanctions adopted 8 September - The EU sanctions do not have direct legal effect in Norway 8 Main legal framework (EU)

#000 - Regulation of 15 August 2014 no Issued by royal decree pursuant to Act of 27 April 2001 no. 14 (the Trade Sanctions Act) - Translated and compiled in one regulation - 21 March (asset freeze) 15 August (sectoral sanctions) - Mainly the same content as the EU sanctions, some key differences Some clauses have not been included Different jurisdiction Different effective dates 9 Main legal framework (Norway)

# Agenda 1.Background and overview of the legal framework 2.Main content of the sanctions against Russia 3.Asset freeze sanctions 4.Sectorial sanctions 5.Impact on new and existing contracts 6.Summary and conclusion

#000 - What is prohibited (§ 3)? All funds and economic resources belonging to, owned, held or controlled by any listed natural or legal persons, or natural or legal persons associated with them shall be frozen. - “Funds” and “economic resources” No funds or economic resources shall be made available, directly or indirectly, to or for the benefit of the listed natural or legal persons or natural or legal persons associated with them. - Who are targeted? Directly - Natural and legal persons listed in an annex to the regulations Indirectly - Persons owned, controlled or associated with a listed natural or legal person - Impact on new and existing contracts - Some limited exemptions - Practical advice 11 The asset freeze sanctions

# Agenda 1.Background and overview of the legal framework 2.Main content of the sanctions against Russia 3.Asset freeze sanctions 4.Sectoral sanctions 5.Impact on new and existing contracts 6.Summary and conclusion

#000 - Who are targeted? Whole sectors of the Russian economy, including the energy sector (finance and defence sector is not addressed) - Sanctions imposed on the Russian energy sector Prior authorization is required for direct or indirect export, supply, transfer etc. of 30 listed technologies for use in the oil industry to natural or legal persons in Russia or for use in Russia, cfr. § The listed technologies 13 The sectoral sanctions targeting the Russian energy sector

#000 - Prior authorization is also required for direct or indirect provision of: technical assistance (typically oil service) brokering services (third parties facilitating transactions) financing and financial assistance (finance sector) - related to the listed technologies to natural or legal persons in Russia or for use in Russia, cfr. § 18 (3) and § 1 g) and h) 14 The sectoral sanctions targeting the Russian energy sector

#000 - An authorisation system has been implemented - Authorisation will not be granted for exports, transfers etc. of the listed technologies to deep water, Artic or shale oil projects in Russia - Prior authorisation may be granted for contracts entered into prior to 16 August (Norway) and 1 August (EU) - Some practical reflections Frame agreements Options 15 The sectoral sanctions targeting the Russian energy sector

# Agenda 1.Background and overview of the legal framework 2.Main content of the sanctions against Russia 3.Asset freeze sanctions 4.Sectorial sanctions 5.Impact on new and existing contracts 6.Summary and conclusion

#000 - Assumption: A Norwegian company is prevented from performing under a contract with a Russian company – what will be the impact on the contractual relationship? 17 Legal effects between the parties - some high level reflections A Norwegian company B Russian company SANCTIONS

#000 - The EU Regulation contains a «no claims and no liability» clause: No claims may be enforced by a Russian party against EU parties who fail to perform under a contract due to EU trade sanctions - The Norwegian trade sanctions against Iran from 2007 contained a «no claims and no liability» clause. - The «no claims and no liability clause» was indirectly included in the sanctions against Libya and Syria of The «no claims and no liability» clause has been omitted from the sanctions against Russia - Contractual sanctions must be determined based on applicable background law 18 Legal framework

#000 - Non-performance under a contract due to trade sanctions will normally be considered and «impediment beyond control» or a «force majeure event» See Sale of Goods Act Section 27 / CISG Art Risk of being black-listed has also been accepted as a force majeure event (see Rt I. s 40) - Traditional case law focuses on place of «delivery» and whether «delivery» as such is prevented by trade sanctions (see Rt s 142, Rt s 1005) - Discussion: is it a requirement that the party has made reasonably efforts to obtain an exemption / permit from the Ministry? - Discussion: should each party bear the risk of their «own» sanctions» 19 Contracts entered into prior to the trade sanctions

#000 - Existing / known sanctions and trade restrictions have traditionally not recognized as an «unforseeable event» or which could «not reasonably have been taken into account» Rt 1962 s 175 (Import of a Penta diesel engine required a permit, which was not granted, which was considered a seller risk) - Seller can be held liable to pay compensation - Are further developments in trade sanctions foreseeable and therefore a seller risk? Rt 1922 s 562 – seller should have anticipated the German “submarine blockade” of Great Britain Rt 1934 s 507 – seller should have anticipated ice on the Rhine river More liberal approach in new case law 20 Contracts entered into after the trade santions

# Agenda 1.Background and overview of the legal framework 2.Main content of the sanctions against Russia 3.Asset freeze sanctions 4.Sectorial sanctions 5.Impact on new and existing contracts 6.Summary and conclusion

#000 - The scope of the current trade sanctions are unclear, and the seller will have the «interpretation risk» if a reservation is not made in the contract - New trade sanctions may be imposed during the life of the contract, in which case the seller will need a clean way out - Norwegian background law is not clear in all instances with respect to allocation of risk for trade sanctions, and this represents a risk if there is no clear contractual regulation - Contracts may be governed by non-Norwegian law and with dispute resolution outside Norway, and in such case Norwegian trade sanctions may not be recognized without clear contractual regulations 22 Clear contractual regulations are required

#000 - Very broad wording leaves room for discretionary assessments - The Ministry of foreign affairs may give exemptions from the Norwegian regulation in special circumstances, cfr. § 21 - Prohibited to participate in activities that seek to circumvent the sanctions, cfr. § 20 - Breaches are punished through fines and imprisonment, cfr. § When in doubt, an exemption should always be applied for

#000 New sanctions to be implemented? 24 The road ahead……

Advokatfirmaet BA-HR DA Tjuvholmen allé 16, NO-0252 Oslo | PO Box 1524 Vika, NO-0117 Oslo T: | | #000 Jon Christian Thaulow Oil & Energy Trond Lingaas Oil & Energy Contact info

#000 Extra 26

#000 - The EU sanctions apply: a)within the territory of the Union; b)on board any aircraft or any vessel under the jurisdiction of a Member State; c)to nationals of a Member State; d)to legal persons incorporated or constituted in a Member State; e)to any legal person in respect of business done within the Union. - The jurisdiction of the Norwegian sanctions is identical as above, save that the Norwegian sanctions apply for Norwegian natural and legal persons, for business performed within Norway etc. - EU jurisdiction: Some practical implications for Norwegian companies 27 Who the sanctions apply for

# EU gas imports – not yet affected