12th Package of EU Sanctions – The “No Russia Rule” and how this affects aviation contracts24 April 2024

Yes, aircraft, engines and parts will be covered by the No Russia Rule.

“Aircraft, spacecraft and parts thereof” are included in Annex XI of the Existing Regulation. Jet fuel is also covered in Annex XX of the Existing Regulation, as are certain aviation related navigational equipment under the new Annex XL to the Existing Regulation.

What countries are caught by the No Russia Rule?

The No Russia Rule will apply to the relevant supply/export contracts with all third countries, with the exception of partner countries.

Third countries – countries that are not members of the EU as well as a country or territory whose citizens do not enjoy the EU right to free movement (Iceland, Liechtenstein and Norway).

Partner countries – USA, Japan, UK, South Korea, Australia, Canada, New Zealand, Norway, Switzerland.

Which contracts are caught by the No Russia Rule?

All contracts in respect of the sale, supply, transfer or export of the goods mentioned above to the countries referenced above. These are likely to include:

• operating leases (and equivalents);
• financing leases (and equivalents) including where there is a purchase obligation/option;
• sale agreements (aircraft trading and manufacturer contracts); and
• maintenance and support agreements/parts supply agreements/GTAs (a supply of parts with title transfer arrangements likely included).

The legislation refers to “transferring” goods as well as supplying and exporting.

When does the No Russia Rule kick in?

For new contracts being entered into, as of 20 March 2024.

For existing contracts:

• for all contracts concluded on or after 19 December 2023, as of 20 March 2024; and
• for all contracts concluded before 19 December 2023, as of 20 December 2024 (unless the contract expires before that date).

What provisions need to be included in the relevant contracts to comply with the No Russia Rule?

A contractual prohibition on re-exportation of the relevant goods to Russia, and re-exportation of the relevant goods for use in Russia.

Adequate remedies in the event of a breach of the above contractual prohibitions. For lease agreements, this will likely be a termination event/event of default for breach, and for sale agreements, an entitlement to seek appropriate remedies. Note however that a penalty clause may be held to be unenforceable under English law (see the EU model clause referenced below).

Are there any other requirements on the exporter?

If the third country counterpart breaches any of the contractual prohibitions included in the relevant agreement, the exporter must inform the competent authority of the Member State where they are resident or established as soon as they become aware of the breach.

To whom do EU sanctions apply?

The above will only apply where EU sanctions bite on the exporter (which is quite broad). This may be the case in respect of:

• any acts within the EU’s territory;
• on board any aircraft or any vessel under the jurisdiction of a Member State;
• to any person inside or outside the territory of the EU who is a national of a Member State;
• to any legal person, entity or body, inside or outside the territory of the EU, which is incorporated or constituted under the laws of a Member State; and
• to any legal person, entity or body in respect of any business done in whole or in part within the EU.

Is flying leased aircraft to and from (but not within) Russia prohibited as a result of this legislation?

It does not appear that this is the case. The EU has previously issued guidance that such operations are not “for use in Russia” and so likely should not be treated as a re-exportation to Russia or for use in Russia.

Has there been guidance from the EU on the No Russia Rule?

Yes, and this is attached at Annex 2 to this Note. The guidance includes a model clause.