When Hell or High Water Comes: IT Sales and Service Agreements between Ukrainian and American Companies
Just prior to the conflict in Ukraine, I was asked to draft and review various agreements between two companies. A Ukrainian Software company specializing in SDK and mobile applications and an American company focused on the marketing and sale of various applications developed for controlling all of ones media from within a single smartphone app. While there are many of these apps out in the marketplace, few could do it all as well as the app developed by the Ukrainian company. Further, the cost of support and future development this company was able to offer due Ukraine’s cheap and skilled labor, allowed for some very lucrative margins in the American marketplace.
When I was brought on to help the American company negotiate and draft the agreements, the parties had been working on this deal for over a year. The American company in particular expended a lot of resources in developing the logistics, sales, and marketing strategy for the software’s release in North America. It was assumed these costs would be recouped within the first few months of sales.
The cheap and highly skilled labor of the eastern European tech sector comes with risk, but no one could have predicted that Russia would have invaded Ukraine; except for a lawyer drafting an IT Sales and Service Agreement. I remember a professor in my 1L contracts class telling us that in her 20 something years of practice, she had never seen a force majeure clause invoked to relieve one side of its performance under a contract. Well, in my few months since swearing in, I had my first.
I had insisted that the American company add a provision excluding revolution and expressly, invasion from a neighboring country. I also advised that the agreement should not allow for a number of similar contingencies allowing the Ukrainian company to nullify the contract. Unsurprisingly, the Ukrainian company took offense to these suggestions but it had to be done to protect my clients resources already invested. Ultimately, the company did not follow my advice and left the Force Majeure in the agreement in its standard form. The thinking of the client at the time was, “Look, even if there is a revolution, or an invasion of Ukraine, the Ukrainian company will be so far away from it that it won’t affect their business and I don’t want to make a big deal out of something so minor.”
Well, partly true. The company could have gone on and been relatively unaffected by the revolution and subsequent invasion by Russia had all its workers not gone to protest seeking the resignation of Ukraine’s president and to skirmish with Russian insurgents.
You can advise and plead with your client, tell them they are making a mistake, but in the end, your obligation is to carry out their wishes. Perhaps, sticking by the Ukrainian company in their time of need and allowing them to suspend all performance in lieu of an (ineffective) lawsuit, the American company will be rewarded for its friendship and loyalty. Time will tell. In any event, eastern Europe is still a lucrative marketplace for IT and software development, but the careful drafter will be mindful of the political atmosphere and advise accordingly.