With the beginning of the full-scale invasion of russia into the territory of Ukraine, society began to discuss the issue of non-fulfillment of obligations in connection with the onset of force majeure. This topic was acute during quarantine restrictions, and in those years an extensive legislative framework (including judicial) was formed on the procedure for using the provisions of the legislation in the field of force majeure.
IS THE OCCURRENCE OF FORCE MAJEURE A GROUND FOR CHANGING THE TERMS OF THE CONTRACT?
The Resolution of the Commercial Court of Cassation as part of the Supreme Court dated 21.08.2022 in case No. 910/15264/21 states that “Extension of the term of the contract and the term of performance of obligations due to force majeure or other circumstances is possible only if the parties expressly state this in the terms of the contract, or conclude an additional agreement on this by mutual agreement of the parties after the occurrence of such circumstances”.
This means that the occurrence of force majeure is not a ground for changing the terms of the contract and exemption from the obligation.
This conclusion of the Supreme Court suggests that even if during the war you cannot fulfill your obligations under the contract – this is not a change in the terms of the contract, but an exemption from paying penalties.
WHAT IS THE EVIDENCE OF FORCE MAJEURE?
Force majeure circumstances are certified by the certificate of the Chamber of Commerce and Industry of Ukraine (CCI).
However, by Letter No. 2024/02.0-7.1 dated 28.02.2022, the CCI certified force majeure circumstances – the military aggression of the Russian Federation against Ukraine, which became the basis for the introduction of martial law, and confirmed that these circumstances from February 24, 2022 until their official end are extraordinary, inevitable and objective circumstances for business entities and/or individuals under the contract.
That is, in such cases, the certificate is not issued, and the abovementioned Letter of the CCI is the basis for exemption from payment of penalties due to force majeure under the contract.
IS IT POSSIBLE TO WITHDRAW FROM THE CONTRACT DUE TO FORCE MAJEURE IF THE CONTRACT WAS PARTIALLY PERFORMED DURING THE FORCE MAJEURE?
No, the possibility of termination of the contract due to force majeure is possible only if the parties have previously agreed on it (provided in the contract or additional agreement).
Regarding the fact that during force majeure the contract is fulfilled, but in terms of partial non-fulfillment of obligations – the party refers to the existence of force majeure circumstances, the judges of the Commercial Court of Cassation of the Supreme Court of 21.06.2022 in case No. 904/5328/21 note that “. . force majeure makes it impossible to fulfill the obligation in principle, regardless of the efforts and material costs that the party has incurred or could have incurred … at the time of the conclusion of the contract, the drought had already existed for a long period of time, which is confirmed by the case materials”.
Thus, in this conclusion of the court we can see that the existence of the CCI certificate, which is actually the basis for exemption of the party from payment of penalties under the contract, is not such evidence that will exempt from obligations (in terms of payment of penalties), since the court evaluates the totality of evidence, namely
- availability of the CCI certificate,
- the period of existence of force majeure circumstances and whether it corresponds to the period of non-fulfillment of the terms of the contract,
- the proper way to notify the party of force majeure
WHAT IS THE CORRECT PROCEDURE FOR USING THE FORCE MAJEURE INSTRUMENT?
Step 1: Search for “force majeure” clauses in the signed agreement
The following points need to be clarified:
- Does the contract contain any force majeure provisions?
- If the contract contains such provisions, how can such provisions be applied?
- What is the term, form and procedure for notifying the counterparty of the occurrence of force majeure;
In the established practice, the notice is considered to be brought to the attention of the counterparty if it is sent by certain means of communication stipulated by the contract, or with the attachment of documents confirming the circumstances, for example, a certificate of the Ukrainian Chamber of Commerce and Industry.
Step 2: Obtaining a confirmation document from the Chamber of Commerce and Industry (CCI)
The contract may contain a requirement to provide documents confirming the occurrence of force majeure, such as a certificate from the CCI, along with the notice. In the current circumstances, it is practically impossible to meet the notification deadlines and obtain an individual CCI certificate at the same time.
The Chamber of Commerce and Industry of Ukraine has already published a letter dated 28.02.2022 No. 2024/02.0-7.1, by which it certified force majeure (force majeure circumstances), namely the military aggression of the Russian Federation against Ukraine, which became the basis for the introduction of martial law from 05.30 on 24.02.2022, confirming that “… the specified circumstances from 24.02. 2022 until their official end are extraordinary, inevitable and objective circumstances for business entities and / or individuals under the contract, certain tax and / or other obligations, the fulfillment of which has occurred in accordance with the terms of the agreement, contract, agreement, legislative or other regulations and the fulfillment of which has become impossible in due time due to the occurrence of such force majeure (force majeure circumstances)”.
Please note: this letter of the CCI is not a guarantee of amnesty for any violations of contracts or legislative rules! The imposition of martial law and/or hostilities are indeed considered force majeure circumstances, which are the grounds for exemption from liability for breach of contract or certain provisions of the law (for example, tax law), BUT only if these circumstances caused the violations.
Step 3: Notification of the counterparty
After receiving the supporting document, it is necessary to inform the counterparty about the occurrence of force majeure. Write a letter with references to the relevant provisions of the contract, attach the CCI certificate and send it to the details specified in the contract.
An important point is the beginning of the notification period. Contracts often start from the moment of force majeure. Force majeure in the contract often covers the concepts of “war”, “armed aggression”, “attack” in general. So, it turns out that the term for notification begins to run from the first day of the war, so what to do if the counterparty was not notified in time?
The Presidential Decree introduced martial law (in part of the measures it refers to the Law of Ukraine “On the Legal Regime of Martial Law”) – martial law itself does not preclude the execution of contracts, only the measures taken. Therefore, in this case, the notification should indicate the moment when the business faced such measures, for example, when employees were mobilized, when the destruction of facilities occurred, when evacuation / relocation took place, when the railway began to operate in a special mode and deliveries were impossible, etc.
It should not be confused that force majeure exempts from liability for non-fulfillment of obligations (fines / penalties), but not from the fulfillment of this obligation. Therefore, force majeure does not allow avoiding the fulfillment of obligations, for example, rent payments.
Instead, force majeure allows to postpone such obligations.
Step 4: Get a response from the counterparty on the postponement of obligations
First, you need to read the contract and pay attention to the force majeure provisions, content, conditions and procedure for notifying the counterparty. Secondly, communicate with the counterparty and inform about the inability to fulfill the obligations during the period. Thirdly, explore the possibility of obtaining an individual certificate from the CCI.
