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Force Majeure in condition of Quarantine

The introduction of the quarantine has clearly demonstrated the importance of the force majeure provisions of the agreements. Certification of the occurrence of circumstances leading to a delay or termination of obligations during quarantine takes place through the Chamber of Commerce and Industry of Ukraine (CCI of Ukraine) and its regional branches, as well as before quarantine, but with a few clarifications. While concluding contracts, the vast majority of entrepreneurs did not provide the possibility of termination of work due to quarantine and was limited in contracts by the standard set of force majeure circumstances.

In this regard, on March 17, the Verkhovna Rada adopted the Law of Ukraine “On Amending Certain Legislative Acts of Ukraine aimed at Preventing the Outbreak and the Spread of Coronavirus Disease (COVID-19)” (Law No. 3219), which classifies the legal fact of quarantine as force major circumstances.

As it was before, the occurrence of force majeure circumstances releases from the liability for the delay in the performance of obligations, but does not release from the obligation to fulfill them after the termination of force majeure circumstances.

In its turn, on March 23 the Ukrainian CCI made an announcement and simplified the procedure for submitting an application for obtaining a certificate of force majeure.

To receive it, it is enough to send the following documents to the CCI of Ukraine email address:

  • the corresponding application form signed by the head of the enterprise (the sample is on the website of the Ukrainian CCI);
  • copy of the contract (lease agreement with all additional agreements and annexes)
  • a copy of the order (s) in connection with the need to terminate activities on the basis of the relevant regulatory legal acts (order to terminate the activities of the enterprise in connection with the decision of the Cabinet of Ministers of Ukraine No. 211);
  • notification to the other party.

The CCI considers the submitted documents and makes a decision on the issue or refusal to issue the certificate of force majeure.

In practice, the procedure is not as simple as it seems. The existence of force majeure circumstances alone does not automatically release from liability the party that refers on it. It is necessary to prove that it was impossible to avoid the negative consequences due to force majeure.

For example, the supplier whose activities are prohibited by Decree No. 211 of CMU did not deliver goods to the grocery store on time, although he has all the opportunities (available transport, personnel, goods, etc.). In this case, the CCI will refuse to issue the certificate, however, if the store were within the populated area recognized as the COVID-19 outbreak center (relevant decisions are made by local councils and such settlements are limited by checkpoints), then there is a chance of obtaining a certificate of force major circumstances.

It is also important to remember that you cannot refer to quarantine as force majeure, if the contract was concluded after the introduction of quarantine. In this case, the parties to the contract could have foreseen such circumstances and this is not force majeure.

Due to a certain complexity of the procedure and the workload of the CCI (it was reported that more than 10,000 applications for obtaining the  force majeure certificate were submitted for consideration), entrepreneurs in most cases avoid applications to the CCI and resolve the issue by establishing agreements to defer fulfillment of obligations, reaching a reasonable compromise by meeting each other on the halfway.

Another interesting point is the presence in most contracts of a standard condition for termination of the contract in the event of prolonged force majeure circumstances (usually more than three months). If the quarantine measures are not completely canceled, already in the summer you can expect many appeals to the CCI in order to obtain the force majeure certificate for a unilateral repudiation of a contract without applying any penalties.

In the international agreements, it is usually specified in the section on force majeure that the occurrence of force majeure circumstances is confirmed by the corresponding certificate of the CCI of the country, where the force majeure circumstances are in force. Otherwise, you need to be guided by the norms of the law, which enforcement was agreed by the parties. If the parties have not determine the law governing the contract, then we appeal to section VI of the Law of Ukraine “On Private International Law” to resolve the conflict situation.

Not only Ukraine has introduced strict quarantine measures, which lead to force majeure circumstances. Many countries have limited the rights of their citizens in connection with the coronavirus pandemic so much that some of them have already declared a temporary derogation from their obligations under the Convention for the Protection of Human Rights and Fundamental Freedoms. Therefore, it should be expected that foreign counterparties also use the force majeure institution to regulate relations with Ukrainian partners.

It is also interesting that in connection with the coronavirus pandemic, the International Chamber of Commerce and Industry updated the standard force majeure warning. So, it is recommended to use “Presumed events of force majeure” for a foreign trade contract. The circumstances defined in this clause will be considered as force majeure until the party to the contract, that has not received fulfillment of obligations, proves otherwise.

Recently, our team advised a client about the possibility of resolving a dispute with a supplier from Italy, in particular, through confirmation by him of the inability to fulfill his obligations under the contract. However, as we have already noted, the best option is to establish additional arrangements for deferring the performance of obligations under the contract. Such a mechanism has helped to maintain a good relationship between the client and its supplier, as well as to achieve consensus on the necessary issues.

Source:Ukrainian lawyer

Author: Bogdan Pavlyuk