This article covers the issue on how to use quarantine as force majeure to avoid liability because of contract default.
On March 17, 2020, the Verkhovna Rada of Ukraine adopted Law No. 3219, according to which quarantine was included in the list of force majeure circumstance under Article 14-1 of the Law of Ukraine “On Chambers of Commerce and Industry in Ukraine (hereinafter - CCI)”. This provision allows the CCI to issue certificates referring to quarantine as force majeure circumstances.
The inclusion of quarantine into the list of force majeure does not mean the exemption from contractual obligations. In each particular case, those who refer to quarantine as a ground of impossibility to fulfill the contractual obligations shall legally justify this circumstance and its cause and effect relationship with such impossibility.
The occurrence of force majeure circumstances as grounds for exemption from liability for non-performance of contractual obligations established under Art. 617 of the Civil Code of Ukraine, Art. 218 of the Commercial Code of Ukraine. Article 14-1 of the Law of Ukraine “On CCI” contains an inexhaustible list of force majeure circumstances. As usual, parties enshrine the circumstances under which they are free from liability in the provisions of a contract.
Therefore, if quarantine leads to a company's impossibility to perform its obligations under the contract, the counterparty must be notified of the occurrence of force majeure. We recommend sending a letter to the official legal address of the counterparty with a duplicate to the actual address and email address specified in the contract. Together with the notice of force majeure, we recommend submitting an offer to conclude an additional agreement with amendments of the terms and conditions of the current contract.
If the counterparty fails to agree with amendments to the contract, you may apply to the CCI to get a certificate of force majeure. This is a document of the competent body authorized to confirm force majeure circumstances, that may persuade the counterparty to agree on your amendments. Moreover, if a counterparty initiates court proceedings for default, the CCI certificate will be considered as the key evidence confirming the occurrence of force majeure (by analogy with the anti-terrorist operation, see the decision of the Supreme Court of Ukraine of April 27, 2018, in Case No. 915 / 458/17).
The CCI simplified the conditions for issuing the certificate with the view of the difficult situation caused by quarantine. The application for the CCI is accompanied by a minimum package of documents, in particular, a copy of the contract, a notification to the counterparty of impossibility to fulfill contract terms due to force majeure, a copy of the order of the enterprise (for example, the suspension of activity of the enterprise or a certain kind of activity).
According to Clause 6.9 of the CCI Regulation, the documents submitted by the applicant must indicate the exceptional nature, unpredictability, inevitability of the circumstances, as well as the causal link between the circumstances and the impossibility to fulfill the contractual obligations.
The CCI application can be submitted electronically to the CCI's official email addresses or its regional Chambers of Commerce. The latter are authorized to certify force majeure on all matters within the competence of the CCI of Ukraine. The CCI of Ukraine has the exclusive competence to certify force majeure in respect of obligations under the terms of foreign trade agreements and international treaties of Ukraine; foreign economic contracts and contracts between residents, the provisions of which directly authorize the CCI of Ukraine to confirm force majeure circumstances.
The application shall be considered within 7 working days from the day of the application of the business entity and within 21 working days - from the day of the application of the individual. As a result of the review, the CCI decides to issue or refuse to issue a certificate of force majeure. The refusal of the CCI to issue a certificate may be appealed in a commercial court (Resolution of the Grand Chamber of the Supreme Court dated October 31, 2018, in Case No. 805/2078/15-a).
It is important to bear in mind that financial and economic crisis, default, increase in official and commercial exchange rates of foreign currency to the national currency, non-compliance/breach of its obligations by the debtor counterparty, absence of the necessary commodities to fulfill the obligations of the commodities, the absence of the necessary funds from the debtor and other shall not be considered as force majeure circumstances.
For example, late payment by the debtor under obligation to pay for goods or services causes the requirement to pay the inflation index and three percent per annum of the overdue amount following Art. 625 of the Civil Code of Ukraine. The existence of force majeure under the agreement does not release the counterparty from the obligation to compensate the material loss of the lender from the depreciation of money due to inflationary processes and does not deprive the lender of the right to receive compensation from the debtor for the use of the funds withheld by him (Resolution of Cassation Commercial Court of the Supreme Court dated 24 July Case No. 905/1722/17).
In conclusion, to avoid liability for non-fulfillment of contractual obligations caused by the quarantine in Ukraine, it is necessary to adhere the following instruction: to inform the counterparty of the impossibility to fulfill the contractual obligations and if it possible to agree the amendments to the terms and conditions of the contract; if necessary, to confirm the occurrence of force majeure by a CCI certificate; to document the change of circumstances that make it impossible to fulfill the obligations.
Should you have any questions, please feel free to contact us via go@gentls.com
