Quarantine: is it possible not to fulfill obligations?

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03/17/2020 The Verkhovna Rada of Ukraine amended the list of force majeure circumstances and added quarantine to them.

Quarantine and most restrictive measures were introduced by the resolution of the Cabinet of Ministers of Ukraine № 211 of 11.03.2020, which was significantly supplemented on 16.03.2020. The current text of the resolution can be viewed here.

Unfortunately, not everyone understands the essence and consequences of force majeure. Therefore, this article to briefly explain such force majeure and how it affects the rights and obligations of the parties to the contract.

1. What is force majeure?

Force majeure - these are extraordinary and irreversible circumstances that objectively affect the fulfillment of obligations, the action of which could not be foreseen and the action of which makes it impossible to fulfill them within a certain period of time.

What is important here in the context of quarantine?

Force majeure is what makes it impossible to fulfill an obligation. That is, the introduction of quarantine is not in itself a force majeure. However, if you have undertaken to organize and conduct training for 20 people, the government's decision to ban mass meetings is a force majeure for you.

Note that it is not force majeure:

- the absence on the market of goods needed to fulfill the obligation;

- lack of necessary funds;

- financial and economic crisis;

- growth of the exchange rate and the like.

Such circumstances are usually covered by ordinary business risk. Their list is not exhaustive.

That is, if the number of orders has decreased due to quarantine, or your contractor has not delivered the necessary components to you, this is not a reason for non-fulfillment of any obligations under your contracts.

2. What does force majeure save you from?

Force majeure frees only from liability for breach of obligation. He does not release from the obligation itself.

Contracts often state that the occurrence of force majeure suspends or postpones the performance of an obligation.

So it's time to look into your contract. First, look at the essence of your obligation or the obligation of your debtor, and what are the terms of its implementation.

Next, look in the section with force majeure: whether it is provided that the term of the obligation is postponed due to the circumstances of force majeure.

If the obligations can be transferred in essence, then almost nothing changes for the parties. We can say that the fulfillment of the obligation is simply "frozen". So delivery, payment and other can be transferred. As soon as force majeure ceases, the debtor must fulfill his obligation.

However, there are obligations that are defined in such a way that they cannot be transferred. For example, you have a subscription to a fitness club for March 2020. The government has banned such establishments. This is a circumstance of force majeure. Therefore, you will not be able to ask for a refund for the days in March when the fitness club was closed.

3. What to do if force majeure has come for you?

If you are unable to fulfill your obligation due to force majeure, be sure to inform your counterparty. If your contract governs the direction of such messages, follow this procedure. If it is not settled in any way, then send by mail, but always with a description of the attachment.

It is important not to delay. Most contracts provide for a sufficiently short period of time to report force majeure. The omission of this term can lead to negative consequences - up to the loss of the right to refer to force majeure.

After notifying the counterparty, go to the Chamber of Commerce and Industry to obtain a certificate that confirms that you really have force majeure. Certificates can be issued by both regional CCI and CCI of Ukraine. Where to go - again depends on the contract. If you are not in Kiev, it is better to contact the regional CCI. If they do not issue a certificate, they will help prepare an appeal to the CCI of Ukraine. It is you, as the applicant, who will have to prove to the CCI that you cannot fulfill your obligation under force majeure. Instructions for preparing documents to obtain a certificate are available on the website of the CCI of Ukraine.

When you receive the certificate, also send a copy to the contractor.

After the expiration of force majeure, do not delay in fulfilling the obligation, as the effect of penalties will be restored.

The step of obtaining a certificate can be avoided if, after sending a notice of force majeure, you simply agree with the counterparty and make changes to the contract to postpone the fulfillment of your obligation for the period of force majeure.

4. What to do if force majeure has occurred for your debtor?

Does your debtor default and say he has force majeure?

First, analyze the content of his commitment. Make sure that the circumstances referred to by the debtor do hinder the fulfillment of his obligations.

If this is indeed the case, then pay attention to the provisions of the contract, which regulate the procedure and terms of notification of the occurrence of force majeure. Make sure that the debtor adheres to these provisions. Do not rush to officially respond to the debtor's letters sent in violation of the order.

Also determine how much you are interested in the debtor's performance of his obligation upon expiration of force majeure. Very often in the provisions of the contract governing force majeure, there are clauses that give the parties the right to unilaterally terminate the contract if the force majeure continues for a certain period of time. However, keep in mind that if the contract does not specify the consequences of early termination, and you have made a prepayment, then in case of termination of the contract with its return there may be problems. In such cases, you can find other legal grounds to actually withdraw from the contract and demand a refund of the advance payment.

If you are really interested in getting from the debtor to perform the obligation, then after the end of force majeure, do not hesitate to remind him in an official letter to perform the obligations under the contract.

5. Force majeure and rent.

Everything is on the verge here. If we talk about shopping centers, then their work is prohibited by government decision. Then for the landlord it is considered force majeure, but not for the tenant. In this case, the tenant has the right to refuse to pay the rent if he proves that access to the rented premises was limited.

For most commercial real estate users, quarantine is not force majeure. The fact that you decide to send all employees from the office to remote work is not a problem for the landlord. Your equipment and other property continue to be stored indoors, and you have constant access to it. However, there is Article 762 of the Civil Code of Ukraine, which gives the tenant the right to demand a reduction in rent, if due to circumstances for which he is not responsible, the possibility of using the property has decreased significantly. Here is a notification option for restaurateurs with the following justification: https://cutt.ly/ptmxYqK

In this case, we advise you to talk to the landlord about revising the rent. Please note that for the period of quarantine, the owners of the premises are exempt from real estate tax and payment for the land under these premises. This may be an additional argument in favor of the tenant.

Once again about the main thing:

1. Find out if you are really dealing with force majeure.

2. Read the contract carefully.

3. Determine for yourself the right strategy of behavior.

4. Observe all formalities in the relationship with the counterparty.

5. In parallel with the formalities, negotiate mutually beneficial solutions.