The war in Ukraine has been going on for more than two months. Therefore, the issue of fulfillment of contractual obligations is becoming more acute. If at the beginning of the war for many Ukrainian companies the deadline has not come, then the more and more often there are questions of certifying force majeure or termination of the contract, which can not be performed.
Therefore, in this article we will talk about whether martial law provides an unconditional right to release from liability for breach of obligation, what is the procedure for certifying force majeure in wartime, as well as how to act if the agreement does not contain provisions on force majeure.
First of all, it should be noted that the presence of force majeure does not release from the obligation to fulfill the terms of the contract, but only provides the company with a deferral and release from liability. The party can not fulfill the obligation only in case of termination of the contract, which will be discussed in more detail below.
Unfortunately, the war as a force majeure circumstance is not something new for Ukrainian business. However, if in 2014 the territory of force majeure was limited to the temporarily occupied parts of Donetsk and Luhansk regions, now martial law has been imposed throughout Ukraine. Accordingly, this affected the procedure for certifying such circumstances.
In order to simplify the procedure as much as possible, the CCI of Ukraine issued a general one letter 2024 / 02.0-7.1 dated 28.02.2022, which recognized the martial law imposed on the territory of Ukraine by force majeure (force majeure).
Thus, in order to confirm the existence of force majeure circumstances, it is enough for companies to print the specified letter instead of going through the general procedure of certifying force majeure and obtaining a personalized certificate.
At the same time, it is still unclear whether such a letter will be accepted as a confirmation of force majeure in court. Therefore, if the company has the opportunity to apply to the CCI and obtain its own certificate, we advise you to do so.
Pay attention! The mere fact of martial law is NOT a REASON for postponement or non-performance of an obligation. Circumstances that arose in connection with the war should directly affect the ability of the enterprise to perform its duty. In addition, we should not forget about the so-called "commercial risks", which are not related to force majeure. Here are some examples:
NOT FORCE MAJOR
The supplier cannot deliver the goods to the buyer because the warehouse with the goods is on the territory of hostilities.
The company cannot deliver the goods due to refusal / absence of carriers.
Due to currency restrictions, the NBU cannot pay for imported goods.
The company has stopped working and cannot pay for the rent.
As a result of hostilities, the company's production facilities were destroyed.
The manufacturer does not receive raw materials for its products due to the fact that the supplier has stopped working.
It should be noted that since war is a very specific and unpredictable force majeure circumstance in the context of its scale, duration and consequences, it is seen that under certain conditions, even those circumstances that are not usually force majeure can be considered as such, blocking access to seaports. In this case, the lack of raw materials is not directly related to the actions of the supplier and goes beyond the usual commercial risk. In any case, each situation is individual and requires a detailed analysis in terms of unpredictability and inevitability of the circumstances.
The legislation does not contain a deadline for notification of force majeure. Therefore, it is necessary to be guided by the provisions of the contract. If the contract does not specify the terms, notify as soon as it became known about the inability to fulfill obligations. The same applies to the form of such a message. If the parties to the contract stipulate exactly how (by mail, e-mail, messenger) should be reported in case of force majeure, it is necessary to comply with the terms of the contract.
If the contract does not contain requirements for the form of notification, report in the most convenient way in these circumstances, but make sure that you can then prove the fact of notification of the counterparty.
What to do if it is impossible to fulfill the terms of the contract in terms of notification of the counterparty?
It often happens that the contract contains such requirements that it is unrealistic to fulfill even under normal conditions. For example, the notice is set to 2 business days with the addition of the CCI certificate. Obviously, in a state of martial law, such a requirement cannot be met. Moreover, such a condition cannot be met at all, as according to the law, the CCI certificate is issued within seven days.
In addition, to obtain it, you must provide confirmation of the counterparty's notification. That is, such terms of the contract, although not directly contrary to the requirements of the law, but objectively can not be met.
In this case, we advise you to notify the counterparty in any available way, even in violation of the terms and / or procedure specified in the contract. This will be proof that the company has taken all possible actions to notify the counterparty.
We remind you that even if the agreement does not contain provisions on force majeure, the party is not deprived of the opportunity to refer to them. In this case, you should be guided by the provisions of the law (Article 141 of the Law "On Chambers of Commerce and Industry of Ukraine", Article 617 of the Civil Code of Ukraine, Article 218 of the Civil Code of Ukraine).
Termination of the contract
There are also situations when due to force majeure the company is unable to meet its obligations even in the future (destruction of capacity, ban on the import of components, mobilization of workers, etc.). In this case, the contract may provide for a certain period within which the party is granted a deferral of performance due to force majeure. After the expiration of this period, the contract may be terminated at the initiative of one of the parties, for example, after the notification of termination.
From practical experience, it should be noted that it is desirable that such a provision be set out in the contract, otherwise it will be difficult to terminate the contract in court based only on the law.
The difficulty is that the case law on this issue is just being formed. Even taking into account the experience of 2014 and the quarantine period associated with Covid-19, the courts still take quite different, often radically opposite, approaches.
Some courts allow reference to a material change of circumstances (more on this ground below) as a ground for termination of the contract, others - consider that a significant change of circumstances is a completely different concept than force majeure, and therefore the use of this ground is not allowed.
It is expected that the current situation with the war will form a new practice. What exactly - will be clear soon. Meanwhile, let's pay attention to another reason that can be used to terminate the contract - a significant change in circumstances.
Significant change of circumstances
It should be noted that not all the situations that Ukrainian entrepreneurs are dealing with today can be considered force majeure. For example, due to the war, raw material prices have risen or the logistics chain has changed so much that it is possible for the company to fulfill such an agreement, but it is unprofitable.
In this case, the contract may be terminated or amended in connection with significant change in circumstances (Article 652 of the Civil Code of Ukraine). In this case, the court will need to prove the simultaneous existence of the following conditions:
- at the time of concluding the contract, the parties assumed that such a change of circumstances would not occur;
- the change of circumstances is due to reasons that the interested party could not eliminate after their occurrence with all the care and diligence required of it;
- performance of the contract would violate the balance of property interests of the parties and would deprive the interested party of what it hoped for when concluding the contract;
- it does not follow from the essence of the contract or customs of business turnover that the risk of change of circumstances is borne by the interested party.
If at least one of these conditions is missing or unproven, the court may refuse to satisfy the claim for termination or amendment of the contract.
We should also not forget about the actions that precede going to court. First of all, you need to send a written notice to the counterparty with a proposal to terminate / change the contract and wait for a response (according to the Civil Code of Ukraine - this is 20 days from receipt + time of postal circulation). If the counterparty does not receive a response within this period, only then should you go to court. At the same time, the court will need to prove the fact of such prior notification of the counterparty, the lack of consent to the voluntary termination of the contract, as well as the above conditions, which indicate a "significant" change of circumstances.
Of course, it is impossible to predict all possible scenarios of force majeure. However, as practice shows, most companies either do not include provisions on force majeure in the contracts, or specify a standard wording that in reality does not provide any understanding of how to act to the parties in the event of such circumstances. In this regard, in future contracts, we advise you to consider the following:
- Use the terms "force majeure" and "force majeure circumstances" (In judicial practice, there are cases when these concepts are distinguished).
- Prescribe the easiest way (email, messenger) and adequate time limits for notification of such circumstances. Don't forget to indicate which mail and phone are used for correspondence.
- Identify the competent authorities authorized to certify such circumstances, if it is a foreign trade agreement.
- Settle the possibility of terminating the contract in case of continuation of force majeure for a certain period of time, otherwise the pause in the performance of the contract may last forever.
Finally, we would like to add that a peaceful settlement of the situation should not be ruled out. There is always the possibility of concluding an agreement or making changes to the contract, due to which the parties will determine how to proceed.
Force majeure is an exceptional circumstance for which the party affected by such circumstances should not be liable. Therefore, the quickest and best solution for the parties in such a situation will be a settlement by mutual concessions, rather than long-term litigation.