What does a certificate of force majeure or a change of circumstances (hardship) in today's conditions give the business?

Today, business in Ukraine has been hit harder than ever: turnovers are falling, many companies are closing. What if, for all this, there are commitments made to partners that need to be fulfilled? And what if tax liabilities?

The following economic agreements are at risk of non-fulfillment: supply agreements, purchase and sale agreements, service agreements, transportation and rent agreements, etc. How to survive the quarantine period with minimum losses? It is high time to have another read of your agreements with contractors and pay special attention to the clause devoted to force majeure.

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Let’s elaborate on the concepts of force majeure and hardship

Some of the mechanisms for postponing execution of obligations, up to and including termination of the agreement with simultaneous release from liability, are as follows: 

  • Force majeure – unforeseeable circumstances and events of insuperable force that are beyond the reasonable control of the parties to the agreement, and prevent the parties from the direct performance of contractual obligations. In our situation, it is not the COVID-19 pandemic itself, but quarantine declared due to a pandemic, that is a force majeure circumstance.
  • Hardship - a significant change in circumstances that the parties would not have foreseen at the time of concluding the agreement, but if they could forese it, the parties would not have concluded such an agreement. 

Adequate evidence of the force majeure circumstances is the Certificate of Regional Representative Offices of the Chamber of Commerce and Industry of Ukraine. For each case of non-fulfillment of the contractual obligation (that is, for each agreement) it is necessary to obtain a separate Certificate.

Let’s elaborate on how these concepts work in general and what you can do in such a situation.

Both force majeure and hardship allow you to postpone the execution of contractual obligations, as well as to fully release from obligations, without being liable for delay or non-fulfillment. Force majeure events also allow you to get a tax referrals . 

This rule works for all business entities and for all types of agreements, as it is a common rule of civil and commercial law. For example, if you have agreed to deliver the goods but have suspended your activity for the period of quarantine, you can either postpone or refuse to fulfill the agreement and deliver the goods with a reference to force majeure without any penalties.

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How can you prove that you cannot fulfill your contractual obligations due to force majeure?

There are several possible ways to address the issue.

1. Try to negotiate and use the documents you have. 

For example, standard agreements usually contain a list of force majeure circumstances and a reference to the confirmation by the appointing authority, the Chamber of Commerce and Industry of Ukraine (hereinafter the CCI). As for hardship, the parties are much less likely to prescribe such circumstances.

Certainly, the most painless and fastest way is to directly and without attraction of additional authorities agree with the partner on a delay and to conclude the additional agreement on prolongation of terms of execution of the agreement on the basis of the your existing agreement.

You can not only terminate the agreement, but also to postpone the execution of contractual obligations for the duration of force majeure circumstances, as well as for the duration of the consequences caused by these circumstances. This can be specified in the additional agreement.

We recommend that lessees who are unable to pay rent during the quarantine period should apply to this method of settlement. This is due to the fact that lessees may obtain the Certificate of Force Majeure only in case of impossibility to use the rented premises for the intended purpose due to the state ban on conducting business activities.

2. Apply to the CCI for the Certificate.

If the counterparty drives a hard bargain, or, for example, you do not have a written agreement, you must notify your counterparty of the occurrence of force majeure and at the same time apply to the CCI for the Certificate.

Since the rules came into force on March 17, 2020, according to which the quarantine is included in the list of circumstances that can be recognized as force majeure by the CCI, you can safely apply for the Certificate of Force Majeure.

The procedure for obtaining the CCI Certificate.

The enterprise should submit to the regional Chamber of Commerce and Industry a standard application with a minimum package of documents: 

  • A copy of the agreement; 
  • A copy of the order (decree) on termination of the company’s business activities due to quarantine; 
  • A notice (letter) sent to the other party about impossibility to fulfill your obligations under the agreement due to quarantine. 

This package of documents can be sent electronically. You can find the contacts of regional chambers of the Chamber of Commerce and Industry on the websites. The Certificate of Force Majeure is issued based on the results of your application.

If you want to get such Certificate quickly and on the first try, don’t hesitate to contact us, we will help you.

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How can the situation develop further? What if it goes to trial?

The CCI certificate is strong evidence to the court. Moreover, the Regulation of the Chamber of Commerce and Industry do not even provide for a mechanism for appealing against the certificate. That is, the court cannot refuse to accept the CCI certificate as confirmation of force majeure. But as practice tells us, it can reject it due to formal reasons (for example, failure to register the certificate in the Register).

Thus, depite the fact that trial is a long-term procedure, the CCI certificate will definitely play in your favor.

And of course, do not forget to keep all documentary evidence of the impact of force majeure on the performance of your contractual obligations. If you go to court, it will be necessary to establish a causal link between the occurrence of force majeure and failure to fulfill contractual obligations, as well as to determine the time limits for your impossibility to fulfill the agreement. 

Having all the above documents, you can be assured that the court will take your side.  

If you want to know more about the possibility to use the concept of force majeure or to get the CCI Certificate quickly and easily, don’t hesitate to call us.

Publication date: 02/04/2020

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