How to prove the effect of force majeure on your obligations?
Today, business in Ukraine is facing quarantine. Many are forced to stop their activities or reduce turnover. We have already talked earlier about why quarantine is a force majeure event.
Today we will talk about how to properly prepare documents from the legal point of view to be able to rely on the force majeure circumstances.
Read also: How Can A Force Majeure Certificate Help A Business
Algorithm of actions to confirm the impact of force majeure on your activity
Force majeure has no “adjudicated” (predetermined) character. The party invoking the force majeure must prove the impossibility of fulfilling its contractual obligations.
Let’s talk about a situation when negotiations with the counterparty have ended in nothing and you understand that you need to prove your inability to fulfill contractual obligations.
Of course, the situation may be different. For example, lease agreements for premises (or a store in a shopping centre) that have to be closed due to quarantine - the direct causal link between events and consequences can be easily detected. But in case of outdoor advertising rental agreements, it is more difficult to rely on force majeure clauses, because, for example, the advertising material is placed on an advertising structure on the street and the level of decreased relevance of the material placed on the advertising board is difficult to evaluate or prove.
In case of supply agreements, the impossibility to perform the obligations of payment for goods or delivery shall also be proved, because the courier services of Ukraine continue working, and the financial crisis (lack of funds) as well as the growth of official/commercial exchange rate of foreign currency, the absence of the goods in the market necessary for the performance of obligations, default, economic crisis, failure to comply with its obligations by the counterparty (the debtor), etc. are not force majeure events. These are hardship circumstances, which may be considered in court, relying on the norms of civil and commercial law.
In any of the above situations, the proof of force majeure that the court deems sufficient may be a Force Majeure Certificate issued by the Chamber of Commerce and Industry.
Read also: Legal Advices To A Business During Quarantine
Peculiarities of the Certificate of the Chamber of Commerce and Industry of Ukraine
The Force Majeure Certificate can be obtained even after quarantine, but confirmation documents must be prepared in time. The issuance of this document indicates a “positive verdict” and confirms the occurrence of force majeure circumstances for a certain agreement.
It’s worth remembering that if the agreement does not clearly stipulate that the confirmation of force majeure event is mandatory and falls exclusively within the competence of the Ukrainian Chamber of Commerce and Industry (hereinafter - CCI), you can apply to the regional CCI.
By the way, the competence of the Chamber of Commerce and Industry of Ukraine, in addition to the aforementioned agreements between residents, also covers foreign trade transactions, international and foreign economic agreements.
The CCI Certificate provides a business with additional legal grounds to postpone the fulfillment of contractual obligations or to review the conditions of their fulfillment during quarantine, but they can hardly be completely cancelled for all cases.
For example, the CCI Certificate will not exempt from the obligation to pay rent and utility/operating costs after quarantine. Therefore, if you want to avoid problems after the end of force majeure, you should consult with a lawyer on how to properly arrange all formalities.
You may also like: What To Do With The Lease Agreement In Case Of Force Majeure?
What are the prospects for litigation if you have the CCI Certificate?
Case law defines the CCI Certificate as one of the types of evidence and is assessed by the court in resolving the dispute on an equal basis with other evidence.
The conditions of force majeure set forth in the agreement play an important role. For example, the agreement may contain a clause that prohibits a party that has violated the procedure for notifying of force majeure from invoking force majeure circumstances as a basis for exemption from liability.
We recommend that a business, in its notification letters to the other party to the agreement, adds a reference to the Civil and Commercial Codes of Ukraine to increase the chances of a positive result in case of litigation. For example:
- If you have decided to terminate the agreement due to significant changes in circumstances - it is worth giving a reference to part 1 of Art. 652 of the Civil Code, on the basis of which the parties may terminate or amend the agreement due to a significant change in the circumstances that guided the parties when concluding the agreement;
- If you are, for example, unable to pay the rent - you can refer to the paragraph 1 of Article 652 of the Civil Code. Art. 762 para. 6 of the Civil Code of Ukraine, and ask for exemption from rent for the whole period when the property could not be used. In this case it is also worth referring to part 2 of Article 286 of the Commercial Code of Ukraine and demand reduction of rent due to circumstances you are not responsible for.
In addition, it’s worth requesting a written reply (feedback) to all notification letters, specifying the time limit for such a reply. It is also important to retain all evidence of sending such a letter - a list of attachments and mailing receipts.
The end of force majeure, as well as the commencement of force majeure, must be confirmed and recorded in additional agreements.
If you want to know how to draw up documents correctly and what strategy to choose in the event of force majeure, don’t hesitate to call us.