Force majeure and contractual obligations
On 24 February 2022, the Russian Federation launched a military aggression against Ukraine. This became the basis for the imposition of the martial law in Ukraine from 24 February 2022, with further extension until 23 August 2022.
Military aggression of the Russian Federation and/or its consequences on the territory of Ukraine may directly or indirectly affect the ability of a party to a contract (including an international contract) to fulfill its obligations to its contracting party.
Please see the answers to key questions about force majeure, as well as important recommendations.
Is the military aggression of the Russian Federation against Ukraine a force majeure circumstance?
On 28 February 2022, the Ukrainian Chamber of Commerce and Industry (the CCI of Ukraine) deviated from the standard procedure for the certification of force majeure by issuing certificates individually and issued a general official letter certifying force majeure: military aggression of the Russian Federation against Ukraine, which led to the imposition of martial law from 05:30 a.m. on 24 February 2022 for a period of 30 days, according to the Decree of the President of Ukraine dated 24 February 2022 No. 64/2022 "On the imposition of martial law in Ukraine".
The CCI of Ukraine confirmed that these circumstances from 24 February 2022 until their official ending, are extraordinary, unavoidable, and objective circumstances, in particular, for the parties to the contract, if the fulfillment of obligations under the contract became impossible within the specified period due to the occurrence of such force majeure circumstances.
How to use the letter of the CCI of Ukraine and whether it is necessary to additionally apply to the CCI of Ukraine / its authorized regional CCI to obtain a certificate?
This question depends on the situation.
Letter of the CCI of Ukraine:
may be used by anyone to whom it may concern;
allows a party to a contract not to apply to the CCI of Ukraine / its authorized regional CCI to obtain a force majeure certificate for a particular contract, while martial law is in effect in Ukraine;
at the same time, it is not an individual confirmation of the existence of force majeure under a specific contract, but rather a general clarification.
Therefore, the party, which does not have an objective opportunity from 24 February 2022 to fulfill its obligations under the contract, should notify the contracting party about this and attach a general letter of the CCI of Ukraine.
If the contracting party denies that the military aggression and/or its consequences on the territory of Ukraine interfere with the fulfillment of the obligations, then after the cancellation / termination of martial law, it is recommended to apply to the CCI of Ukraine for a force majeure certificate under a specific contract, having previously collected supporting evidence (see Recommendations below).
Is the military aggression of the Russian Federation against Ukraine a force majeure circumstance for each contract?
The military aggression of the Russian Federation against Ukraine and its consequences cannot be a force majeure for every contract. This is explained by the fact that active military operations do not take place on the entire territory of Ukraine, and the imposition of martial law has not yet led to significant restrictions of rights and freedoms. In addition, these circumstances do not make it possible to fulfill all contractual obligations without exception.
In order to determine that the contractual obligations are impossible to fulfill (namely, "impossible" itself, not "difficult" or "unprofitable"), the party must assess which specific events during the war do not allow it to fulfill its own obligations. The main condition is the existence of a causal link between the war and the affected party's inability to perform the contract.
The impossibility of performance must be caused by events independent of the party to the contract. If the impossibility is due to the acts or omissions of the party, then such an event is not force majeure.
Circumstances that are generally not considered force majeure: financial and economic crisis, default, increase of official and commercial exchange rates of foreign currency to national currency rate, non-compliance/violation of obligations by the debtor's contracting party, lack of goods on the market necessary to fulfill the obligation, lack of the debtor's necessary funds, etc.
In this context, consider three possible options:
The performance of the contractual obligation became temporarily impossible.
The performance of the contractual obligation became completely impossible.
The performance of the contractual obligation is possible (even if additional funding or other efforts are required).
(1) The party is temporarily unable to fulfill its obligation to deliver the goods to locality that is besieged by the occupier for a certain period of time, due to the disruption of the logistic chain.
(2) A party cannot completely fulfil its obligation, if as a result of hostilities, the subject of the contract, which cannot be replaced by another, has been destroyed, or the factory where the goods are to be manufactured has been destroyed.
(3) The party is unable to fulfill its obligations to pay for the goods due to a lack of full amount due to the situation in Ukraine.
Does the existence of force majeure circumstance exempt from the fulfillment of contractual obligations?
In general, a force majeure circumstance does not allow a party to the contract to avoid fulfilling its obligations after the effect of such a circumstance has expired. Force majeure circumstances allows to suspend obligations or release the party from liability for improper performance (payment of fines, penalties, etc.). Force majeure may also be a ground for amending or terminating a contract.
The contract may also provide for other consequences of force majeure (for example, prolonged effect of force majeure may give a party the right to terminate the contract unilaterally, or, conversely, impose additional obligations, such as finding a new contracting party, replacing the goods, etc).
Recommendations for the parties if:
the war and its consequences have affected the ability to fulfil your own contractual obligations;
the contracting party invokes in bad faith the war and its consequences as force majeure.
The algorithm of action in both cases is almost the same.
1. Check all existing contracts and highlight those obligations that:
are due after 24 February 2022, and
cannot be fulfilled due to the war and its consequences.
2. Check the wording of the force majeure clauses in the contract:
Which specific circumstances are included into the contract?
What is the "standard" of the impact that force majeure has on performance of contractual obligations – just an impossibility to perform the contract or other consequences as well?
Is it necessary to obtain confirmation of the occurrence of force majeure circumstance and where?
In what terms and how exactly it is necessary to notify the contracting party?
What are the consequences of the force majeure notice?
3. Check the applicable law, as it may supplement the contractual provisions on force majeure:
If Ukrainian law is applied to the contract, except for the contractual provisions on force majeure, analyze the provisions of Article 141 of the Law "On Chambers of Commerce and Industry" (including war, military events, etc. as force majeure), as well as the provisions of Article 617 of the Civil Code of Ukraine and Article 218 of the Commercial Code of Ukraine.
If the law of a foreign state is applied (mainly for international contracts), it is advised to check the default provisions of the applicable law with regard to force majeure (if any), as well as the peculiarities of the application of this institution in the relevant legal system.
If international instruments are applicable, e.g., the Vienna Convention of 1980, the UNIDROIT Principles, it is recommended to check the provisions set therein and align them with those in the contract.
4. Check the consequences of notification / non-notification of force majeure circumstance, in particular:
Is there a maximum time limit for force majeure?
Will the force majeure notice result in termination of the contract?
Will the force majeure notice under one contract have negative impact on other related contracts (e.g., within a single project or chain of contracts)?
Do you have to send a force majeure notice to other contracting parties (for example, an insurance company or a bank)?
What are the consequences of non-notification or notification after the deadline?
5. Contact the contracting party immediately, report the force majeure and explain the (temporary) impossibility of performance of contractual obligations.
Without justifiable reasons, the terms and procedure for notification of force majeure circumstance cannot be violated, otherwise the right to force majeure may be lost.
If possible, send the message in the manner prescribed by the contract. However, if in military conditions such a method is temporarily unavailable, you can use another reliable way to record the performance of dispatch: by e-mail, SMS-message or via messenger to the address of the director (another authorized person) with an explanation of the reasons for deviation from the method provided by the contract.
The other party has the right to require evidence of force majeure.
6. Collect evidence confirming the impossibility to fulfill your specific contractual obligations due to the war and its consequences in Ukraine. Such evidence may include: publications in the media, letters from other contracting parties, confirmation of the existence of force majeure circumstances from the competent authority (specified in the contract). It is also important to record the impossibility to fulfill the contractual obligations in the company's internal documents (internal orders, etc.). All this evidence may subsequently be of great importance in the classification of a particular circumstance as force majeure.
7. Be very careful when communicating with your contracting party. Keep the records in writing and record audios (with an appropriate warning thereof). It can be of crucial importance for further dispute resolution, if it comes to that. If you agree to amend the contract or terminate it within the process of communication, it will facilitate further formalization of the arrangements.
8. Check your insurance. As a rule, war is an exception. However, some insurers in the event of war provide separate insurance products (e.g., political risk insurance). Companies with an insurance policy are strongly recommended to look into it. And if such an event is considered as an insured accident, you should notify the insurance company immediately and take other steps provided for in the policy in order to maintain the right for an insurance compensation.
9. Entering the new contract after 24 February 2022, be careful. As a general rule, circumstances which existed or could be foreseen at the time of the conclusion of the contract, cannot be qualified as force majeure.
If your contracting party wrongfully invokes force majeure to justify failure to perform its obligations, please use the recommendations above.