Applicability of force majeure during quarantine and fight against the spread of coronavirus (COVID-19)

Law No. 530-ІХ “On Amendments to Certain Legislative Acts of Ukraine aimed at Preventing the Occurrence and Spread of Coronavirus Disease (COVID-19)” entered into force on March 17, 2020. In particular, the provisions of this Law determine that now force majeure (force majeure circumstances) apply to the quarantine established by the Cabinet of Ministers of Ukraine. Corresponding changes have been made to the Law of Ukraine “On Chambers of Commerce and Industry in Ukraine”.

Key issues:

• Mandatory aspects that the Chamber of Commerce and Industry of Ukraine takes into account when determining the existence of circumstances of force majeure
• Recommendations for business representatives who cannot fulfill their obligations due to the coronavirus pandemic and measures against its spread (quarantine), before applying to the Chamber of Commerce and Industry of Ukraine

Therefore, in order to avoid negative consequences and possible litigation for business it is important to pay attention to the correct application of force majeure in carrying out business activities during this period.

As a rule, force majeure are extraordinary and unpreventable circumstances making it objectively impossible to fulfill the obligations stipulated by the terms and conditions of an agreement. At the same time, the occurrence of force majeure must be properly confirmed to defend against a potential demand for payment of penalties by a contracting party.

The Chamber of Commerce and Industry of Ukraine has the power to certify force-majeure circumstances and issue certificates confirming such circumstances.

Although the law directly defines what circumstances can be attributed to force majeure, the list is not exhaustive. That is why the parties to the agreement should describe the circumstances, which will be considered a force majeure in as much detail as possible.

The President of the Chamber of Commerce and Industry of Ukraine recently commented that the spread of coronavirus could be recognised as a force majeure in certain cases that result in the inability to fulfil obligations under economic agreements.

It should be noted that the Chamber of Commerce and Industry of Ukraine distributed the aforementioned notice prior to the adoption of the above legislative changes, meaning the statement is beyond doubt.

According to the Chamber of Commerce and Industry of Ukraine, the spread of coronavirus could be recognised as a force majeure in certain cases that result in the inability to fulfil obligations under economic agreements.

The basis for confirmation of force majeure circumstances is the presence of one or more circumstances stipulated by the Law. Among them is an epidemic. The presence in the agreements among force majeure circumstances such as an epidemic, emergency situation in the healthcare sector or restrictive actions of the authorities, strengthens the position on the recognition of facts that prevent the fulfilment of contractual obligations.

Nevertheless, it is always necessary to provide evidence that coronavirus or measures against its spread (quarantine) are circumstances that really make it impossible to fulfill the obligations under the agreement.

During the period of combating the coronavirus pandemic and the implementation of measures against its spread (quarantine) when it becomes apparent that you will be applying force majeure circumstances you should pay attention to the following mandatory aspects that the Chamber of Commerce and Industry of Ukraine takes into account when determining the existence of circumstances of force majeure:

• Emergency (exceptional nature and beyond the influence of the parties);
• Unpredictability (their occurrence or consequences could not be foreseen at the time of the agreement’s conclusion);
• Inevitability (the inevitability of an event or its consequences);
• Causal link with the circumstance and the inability to fulfill the obligation.

In such circumstances, the party to the agreement should be ready to provide evidence that coronavirus and measures against its spread (quarantine) are circumstances that really impeded the fulfillment of its obligations under the agreement and confirm every aspect of force majeure in its favor (emergency; unpredictability; inevitability; and causal link).

Particular attention should be paid to the agreements concluded after the coronavirus pandemic or quarantined is declared, because in this case the parties could be aware of the threat and anticipate the consequences.

In this case, definition and specification of these circumstances in agreements is vital in order to obtain the recognition of force majeure circumstances in the future.

The party to the agreement should be ready to provide evidence that coronavirus and measures against its spread (quarantine) are circumstances that really impeded the fulfillment of its obligations under the agreement and confirm every aspect of force majeure in its favor.

Recommendations for business representatives who cannot fulfill their obligations due to the coronavirus pandemic and measures against its spread (quarantine), before applying to the Chamber of Commerce and Industry of Ukraine:

• Issue a documentary suspension of activity in the relevant field (order, etc.);
• Notify the other party in writing;
• If possible, conclude appropriate additional agreements to agreements on the postponement of obligations (which in turn will automatically eliminate the violation of the deadlines for the fulfillment of contractual obligations and will not require a certificate of force majeure).