Military aggression of the Russian Federation against Ukraine is recognised as force majeure: what does it mean for contractual obligations?
On 28 February 2022, the Chamber of Commerce and Industry of Ukraine ("Chamber") issued a letter № 2024 / 02.0-7.1 (the "Letter") in order to simplify the regular procedure for certifying force majeure. The Chamber confirmed to "anyone concerned" that the military aggression of the Russian Federation against Ukraine is a force majeure starting from 24 February 2022 and until the official end of martial law in Ukraine.
This client briefing contains an overview of several legal issues important to those engaged in any kind of contractual relations in view of the recognition of Russian military aggression as force majeure.
1. General Observations Regarding Force Majeure
What is the effect of force majeure?
Force majeure exempts the party from responsibility for failure to fulfil its obligation. However, force majeure is not a release from obligation itself. The party will not be liable if force majeure directly impacts such party's ability to comply with its obligations.
Example: Ukrainian buyer and foreign supplier entered into a supply agreement. Ukrainian buyer is located within the temporarily occupied territory and/or territory of active hostilities. The foreign supplier is unable to deliver goods in time due to occupation, active hostilities or other related factors. In this case, the supplier is highly likely to be exempt from liability for failure to deliver goods in time.
Does the Letter provide for an automatic release from liability?
The courts or other dispute resolution bodies set out by the parties in the agreement decide on release from liability due to force majeure on a case-by-case basis.
The Chamber's force majeure certificate is usually treated as one of the pieces of evidence. At the same time, the Letter is not a force majeure certificate in its ordinary meaning. The certificate concerns specific contractual party and relates to such party's specific obligations, while the Letter is issued to "anyone concerned" and in relation to undefined obligations. Therefore, it is unclear, what is the legal force of the Letter and whether it will be considered valid evidence in a particular case.
- the breaching party is released from liability for non-compliance with its obligations for the duration of force majeure; or
- the breaching party has the right not to suspend the performance of its obligations for the duration of force majeure; or
- the non-breaching party has the right to terminate the agreement if the duration of force majeure exceeds a certain period (e.g. 60 days).
- repay the debt taking into account the inflation index for the entire period of delay; and
- pay default interest in the amount of three per cent per annum of the overdue amount.
- liability under Article 625 of the Civil Code;
- obligation to pay a penalty (fine, default interest) for delay under the credit (loan) agreement (penalties and other payments accrued from 24 February 2022 for late performance shall be written off).
If case of force majeure, the parties may start a formal dispute resolution procedure. Agreements may provide for the dispute resolution in Ukrainian or, if applicable, in foreign courts or alternative dispute resolution (e.g., negotiation and/or arbitration).
The statute of limitations (specified in Articles 257-259, 362, 559, 681, 728, 786, 1293 of the Civil Code) is extended for the entire duration of the martial law in Ukraine according to the Law of Ukraine "On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine Concerning the Validity of Martial Law" № 2120-IX dated 15 March 2022.
- (a) Force majeure releases a party from liability for non-compliance with the obligations and not from obligations themselves.
- (b) Chamber's Letter does not automatically release the party from liability. The release from liability for non-compliance with obligations due to force majeure has to be awarded by a court or another dispute resolution body provided for in the agreement.
- (c) If a Ukrainian law agreement is silent in relation to force majeure, the party may still rely on legislative provisions.
- (d) If an agreement contains clauses governing force majeure, the party has to pay particular attention to the requirements (e.g., deadline, procedure, form) and consequences such clauses provide for.
- (e) Lack of funds does not release the debtor from liability for failure to pay under the agreement.
- (f) For the period of martial law any borrower is released from (1) liability under Article 625 of the Civil Code and (2) obligation to pay a penalty (fine, default interest) for delay under the credit (loan) agreement.
- (g) The statute of limitations is extended for the entire duration of the martial law in Ukraine.
Our experts: Yevheniy Deyneko, Andriy Olenyuk, Yuliia Kylchynksa, Olha Horodniuk
Key issues: Ukraine, force majeure, war, martial law, contractual obligations
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