COVID-19 is a virus that kills business as well…

There arose an emergency now related to the nascency of the COVID-19 pandemic in the world and an epidemic in Ukraine.  The situation is extremely unpleasant even speaking in economic terms, as many businesses had to close up, or reduce production to a minimum.

The issue of protecting business is becoming urgent now, because the spread of the virus, the introduction of quarantine, declaring a state of emergency throughout Ukraine can cause malfunctions and interruptions in the operation of enterprises, and as a result, the parties’ inability to fulfill the terms of the contracts, intentional / unintentional avoidance of obligations.  Thence, let’s consider the issue of force majeure in such a troubled period.

According to part 2 of Article 141 of Law No. 671/97- Verkhovna Rada “On Chambers of Commerce and Industry in Ukraine”, force majeure (force majeure circumstances) are extraordinary and inevitable circumstances that objectively make it impossible to fulfill obligations stipulated by the terms of the contract (contract, agreement and  etc.), obligations under legislative and other regulatory acts.

On March 17, 2020, Verkhovna Rada of Ukraine adopted Law No. 3219 “On Amending Certain Legislative Acts of Ukraine aimed at Preventing the Occurrence and Spread of Coronavirus Disease (COVID-19)”.  Among other things, the document regulates the inclusion of “quarantine” in the list of force majeure circumstances provided for in Section 141 of Law No. 671/97-VR.

Thus, the legal fact of introducing quarantine now refers to force majeure circumstances, which cannot but rejoice conscientious entrepreneurs, who have become hostages of the situation.

However, at the same time, it is important to understand that the very fact of introducing quarantine on the territory of a country doesn’t mean an automatic release of business entities from fulfilling their obligations.  For the purpose to exercise this right, an entity shall carefully read the terms of its contract and understand how it should act: 1) notify the other party 2) contact the Chamber of Commerce and Industry or its regional representative office to obtain the appropriate certificate.

In addition, with respect to the tricky situation that most entrepreneurs in Ukraine faced with quarantine, the Ukrainian CCI announced the possibility of submitting an e-mail application with a minimum package of documents (copy of the contract; copy of the order (s) due to the need to terminate activity based on relevant regulatory legal acts; notifications by the other party).

With regard for each individual case, the CCI will determine whether the quarantine established by the Cabinet of Ministers of Ukraine is an extraordinary and inevitable circumstance that objectively makes it impossible to fulfill obligations under a particular agreement.

If the quarantine has made the delivery of goods, the performance of work or the provision of services unprofitable in terms of time, material costs, organizational efforts and the like, this is not yet called “the objective impossibility of fulfilling obligations”.

It should be remembered that for the purpose to recognize quarantine a force majeure circumstance, there shall be a direct cause-and-effect relationship between quarantine and the inability to fulfill obligations.  That is, the party to the contract shall not have an alternative option for fulfilling the obligation.

Thus, having received the CCI Certificate to deal with force majeure, the business entity is exempted from civil and economic liability for failure to comply with the terms of the contract.

I draw your attention to the fact that it is important to become convinced that the text of the agreement does not provide for a special procedure for notifying the counterparty and / or confirming the occurrence of force majeure circumstances, or responsibility for not notifying the counterparty.

 

 

 

 

 

 

Publications 7 April, 2020

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