Judicial practice regarding the use of force majeure for business during the war – Kryvopust

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In the conditions of war, the issue of force majeure is of particular relevance.

It seems that the historical process prepared Ukrainian business for the occurrence of circumstances of irresistible force and various variations of force majeure. The economic crisis of 2008-2009, the anti-terrorist operation in Donetsk and Luhansk regions, the coronavirus pandemic, the drought, and the full-scale invasion of Russia in 2022.

The above-mentioned circumstances created prerequisites for the formation of judicial practice in the field of application of force majeure regarding exemption from liability for non-fulfillment of contractual obligations. Due to the full-scale armed aggression of the Russian Federation, disputes on these issues became even more. Accordingly, Ukrainian courts have their own established vision of force majeure during war.

When operating with any concept, especially in the legal field, its valid legal meaning is extremely important. Force majeure is not an exception, so its components are decisive for us.

The legal definition of force majeure is contained in Part 2 of Art. 14-1 of the Law “On Chambers of Commerce and Industry in Ukraine” dated 02.12.1997 No. 671/97-VR. Thus, force majeure circumstances (circumstances of force majeure) are extraordinary and unavoidable circumstances that objectively make it impossible to fulfill the obligations stipulated in the terms of the contract (contract, agreement, etc.), obligations according to legislative and other regulatory acts.

In its practice, the Supreme Court singled out the following elements of force majeure circumstances: they do not depend on the will of the participants in civil (economic) relations; have an extraordinary character; are unavoidable; and most importantly – make it impossible to fulfill obligations under the given conditions of economic activity (Resolution of the Supreme Court of January 25, 2022 No. 904/3886/21).

That is, force majeure is considered as a circumstance of irresistible force, which the obligated party is unable to prevent. Accordingly, the improper performance of the contract is not a consequence of her illegal actions and excludes the presence of fault, which is a mandatory condition for incurring liability for breach of obligation, unless otherwise established by the contract or law. Such a legal definition protects a person from liability for violations without fault, and is one of the fundamentals in civil law.

Another important legislative safeguard is Art. 617 of the CCU, which defines circumstances of force majeure as a basis for exemption from liability for breach of obligations. A similar conclusion follows from the content of Art. 218 of the Civil Code, which imposes on the business entity the obligation to prove that the proper fulfillment of the obligation turned out to be impossible due to force majeure, that is, extraordinary and unavoidable circumstances under the given conditions of economic activity.

Thus, the obligation to properly fulfill the assumed obligations is preserved, the debtor is exempted only from fines, which the participant of economic relations is obliged to pay in case of non-fulfillment or improper fulfillment of the economic obligation.

For a better understanding of the legal meaning of force majeure, consider the conclusions formulated by the Supreme Court in its Resolutions dated 07.16.2019 in case No. 917/1053/18 and dated 09.11.2021 in case No. 913/20/21. Thus, the court found that force majeure circumstances do not have a prejudicial nature, and when they occur, the party that refers to them as a reason for the impossibility of properly fulfilling the obligation must prove their existence not only by themselves, but also that they were force majeure precisely for this particular case.

It is important that this position of the judicial body does not at all nullify the principle of exemption from proof in the case of the existence of generally known facts (Part 3 of Article 75 of the Civil Procedure Code of Ukraine), on the contrary, it only indicates the need to confirm the existence of force majeure in relation to a specific business entity in specific conditions.

Therefore, force majeure as a force majeure circumstance requires proof and proper legal registration by the parties in the legal process. By itself, the existence of such extraordinary and unavoidable circumstances does not release a party from responsibility for breach of obligations assumed.

Particular attention should also be paid to the legally established form of confirmation of force majeure circumstances by third parties, which are represented by the Chamber of Commerce and Industry and its regional offices in Ukraine. These bodies, within the limits of their competence, issue certificates about such circumstances within seven days from the date of the application by the subject of economic activity. But only in the case of the existence and proper confirmation of a cause-and-effect relationship between the action of force majeure circumstances and the impossibility of fulfilling the obligation.

At the same time, the certificate of the Chamber of Commerce and Industry, which confirms the presence of force majeure circumstances, cannot be considered as indisputable proof of their existence, but must be critically evaluated by the court taking into account the established circumstances of the case and in combination with other evidence (Decrees of the Supreme Court of September 21, 2022 of 2018 in case No. 911/589/21, dated February 14, 2018 in case No. 926/2343/16, dated July 16, 2019 in case No. 917/1053/18, dated November 25, 2021 in case No. 905/55/21).

I consider such a position justified and legally correct, because the opposite would nullify the principle of competition in the court process and turn the case into a pre-settled dispute.

Ukrainian legislation recognizes a number of extraordinary and unavoidable circumstances as force majeure, including armed conflict, military operations, and undeclared war.

In connection with Russia’s full-scale invasion of Ukraine, the Chamber of Commerce and Industry posted a letter on its official website on February 28, 2022, certifying that the armed aggression of the Russian Federation is a force majeure circumstance in the context of Ukrainian legislation.

However, it is quite clear that such a letter will not always be a legal excuse for non-fulfillment of the obligations assumed. And only in combination with other proper and admissible evidence can it prove the existence of force majeure circumstances and have evidentiary value in court.

For example, the Commercial Court of Khmelnytskyi Region in its decision dated May 13, 2022 in case No. 924/183/22 did not take into account the defendant’s arguments about the existence of force majeure circumstances, certified by letter of the Chamber of Commerce and Industry No. 2024/02.0-7.1 dated February 28, 2022, because this evidence in no way confirms the fact that precisely as a result of the military aggression of the Russian Federation against Ukraine, in connection with which martial law was introduced, the defendant was unable to fulfill his obligations under the contract.

Similar conclusions were made by the Commercial Court of Dnipropetrovsk Region in the decision dated 29.07.2022 in case No. 904/1250/22, indicating that the state of war in the territory of Ukraine does not mean that the defendant cannot carry out business activities and acquire funds. The defendant did not provide evidence that the enterprise stopped work due to martial law, that all employees (or part of them), the head of the enterprise, other officials are mobilized and are in the Armed Forces of Ukraine, temporarily do not perform professional duties in in connection with military operations, all or part of the company’s movable property is used during certain measures that would prevent the business entity from carrying out business activities during the state of war.

Thus, it can be confidently stated that the courts establish the presence or absence of force majeure only on the basis of the entire evidence base, analyzing in detail each situation separately and the behavior of the parties. In addition, the letter of the Chamber of Commerce and Industry does not have a pre-established force, but can only act as an additional argument in court.

Particular attention should be paid to the importance of notifying the counterparty in the form established by the contract about the occurrence of force majeure circumstances. After all, violation of such a procedure can deprive a person of all legislative privileges of force majeure.

The Economic Court of the Dnipropetrovsk Region in its decision dated 07/29/2022 in case No. 904/1250/22 levied fines for late fulfillment of the obligation, including due to violation of the deadline for notification of force majeure circumstances of military aggression.

The opposite legal position was expressed by the North-Western Appellate Economic Court in the decision of September 27, 2022 in case No. 924/278/22, stating that the existence of extraordinary circumstances on the territory of Ukraine, namely the introduction of martial law, which inevitably affects the ability to conduct calculations in a timely manner and restricts the unhindered conduct of economic activity, is generally known and normatively regulated. Thus, the appellant’s reference to the defendant’s untimely notification of the occurrence of force majeure does not deserve attention.

Thus, a written notification of the occurrence of force majeure according to the procedure stipulated in the terms of the contract is legally valid. Only in this way will the person be protected from the objections of the opposite party and will have adequate proof of the existence of force majeure in court.

Judicial practice contains cases where armed aggression as a circumstance of force majeure is tried to be applied even when the debt obligation or its part arose long before the occurrence of force majeure.

For example, the Commercial Court of the Poltava region in case No. 917/358/22 did not take into account the defendant’s reference to the letter of the Chamber of Commerce and Industry, since most of the debt was incurred by the defendant even before the force majeure occurred, i.e., on February 24, 2022. The same position is stated in the decision of this court in case No. 917/461/22, where debt obligations began to exist in August 2021.

Therefore, the armed aggression of the Russian Federation as a circumstance of irresistible force is indeed a force majeure, but not a mechanism of universal action. And the letter of the Chamber of Commerce and Industry is not a panacea for everyone, nor will it be absolute proof of the impossibility of properly fulfilling the obligation.

Force majeure is circumstances beyond our control, beyond our control, unavoidable and of an extraordinary nature, which make it impossible to properly fulfill the obligations stipulated in the terms of the contract.

Force majeure is a defense mechanism, not abuse. Where there are circumstances of force majeure, the debtor is not at fault. Therefore, if possible, fulfill your obligations so as not to meet with counterparties in court.

Author: Konstantin Kryvopust

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