The war of Russian Federation against Ukraine as a force majeure of contract
01/12/2022
Legal Insight
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The definition «force majeure» in contract was a typical standard condition, the application of which was rare and mostly caused by natural disasters, fires.
However, the situation has changed after 24th February 2022.

Currently due to the war the force majeure clause in contracts became a crucial one. Parties of contracts in many cases do not have an opportunity to fulfil the contract.

The important issue is the application of the force-majeure. Currently the war makes impossible to fulfil contractual obligations.

Ukrainian legislation contains several definitions of the term «force majeure»:
- circumstances of irresistible force;
- situations of a military nature;
- military actions;
- war;
- threat of war.

«Circumstances of irresistible force» (force majeure) as extraordinary and unavoidable circumstances that arose under certain conditions and objectively make it impossible for the taxpayer to fulfil certain defined obligations, in particular, caused by emergency situations of a military nature (Order On the approval of the Procedure for applying the norms of clauses 102.6-102.7 of article 102, chapter 9, section II of the Tax Code of Ukraine).

In the order of the State Customs Service of Ukraine dated 17 November 2005 № 1118 «military operations or a state of emergency in the region» is defined as circumstances of force majeure.


Yuliia Honcharenko
Associate
Partner
The definition «force majeure» in contract was a typical standard condition, the application of which was rare and mostly caused by natural disasters, fires.
However, the situation has changed after 24th February 2022.

Currently due to the war the force majeure clause in contracts became a crucial one. Parties of contracts in many cases do not have an opportunity to fulfil the contract.

The important issue is the application of the force-majeure. Currently the war makes impossible to fulfil contractual obligations.

Ukrainian legislation contains several definitions of the term «force majeure»:
- circumstances of irresistible force;
- situations of a military nature;
- military actions;
- war;
- threat of war.

«Circumstances of irresistible force» (force majeure) as extraordinary and unavoidable circumstances that arose under certain conditions and objectively make it impossible for the taxpayer to fulfil certain defined obligations, in particular, caused by emergency situations of a military nature (Order On the approval of the Procedure for applying the norms of clauses 102.6-102.7 of article 102, chapter 9, section II of the Tax Code of Ukraine).

In the order of the State Customs Service of Ukraine dated 17 November 2005 № 1118 «military operations or a state of emergency in the region» is defined as circumstances of force majeure.
The Civil Code of Ukraine (the «CCU») contains only the legal consequences of the occurrence of force majeure, which is indicated as grounds for exemption from liability for breach of obligation: a person who has violated an obligation is exempted from responsibility for breach of obligation if he proves that this violation occurred accidentally or due to force majeure (art. 617)
According to the art. 218 of the Commercial Code of Ukraine a party to economic relations shall be liable for non-performance or improper performance of an economic obligation or violation of the regulations of economic activity, unless it proves that proper performance of the obligation was impossible due to force majeure during economic activities.
If force majeure circumstances are not specified in the contract, there are general norms of part 2 of art. 218 of the Commercial Code and part 1 of art. 617 of the CCU. However, norms of civil and commercial law do not contain a definition of the specified circumstances «force majeure».

Part 2 art. 14-1 of the Law of Ukraine On Chambers of Commerce and Industry in Ukraine (the «Law») contains a detailed definition of «force majeure» - force majeure circumstances are the extraordinary and unavoidable circumstances that objectively make unable to fulfil the obligations stipulated in the terms and conditions of the agreement (contract, treaty, etc.), obligations under the legislative and other regulatory acts, namely: the threat of war, armed conflict or a serious threat of such conflict, including but not limited to enemy attacks, blockades, military embargoes, actions of a foreign enemy, general military mobilisation, military actions, declared and undeclared war, actions of a public enemy, indignation, acts of terrorism, sabotage, piracy, riots, invasion, blockade, revolution, mutiny, insurrection, mass riots, curfew, quarantine established by the Cabinet of Ministers of Ukraine, expropriation, forced seizure, seizure of enterprises, requisition, public demonstration, blockade, strike, accident, illegal actions of third parties, fire, explosion, long breaks in transport operation, regulated by the terms of relevant decisions and acts of state authorities, the closure of sea straits, embargo, ban (restrictions) of export/import, etc. as well as caused by the exceptional weather conditions and natural disasters, namely: epidemic, strong storm, cyclone, hurricane, tornado, hurricane, flood, snow accumulation, ice, hail, frost, freezing of the sea, straits, ports, passes, earthquake, lightning, fire, drought, subsidence and landslide, other natural disasters, etc.
Therefore, force majeure circumstances do not have a predetermined nature, and the interested party must prove
(1) the fact of their occurrence; (2) that the circumstances are force majeure (3) for the particular case. It is also necessary to prove their emergency and inevitability. The existence of force majeure circumstances can be certified by the relevant competent authority (resolution of the Supreme Court dd. 25 January 2022, case № 904/3886/21).
The Chamber of Commerce and Industry of Ukraine (the «CCI») and its authorised Regional CCI shall confirm force majeure circumstances (circumstances irresistible force) and issue a certificate (art.14-1 of the Law). Interested party applies to the CCI, providing relevant evidence to confirm the force majeure circumstances that make the performance of the contract impossible (Regulations certification by the Chamber of Commerce and Industry of Ukraine and regional chambers of commerce and industry of force majeure circumstances (circumstances of force majeure) approved by the Decision of the Presidium of the CCI dated July 15 2014 № 40(3).
The CCI of Ukraine published on website an official letter dated 28 February 2022 № 2024/02.0-7.1 regarding the recognition military aggression of Russian Federation against Ukraine as force majeure. The martial law was introduced on 24 February 2022 at 05:30 am for 30 days, in accordance with the Decree of the President of Ukraine dated
24 February 2022 №64/2022 On the introduction of martial law in Ukraine. The specified circumstances from 24 February 2022 until their official end, are the extraordinary, unavoidable and objective circumstances for companies and/or individuals under the contract, tax, other obligations the fulfilment of which has occurred in accordance with the terms of the agreement, contract, agreement , legislative or other normative acts and the implementation of which, accordingly, became impossible within the established period due to the occurrence of such force majeure circumstances.
The obligation remains to prove the fact that such circumstances were force majeure for the specific case. A burden to prove the existence of force majeure rests on the party who violated the obligation and this party must submit relevant evidence in the event of a dispute (decision of the Supreme Court dated 16 June 2018 in case № 915/531/17, dated
26 May 2020 in case № 918/289/19, dated 17 December 2020 in case № 913/785/17).

FOSFA (Federation of Oils, Seeds, and Fats Associations), GAFTA (Grain and Feed Trade Association) are international trade associations. The main purpose of these associations is to promote the development of international grain trade, oils, seeds. Such associations have relevant proforma contracts in which essential conditions are determined including force majeure circumstances and the procedure for actions in their existence.
In the proforma contract FOSFA 53 the clause 23 «force majeure»: In the event, during the contract delivery period, of prohibition of export or any other executive or legislative act by or on behalf of the Government of the country of origin or of the territory where the port/s of delivery named herein is/are situate, or of blockade or hostilities, restricting export, whether partially or otherwise, any such restriction shall be deemed by both parties to apply to this contract and to the extent of such total or partial restriction to prevent fulfilment whether by delivery or by any other means whatsoever and to that extent this contract or any unfulfilled portion thereof shall be extended by 21 days beyond the termination of the prohibition event. But should prohibition continue for 30 days, the contract or any unfulfilled part thereof shall be cancelled. Sellers invoking this clause shall advise Buyers with due dispatch. If required, Sellers must produce proof to justify their claim for extension or cancellation under this clause.
Regarding to GAFTA 49 January 2022 edition «Event of Force Majeure» means (a) prohibition of export or other executive or legislative act done by or on behalf of the government of the country of origin or of the territory where the port or ports named herein is/are situate, restricting export, whether partially or otherwise, or (b) blockade, or (c) acts of terrorism, or (d) hostilities, or (e) strike, lockout or combination of workmen, or 0) riot or civil commotion, or (g) breakdown of machinery, or (h) fire, or (i) ice, or o) Act of God, or (k) unforeseeable and unavoidable impediments to transportation or navigation, or (U) any other event comprehended in the term «force majeure».

The procedure under GAFTA is more specified by the existence of certain conditions:
1. Should Sellers' performance of this contract be prevented, whether partially or otherwise, by an Event of Force Majeure, the performance of this contract shall be suspended for the duration of the Event of Force Majeure, provided that Sellers shall have served a notice on Buyers within 7 consecutive days of the occurrence or not later than 21 consecutive days before commencement of the shipment period, whichever is later, with the reasons therefor.

2. If the Event of Force Majeure continues for 21 consecutive days after the end of the shipment period, then Buyers have the option to cancel the unfulfilled part of the contract by serving a notice on Sellers not later than the first business day after expiry of the 21-day period.

3. If this option to cancel is not exercised then the contract shall remain in force for an additional period of 14 consecutive days, after which, if the Event of Force Majeure has not ceased, any unfulfilled part of the contract shall be automatically cancelled.

4. If the Event of Force Majeure ceases before the contract or any unfulfilled part thereof can be cancelled, Sellers shall notify Buyers without delay that the Event of Force Majeure has ceased. Sellers shall be entitled, from the cessation, to as much time as was left for shipment under the contract prior to the occurrence of the Event of Force Majeure. If the time that was left for shipment under the contract is 14 days or less, a period of 14 consecutive days shall be allowed.
The burden of proof lies upon Sellers and the parties shall have no liability to each other for delay and/or non-fulfilment under this clause, provided that Sellers shall have provided to Buyers, if required, satisfactory evidence justifying the delay or non-fulfilment.
Conclusion
Thus, the Russia’s invasion Ukraine has been confirmed as a force majeure circumstance. The fact of its existence, its emergency and inevitability has been proven.
The existence of force majeure circumstances does not create consequences in the form of automatic termination of the contract without any legal consequences for the parties, the main thing is the fact of establishing a direct connection between the presence of the specified circumstance and the impossibility of fulfilling the terms of the contract.

But it is important to follow the procedure: to notify the party in a timely manner of the existence of such force majeure circumstances that make it impossible to fulfil the contract and to confirm your statement with evidence to reaffirm them.
Nightingales Partners’ team has provided legal opinions on the specified issues and continues to competently protect the interests of clients in the existence of an objective impossibility to fulfil the terms of the contract due to the existence of force majeure circumstances.

Thus, the Russia’s invasion Ukraine has been confirmed as a force majeure circumstance. The fact of its existence, its emergency and inevitability has been proven.
The existence of force majeure circumstances does not create consequences in the form of automatic termination of the contract without any legal consequences for the parties, the main thing is the fact of establishing a direct connection between the presence of the specified circumstance and the impossibility of fulfilling the terms of the contract.

But it is important to follow the procedure: to notify the party in a timely manner of the existence of such force majeure circumstances that make it impossible to fulfil the contract and to confirm your statement with evidence to reaffirm them.
Nightingales Partners’ team has provided legal opinions on the specified issues and continues to competently protect the interests of clients in the existence of an objective impossibility to fulfil the terms of the contract due to the existence of force majeure circumstances.
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