COVID-19 Pandemic as a Circumstance of Force Majeure in Contract Non-Performance

As of early February 2020, the losses from the coronavirus were estimated at about 800 billion euros, and by March 10 of the same year they had reached nine trillion euros.

On March 11, 2020, the World Health Organization (WHO) declared the Covid-19 coronavirus a global pandemic, as the disease, which just three months earlier had been unknown to world health officials, had rapidly spread to more than 121 thousand people from Asia, Europe, the Middle East and parts of the United States.

The consequences of the coronavirus pandemic are reflected, directly or indirectly, in all sectors of the economy. This is especially evident where the counterparties concluded a long-term contract before the outbreak of the epidemic in China.

In such a situation, the parties want to know what the contract provides for if such circumstances arise. From the perspective of Ukrainian law, there are 3 legal mechanisms that can be applied to regulate contractual relations in a pandemic situation:

1. Force majeure (Art. 218 of the Commercial Code of Ukraine, Art. 617 of the Civil Code of Ukraine).
2. Impossibility of performing obligations (Art. 607 of the Civil Code of Ukraine).
   
3. Material change of circumstances (Art. 652 of the Civil Code of Ukraine).
   

We propose to focus on the most common mechanism, namely the force majeure circumstance.

The definition of force majeure is given in the Law of Ukraine "On Chambers of Commerce and Industry in Ukraine".

According to Part 2 of Article 141 of this law, force majeure circumstances (circumstances of insurmountable force) are extraordinary and unavoidable circumstances that objectively make it impossible to perform obligations stipulated by the terms of a contract (agreement, understanding, etc.) or duties under legislative and other regulatory acts, namely: the threat of war, armed conflict or a serious threat of such conflict, including but not limited to hostile attacks, blockades, military embargo, actions of a foreign enemy, general military mobilization, military actions, declared and undeclared war, actions of a public enemy, riots, acts of terrorism, sabotage, piracy, disorder, invasion, blockade, revolution, mutiny, uprising, mass disturbances, imposition of curfew, expropriation, compulsory seizure, seizure of enterprises, requisition, public demonstration, blockade, strike, accident, unlawful actions of third parties, fire, explosion, prolonged interruptions of transport operation, regulated by the terms of the relevant decisions and acts of state authorities, closure of sea straits, embargo, prohibition (restriction) of export/import, etc., as well as caused by exceptional weather conditions and natural disasters, namely: epidemic, strong storm, cyclone, hurricane, tornado, blizzard, flood, snow accumulation, ice glaze, hail, frost, freezing of sea, straits, ports, mountain passes, earthquake, lightning, fire, drought, subsidence and landslide of soil, other natural disasters, etc.

Force majeure may also be recognized as circumstances not listed in the list given in the Law of Ukraine "On Chambers of Commerce and Industry in Ukraine" (hereinafter, the Regulations of the Chamber of Commerce and Industry of Ukraine), but which meet the criteria of force majeure circumstances under the provisions of Clause 6.9 of the Regulations of the Chamber of Commerce and Industry of Ukraine, do not contradict the legislation of Ukraine and are agreed upon by the parties in the contract, agreement or understanding as such that exempt them from civil liability.

Clause 6.9 of the Regulations of the Chamber of Commerce and Industry of Ukraine establishes a number of requirements for documents that a party to contractual relations submits to obtain a certificate of force majeure circumstances. They must prove:

• the extraordinary nature of such circumstances (they are of an exceptional character and lie beyond the control of the parties);
• the unforeseeability of the circumstances (their occurrence or consequences could not have been predicted, in particular at the time of concluding the relevant contract, before the due date of the obligation or before the relevant duty arose);
  
• the unavoidability (insurmountability) of the circumstances (the inevitability of the event(s) and/or its (their) consequences);
  
• the causal link between the circumstance/event and the impossibility for the applicant to perform its specific obligations (under a contract, agreement, understanding, law, regulatory act, act of local self-government bodies, etc.).
  

Regarding the recording of force majeure circumstances, the procedure for certifying force majeure circumstances (circumstances of insurmountable force) is clearly established by the Chamber of Commerce and Industry of Ukraine.

To certify a force majeure circumstance, the business entity must submit an application (personally by the head of the legal entity or an authorized person by power of attorney) in the established form of the Chamber of Commerce and Industry of Ukraine. A separate set of documents is also attached to the application (copies of contracts, acceptance-transfer acts, additional agreements, etc.).

After the application and all necessary documents are submitted, they are considered within seven working days from the date of application by a business entity, and within twenty-one working days from the date of application by an individual. During the review of the documents and the application, the Chamber representative verifies the presence of force majeure circumstances, also analyzes additional documents and, ultimately (if all requirements are met), issues a Chamber of Commerce certificate on the occurrence of force majeure circumstances.