The Decree of the President of Ukraine No. 64/2022 imposed martial law in Ukraine starting at 5:30 AM on February 24, 2022.
The introduction of martial law in the entire country definitely affects the conditions and the possibility of fulfilling the obligations of the parties to various commercial agreements.
In this regard, businesses are interested in possible options for exemption from liability for improper performance of duties caused by the military activities in Ukraine.
Taking this into consideration, we analyzed whether martial law is recognized as a force majeure and whether such circumstances will lead to the release from liability for improperly fulfilled obligations.
Exemption from liability for improper performance of obligations
Force majeure, as a general rule, releases the parties from liability for breach of their obligations. That is, from the imposition of fines / penalties for improper performance of obligations.
Contractual obligations must be properly performed, and unilateral waiver of obligations is inadmissible. Civil legislation provides that in the event of a breach, legal consequences must follow, including the imposition of liability measures.
However, Article 617 of the Civil Code of Ukraine (Civil Code) and Article 218 of the Commercial Code of Ukraine (Commercial Code) provide for the possibility to be released from liability for breach of an obligation if a party to the contract proves that such a breach occurred due to an accident or force majeure.
Military aggression as a force majeure circumstance
Part 2 of Article 14-1 of the Law of Ukraine “On Chambers of Commerce and Industry of Ukraine” establishes that force majeure circumstances are extraordinary and inevitable circumstances that objectively make it impossible to fulfill obligations under the contracts, in particular, general military mobilization, military action, declared and undeclared war, etc.
The Chamber of Commerce and Industry of Ukraine (CCI) published a letter No. 2024/02.0-7.1 dated 28.02.2022, informing that the military aggression of the Russian Federation against Ukraine is a force majeure.
This means that the imposition of martial law on the territory of Ukraine is defined as force majeure and is a ground for exemption from liability for a breach of contract, but only if this circumstance led to non-fulfillment of contractual obligations. In other words, it is necessary to prove the link between hostilities in Ukraine and non-fulfillment of obligations.
An example of non-fulfillment of contractual obligations caused by force majeure can be inability to deliver goods within the territory of Ukraine due to the destruction of roads and continuous shelling. However, if the delivery was to take place in regions with no hostilities and there was a possibility of safe transportation, it would be impossible to invoke force majeure.
Here to be noted, that the CCI published a notification on its website that in order to simplify the procedure for certifying force majeure, the abovementioned letter of the CCI shall be considered a general official letter on the certification of force majeure, and can be printed as a confirmation. That is, there is no need to apply for an individual certificate.
The validity of such a general letter is not clear yet, as in order to issue individual certificates confirming force majeure, the CCI establishes the causal link between the inability to perform certain obligations and the circumstances of force majeure in each particular case.
In this regard, we recommend obtaining an individual certificate confirming the occurrence of force majeure as soon as the CCI resumes their issuance.
Force majeure does not release from the obligation itself
Please note that force majeure only exempts from liability for breach of obligations (i.e. from the imposition of fines / penalties), but it does not lift the need to fulfill the relevant contractual obligations themselves.
For example, if a company was unable to deliver the goods within the timeframe agreed in the contract, it can refer to force majeure as a basis for exemption from the penalties for late delivery. However, force majeure does not release from the delivery obligation as such.
Contractual terms on force majeure
If, as a result of the military aggression, a business entity finds itself in a situation where it is impossible to fulfill contractual obligations, we advise to pay special attention to the provisions of contracts concluded by it. They usually determine the algorithm for the parties on acting in the event of force majeure, and failure to comply with such provisions may make it impossible to refer to force majeure in the future.
Thus, in the contract attention should be paid to the following:
- Deadlines for notifying the other party of the occurrence of force majeure.
- Circumstances defined by the parties as force majeure.
- Form and means of communication by which the notice of force majeure has to be sent to the other party.
- Documents to be provided to the other party to confirm force majeure circumstances and deadlines for their provision.
- Provisions regarding the right to unilaterally withdraw from the contract due to long-term force majeure.
- Other conditions that the parties must comply with in case of force majeure.
If the contract does not contain provisions on force majeure, it is necessary to follow the general provisions of Article 617 of the Civil Code and Article 218 of the Commercial Code, which provide for the possibility of exemption from liability due to force majeure.
To summarise, if the party complies with all contractual provisions regarding the sequence of actions in case of force majeure, this will help to prevent liability (fines / penalties) for breach of contractual obligations.
Dispute resolution in court
If the parties to the contract fail to agree on release from liability due to force majeure, the parties may refer to a court.
In the course of court proceedings the party which faced the force majeure should be ready to provide arguments on the following points:
- Unpredictability of circumstances. That is, the justification of the fact that at the time of signing the contract there was no force majeure, and the party could not know about the possible occurrence of such circumstances;
- Inevitability and extraordinary character of circumstances. That is, the justification of the fact that the circumstances are exceptional and do not depend on the will of the parties;
- Causal link between the inability to perform contractual obligations and force majeure. Here, the party has the right to provide any evidence that will prove the effective inability to perform the contract because of the hostilities.
In conclusion, it should be noted that the imposition of martial law in Ukraine is recognized by the CCI as a force majeure circumstance, which is the basis for exemption from liability for breach of obligations. However, each case of inability to properly fulfill the duties must be analyzed separately to determine the specific circumstances and requirements of the relevant contract.
If necessary, GOLAW is ready to provide the appropriate legal advice.