Force Majeure During the Quarantine Period
A lot of questions related to quarantine, force majeure circumstances, and emergency situation in the country are pondered by businesses during these difficult days. Accountor Ukraine explains some legal aspects that will come in handy when doing business.
Does the introduction of Emergency Situation qualify as force majeure circumstances?
First of all, we would like to point out the differences between an "Emergency Situation" and a "State of Emergency."
An Emergency Situation (hereinafter “ES”) is a special regime which may be imposed by the Cabinet of Ministers of Ukraine due to breakdown of normal living and working conditions.
Emergency Situation may be introduced to enhance the interaction of all services involved in fighting against the spread of the virus.
As for the State of Emergency (hereinafter “SE”), it may be introduced by the Verkhovna Rada (Parliament) of Ukraine. In a state of emergency, state-owned enterprises and all private companies may be managed by the government, and the rights and freedoms of citizens may be limited (which does not take place in case of an ES).
An “Emergency Situation” does not have any time limits, whereas a State of Emergency may last from 30 days (throughout Ukraine) to 60 days (in separate regions).
On March 11, 2020, the government of Ukraine announced a nationwide quarantine, which is going to last until April 25, 2020.
On March 16, 2020, the quarantine was strengthened by temporary additional restrictive measures in many areas (limitation on movement of vehicles, suspension of many types of economic operations, borders closure), with the purpose to prevent the spread of coronavirus ("Restriction COVID-19"). Besides, according to Resolution of Kyiv City Council No. 488 of March 20, 2020, Emergency Situation regime was introduced in Kyiv.
Since March 25, 2020, the Emergency Situation regime has been imposed by the Cabinet of throughout the whole territory of Ukraine.
As for Force Majeure:
On March 17, 2020, The Law of Ukraine “On Amending Certain Legislative Acts of Ukraine aimed at Preventing the Occurrence and Spread of Coronavirus Disease (COVID-19)” entered into force.
According to the Law on COVID-19, the list of force majeure circumstances includes “quarantines imposed by the CMU”. This innovation does not automatically entail fulfillment of the provisions on force majeure, neither does it allow to not fulfill obligations under the contracts. Instead, it allows interested parties to obtain a certificate confirming the recognition of the COVID-19 Restrictions as force majeure (hereinafter - the Certificate).
The certificate is issued by the Chamber of Commerce and Industry of Ukraine (or by the regional chambers of commerce authorized by the CCIU) only if the interested party provides sufficient evidence that the impossibility to fulfill obligations under the contract was directly caused by the COVID-19 Restrictions.
It should be noted that some contracts may contain conditions under which a party must notify the counterparty of force majeure circumstances within a certain period of time, otherwise the party loses the right to invoke such circumstances. Therefore, in each case, it is necessary to analyze the terms of a specific contract.
Thus, the introduction of an Emergency Situation will not be automatically considered force majeure and it does not exempt contractors from fulfilling their obligations under the contracts if force majeure circumstances did not impede the implementation of the contract.
If the economic activity of the enterprise is suspended after the introduction of quarantine and the announcement of an emergency situation, is this considered “force majeure circumstances”?
The introduction of an Emergency Situation on the territory of Ukraine only gives interested parties the right to obtain a certificate from the Chamber of Commerce and Industry of Ukraine (or from the regional chambers of commerce and industry, hereinafter – CCI, authorized by the CCIU), which confirms that the limitations of COVID-19 are recognized as force majeure (hereinafter - the Certificate).
Thus, companies referring to the suspension of activities in connection with COVID-19 and asking to recognize such circumstances as force majeure, need to contact the CCI and obtain the relevant Certificate, whereas they have to provide the CCI with sufficient evidence that the suspension of activities with the subsequent impossibility of fulfilling obligations under the contract was directly caused by COVID-19 Restrictions.
After the counterparty provides the Certificate, it will be possible to consider the application of force majeure circumstances to the contract.
It should be noted that the contracts themselves may contain a detailed description of the circumstances which the parties recognize as force majeure circumstances, as well as of the conditions under which the affected party must notify the counterparty of the force majeure circumstances within a certain period of time. Therefore, in each case, it is necessary to analyze the terms of the contract in question.