Termination of quarantine and international commercial contracts: what's next?

Quarantine measures have affected operations of business in various industries. This negatively influenced manufacturing, sales of products and services, financial situation of enterprises, as well as fulfilment of their contractual and other obligations.

The quarantine also had negative implications for some supply chains, making it difficult or impossible to perform works or provide services. Companies faced delays in payments under the contracts or even failures to meet contractual obligations. Causing the domino effect, all of the above leads to the growing number of disputes.

At the same time, some counterparties attempt to justify their non-performance of the contract by changes in legislation or force majeure, impossibility of the employees' access to work, etc. Others try to change the terms of the contract, for instance, in order to review the prices, terms and manner of performance.

The scenario is even more complicated when it comes to foreign economic agreements, as the parties need to consider the applicable law, relevant regulation of quarantine measures and terms of their duration in different countries.

Even if the contract is governed by the Ukrainian law, this does not imply that the force majeure can be a panacea that protects against any claims for non-performance of contractual obligations. There are always the general rules on application of this institution, as well as the need for a causal link between the quarantine measures and the impossibility of fulfilment of specific obligation.

The Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine aimed at Preventing the Occurrence and Spread of Coronavirus Disease (COVID-19)" dated 17 March 2020 has supplemented the Law of Ukraine "On the Chambers of Commerce and Industry in Ukraine". The former established that quarantine introduced by the Cabinet of Ministers of Ukraine as a force majeure (impediment beyond control). In accordance with the provisions of the law, the Chamber of Commerce and Industry of Ukraine and its authorized regional chambers of commerce and industry certify force majeure (impediment beyond control) and issue certificates about such circumstances within 7 days from the date of application of the business entity.

The Law of Ukraine "On the Protection of the Population from Infectious Diseases" stipulates that the Cabinet of Ministers of Ukraine establishes and sets the terms for termination of the quarantine. The decision on establishment and termination of shall be immediately communicated to the population of certain territory by means of the media.

The courts note that quarantine applies equally to all citizens, business entities, organizations, public authorities and local governments. Therefore, it is necessary to prove the existence of force majeure in each particular case.
Starting from 22 May 2020, Ukraine has shifted to the so called adaptive quarantine that entails some easing of quarantine restrictions. It is to remain in force until 22 June 2020.

Ukrainian business is looking forward to pandemic mitigation and termination of the quarantine. Many are expecting to return to the "old" life. Others warn that returning to pre-quarantine realities is impossible and predict a severe global financial crisis, the signs of which can already be observed in many countries.

Statistics shows that the economic crisis inevitably leads to an increase in the number of disputes, especially of the contractual ones. It is quite difficult to be ready for this. However, there are some practical tips to respond to the problem in a timely and correct manner (to the extent possible):

► To monitor defaults and competitors' activity on the market

► To keep a close eye on the "condition" of counterparties

► To track the statements of counterparties with respect to contract terms and applicable law, while:

1) Legislative changes are relevant if they relate to the law governing the contract

2) Force majeure is to be assessed under the contract terms as well as provisions of the applicable law, and is subject to burden of proof

► To have a balanced approach to negotiations and any communications, especially if the foreign law applies to the contract

► To collect all possible evidence

► To consider all the pros and cons of initiating litigation or arbitration

Sometimes it is important to get either an arbitration award or a court judgement as soon as possible in order to increase the chances of its enforcement, as you may end up with nothing if the other creditors have already received all the possible recoveries. In other instances, the debtor could no longer have any property that could be subject to recovery. Hence, there might be no need to face expenses on arbitration or litigation. There are many options, and each case should be approached and analysed accordingly.
If you have questions about force majeure and its impact on commercial agreements, please contact us.

Olena Perepelynska, Partner
+38 044 391 38 53, Olena.Perepelynska@integrites.com
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