As we all know, on February 24, 2022, Russia launched a so-called special military operation in Ukraine. Shortly afterwards, a state of war and general mobilization was declared on the territory of Ukraine, a state of emergency was declared in Moldova, and NATO countries are adopting new packages of sanctions day by day aimed at deterring Russia from further attacks on Ukraine. All of the above disrupts the already disrupted supply and trade chains due to the Covid pandemic, and negatively affects the operations of companies that are already economically exhausted from the two-year pandemic and which this year expected growth in economic activity and return to old ways of working and business.
Therefore, the stated circumstances indisputably affect contractual obligations not only on those economic entities that do business with businessmen from Ukraine or Russia, but also on economic relations from all over the world, considering that in a globally connected economy, supply chain disturbances are felt in almost every part of the world.
In this particular case, war events and sanctions in question are actions that are beyond the control of the contracting parties and which as such can be legally subsumed under different institutes, and as one of them is the institute of force majeure, which can have different effects on the contractual relationship.
Therefore, the question arises as to how force majeure affects contractual obligations and whether and what the contracting parties should undertake in order to avoid or minimize the risk of damage. The answer to this question depends primarily on the specific contractual relationship as well as the content of the contractual provisions themselves as well as legal provisions concerning the issue of force majeure. So let’s go in order.
Freedom of contract
The principle of freedom of contract or autonomy of will of the contracting parties is the basic principle on which the contractual legal basis between economic entities is based. Among other things, it implies that the contracting parties independently regulate the content of their mutual relations, unless otherwise provided by the imperative provisions of the Law on Obligations.
Why is freedom of contract important to determine the impact of force majeure on my contractual obligations?
The reason for that is that the Law on Obligations does not contain general provisions on force majeure, which means that force majeure as a basis for release from contractual obligations is not applied automatically, but only if and as explicitly provided by the contract.
Therefore, in terms of the impact of the situation in question on your contractual obligations, it is necessary to first analyze the contract you have concluded.
Of course, there are exceptions to this rule.
Thus, the Law on Obligations in case of loss of property due to force majeure, which was taken from the holder in an illegal manner, stipulates that the responsible person is obliged to compensate the damage.
On the other hand, the Law also provides for certain provisions on force majeure relating to named contracts. For example, in the case of a lease agreement. Thus, for example, one of the ways to terminate a lease agreement is the ruin of things due to force majeure. On the other hand, the contract of carriage stipulates that in the event of the loss of items during the carriage due to force majeure, the carrier will not be entitled to compensation.
Additionally, in the case of the Freight Forwarding Agreement, it is provided that in case the freight forwarder deviates from the received instructions of the ordering party, he is responsible for the damage, unless he proves that the damage would have occurred and acted according to the given instructions of the ordering party.
Therefore, only in these cases, the Law on Obligations explicitly regulates the influence of force majeure on contractual obligations. It should be borne in mind that the above provisions apply only if they are not excluded or if nothing else is provided by the contract between economic entities, bearing in mind that these provisions are not imperative.
However, it should be borne in mind that the issue of force majeure or its impact on contractual obligations is explicitly regulated by other special laws such as the Copyright and Related Rights Act, the Consumer Protection Act, the Bill of Exchange Act, the Payment Services Act, the Customs Act and others. However, none of the provisions of the mentioned laws overlooks the possibility of being significant only for certain legal actions, none of the provisions of the listed regulations prescribes the possibility of terminating the contract, ie release from the obligations of the contractors, as a consequence of force majeure.
Force majeure as changed circumstances, ie impossibility of fulfillment
However, the Law on Obligations indirectly regulates the use of force majeure as a basis for termination or amendment of the contract by the institute of termination (modification) of the contract due to changed circumstances, as well as the institute of impossibility of fulfillment for which neither party is responsible. are most often applied in the subject situation for the regulation of contractual relations.
Termination or amendment of the contract due to changed circumstances
In order for a case of judicial termination or amendment of a contract due to changed circumstances to be applicable, it is necessary that:
- After the conclusion of the contract, difficult circumstances occur fulfill the obligation of one party, or if due to them the purpose of the contract cannot be achieved,
- that in both cases to the extent that it is obvious that the contract no longer meets the expectations of the contracting parties and that it would be generally unfair to maintain it in force as it is,
- as a result, the party who, due to changed circumstances, cannot achieve the purpose of the contract, requests that the contract be terminated.
Examples of contractual obligations that are most affected by these sanctions are contracts concerning the sale and delivery of goods or products or contracts for the provision of services, where due to the closed borders and the imposed sanctions, the fulfillment of contractual obligations is significantly hampered. it was fair for him to remain as he is.
It should be borne in mind that termination of the contract, based on changed circumstances, cannot be requested if the party invoking the changed circumstances was obliged to take these circumstances into account at the time of concluding the contract or could avoid or overcome them (eg disputed the contract was concluded before or after the declaration of war, e.g.). Also, it is prescribed that the party who requested the termination of the contract, cannot invoke the changed circumstances that occurred after the expiration of the deadline set for the fulfillment of its obligation.
Therefore, it is necessary that in the case of the application of this institute, economic entities be proactive and inform the other party as soon as possible about the changed circumstances and their impact on the fulfillment of their contractual obligations.
Impossibility of fulfillment
In addition to the termination of the contract due to changed circumstances when there is still the possibility of fulfilling contractual obligations but it is difficult and unfair, the Law on Obligations provides another possible basis for termination of the contract that can be applied to a specific situation. It is about the termination of contractual obligations due to the impossibility of fulfillment for which neither contracting party is responsible and due to which the contract is terminated.
Therefore, in the above situation, it is necessary that economic entities:
- Carefully analyze their contractual provisions that fight force majeure;
- Determine whether there are legal provisions applicable to their contractual relationship;
- Act as soon as possible to avoid liability for damage;
In case you need legal assistance in analyzing your contractual provisions and applying the appropriate procedure for regulating them, our office is at your disposal.
This article is for informational purposes only and does not constitute legal advice. If you need additional information regarding the subject, feel free to contact us by email office@ncrlawyers.com or by phone +381677049551.
