With the beginning of the full-scale invasion of the Russian Federation on the territory of Ukraine, the question of applying the provisions of the legislation on force majeure became acute again. "Again", because the specified institute was already the subject of scientific controversy and was analyzed by the courts in cases regarding economic activity in the ATO zone, and later – in cases regarding quarantine restrictions caused by COVID-19.
It should be noted that nowadays in the legal community there is a more "categorical" understanding of force majeure and its impact on the performance of contractual obligations, because on February 28, 2022, the Chamber of Commerce and Industry of Ukraine published an official letter regarding the certification of force majeure circumstances (circumstances of force majeure) caused by military aggression of the Russian Federation against Ukraine, which, in turn, gave reasons for many lawyers to claim that now any non-fulfillment of an obligation will be considered as caused by force majeure.
In our opinion, such a "categorical" approach does not correspond to the current legislation and developed judicial practice, which will be described in more detail below.
1. Force majeure does NOT exempt from the obligation to fulfill obligations in kind
First of all, let us remind once again that force majeure exempts from responsibility for non-fulfillment of an obligation (in particular, from penalties and compensation for damages), but not from the obligation itself (that is, from the obligation to fulfill the obligation in kind). Conventionally speaking, if the developer, due to force majeure, did not manage to complete the construction within the agreed terms, then he is only released from the payment of fines and compensation for damages, but not from the obligation to complete the construction, as well as other obligations to the investor.
2. Force majeure and fulfillment of a monetary obligation
Currently, it is quite common to ask investors of new buildings whether they can legally not pay regular payments in connection with the war. In general, the answer to this question is negative. Yes, Part 1 of Art. 625 of the Civil Code of Ukraine contains a rule according to which the debtor is not released from responsibility for the impossibility of fulfilling a monetary obligation. The logic of this rule consists, among other things, in the fact that the lack of funds in itself does not affect the debtor's obligation to fulfill his monetary obligation. Moreover, from the content of the current edition of Part 1, 2 of Art. 625 of the Civil Code of Ukraine, it can be concluded that even a technical impossibility to fulfill a monetary obligation (for example, in the case of a complete or partial stoppage of the functioning of the banking system, technical problems of the bank itself, the impossibility of buying currency due to currency restrictions) is not a reason for exemption from liability.
Incidentally, we note that exemption from the fulfillment of a monetary obligation can be established by special legislation (a classic example is part 4 and 6 of Article 762 of the Civil Code of Ukraine regarding exemption from rent in the event that the possibility of using the property has significantly decreased or the property could not be used by the employer due to circumstances for which he is not responsible).
3. The letter of the Chamber of Commerce and Industry of February 28, 2022 cannot confirm force majeure in relation to a specific obligation
Referring to force majeure as a basis for exemption from liability, the interested party must prove how exactly the force majeure manifested itself in a specific obligation. A mere abstract reference to the presence of force majeure will definitely not be enough.
In particular, in this regard, the decision of the Commercial Court of Cassation as part of the Supreme Court dated 25.01.2022 in case No. 904/3886/21 states: "… Force majeure circumstances do not have a prejudicial (predetermined) nature. When they occur, the party that refers to force majeure must prove it. The party that refers to specific circumstances must prove that they are force majeure, including for a specific case. Based on the signs of force majeure, it is also necessary to prove their emergency and inevitability. The fact that force majeure circumstances must be proven does not exclude the fact that the existence of force majeure circumstances can be certified by the relevant competent authority …".
In view of the above, the abstract and general letter of the Chamber of Commerce and Industry of February 28, 2022 does not meet the requirements for specifying the impact of the relevant force majeure circumstance on a specific obligation (and proof of a causal relationship in such a case is mandatory).
In this regard, we also note that, in principle, the presence of force majeure circumstances can be confirmed by any evidence, which, in the opinion of the court, will be sufficient to establish the relevant circumstance. We do not agree with the popular opinion that force majeure is the exclusive "jurisdiction" of the ICC. After all, the presence of force majeure is, among other things, a question of fact, and the legislation does not contain any restrictions on what kind of evidence can be used to confirm the presence of this fact.
The same position is followed by the KGS of the Supreme Court, in paragraph 44 of its resolution dated 21.07.2021 in case No. 912/3323/20 it is stated: "… Courts of previous instances considered that the only proof of the existence of force majeure is the certificate of the Chamber of Commerce, however, this position is wrong. The existence of force majeure circumstances regarding the violation/non-fulfillment of obligations that arose as a result of the conclusion of a lease agreement between residents of Ukraine can be proven by any evidence …".
4. Force majeure and terms of the contract
More difficult, in our opinion, is the question of whether it is possible to regulate the appropriateness and sufficiency of evidence that would confirm force majeure at the level of the contract. For example, the parties established that force majeure can be confirmed only by a specific regional Chamber of Commerce and Industry, and the party, in turn, received a certificate from the Chamber of Commerce and Industry of Ukraine. At the same time, the parties could explicitly state in the contract that other documents are not accepted at all.
Note that there is no unity of opinion on this issue at the level of judicial practice. On the one hand, in the decision of the KGS of the Supreme Court dated 26.05.2020 in case No. 918/289/19, the court refused to recognize as proper evidence the conclusion and certificate of the Rivne Chamber of Commerce and Industry and a number of other documents, because the parties agreed that force majeure must be confirmed by a certificate precisely Chamber of Commerce and Industry of Ukraine.
On the other hand, in the above-mentioned decision of the Supreme Court of the Supreme Court dated 25.01.2022 in case No. 904/3886/21, the court took a more "liberal" approach to the evidence provided by the party (although formally the court referred to the principle of interpretation "contra proferentem" to justify its position because the parties in the contract ambiguously defined the appropriate body of the Chamber of Commerce and Industry, which should issue the certificate).
Our position on this issue is that in this case the parties cannot settle procedural issues in the contract. We are of the opinion that proving the existence of force majeure is, among other things, proving the fact, and the parties cannot limit the means of proof in the contractual manner. Moreover, the parties cannot limit the court in evaluating the evidence, otherwise any clause that contradicts the Civil Code of Ukraine or the Civil Code of Ukraine could be included in the contract, and in the future the parties would refer to the fact that in this way they simply implemented the principle of freedom of contract. At the same time, freedom of contract is impossible where there are direct imperative norms, which we consider to be the norms of the procedural codes regarding the evidentiary procedure.
5. Force majeure and operational economic sanctions
From our point of view, the most difficult issue is the impact of force majeure on the possibility of applying operational economic sanctions.
We remind that according to Art. 611 of the Civil Code of Ukraine, in case of violation of the obligation, among other things, there are legal consequences established by the contract or the law, namely the termination of the obligation due to unilateral refusal of the obligation, if it is established by the contract or the law, or termination of the contract.
According to the terminology of the Civil Code of Ukraine, such unilateral termination (refusal) is an operational-economic sanction. After all, in accordance with Part 1 of Art. 236 of the Civil Code of Ukraine, in business contracts, the parties, in particular, may provide for the use of the following types of operative-economic sanctions: unilateral refusal of the managed party to fulfill its obligation, with the release of its responsibility for this – in case of violation of the obligation by the other party.
To understand the essence of the problem with operational and economic sanctions, let's simulate the situation. Due to force majeure, the developer delayed the fulfillment of the obligation for three months (there is no provision in the contract that in case of force majeure for a certain period, the party can unilaterally terminate the contract). The investor, without waiting for the termination of such circumstances, unilaterally terminates the contract, because such a right is provided by the contract in case the delay lasts more than two months.
It would seem that the developer is not to blame for the delay in fulfilling the obligation, but the contract with him was terminated. Was such a break legal?
On the one hand, Art. 236 of the Civil Code of Ukraine is contained in Chapter V of the Civil Code of Ukraine "Liability for Offenses in the Business Sector", and Part 2 of Art. 217 of the Civil Code of Ukraine contains provisions according to which the following types of economic sanctions are applied in the field of business: compensation for losses; fines; operational economic sanctions (in turn, the title of the article implies that economic sanctions are a legal means of responsibility in the field of economy). In addition, according to the dominant practice of the Civil Court of Cassation as part of the Supreme Court (CCC of the Supreme Court), civil liability is the imposition on the offender of legal, but unfavorable legal consequences, which consist in depriving him of certain rights or replacing the failure to fulfill an obligation with a new one , or in the addition of a new additional obligation to the unfulfilled obligation (see, for example, the resolution of February 10, 2021 in case No. 194/1414/15-ts). Therefore, if operational-economic sanctions are a measure of responsibility, then the norms on force majeure must be fully in effect.
On the other hand, in accordance with Part 3 of Art. 235 of the Civil Code of Ukraine operational economic sanctions are applied regardless of the fault of the entity that violated the economic obligation.
In this regard, the KGS of the Supreme Court in paragraph 24 of the resolution dated 31.10.2018 in case No. 905/2319/17 briefly noted that the application of operational and economic sanctions is the right of a party and such a right is granted regardless of the fault of the other party, who, in case of disagreement, not limited by the right to challenge such sanctions in court.
Similarly, in the resolution of the KGS of the Supreme Court dated March 27, 2018, in case No. 916/1385/17, it is stated that "… Clause 3 of Art. 235 of the Economic Code of Ukraine establishes that operative economic sanctions are applied regardless of the fault of the entity that violated the economic obligation. The very fact of discovering a violation of the Rules by the plaintiff is the basis for applying to him an operative economic sanction on the basis of the Methodology, regardless of the consumer's fault in committing such a violation …". An identical position is reflected in Clause 4.2.6 of the resolution of the Supreme Court of Ukraine dated July 4, 2018 in case No. 914/2510/17, as well as the resolution of the Supreme Court of Ukraine dated April 17, 2018 in case No. 914/1561/17.
In our opinion, in general, this approach of the Supreme Court should be recognized as correct. First, the Civil Code of Ukraine directly establishes that the application of operational economic sanctions is possible without fault. Secondly, the Civil Code of Ukraine also unequivocally opposes unilateral refusal of an obligation to measures of liability (for example, according to part 2 of Article 615 of the Civil Code of Ukraine, a unilateral refusal of an obligation does not exempt the guilty party from responsibility for breach of obligation). Thirdly, in the theory of civil and economic law, there is also a dominant (though not unequivocal) opinion that measures of operational response (protection) differ in their legal nature from measures of responsibility.
After all, de lege lata (from the point of view of the applicable law), a unilateral repudiation of a contract does not depend on force majeure. However, de lege ferenda (from the point of view of ideal law) this approach, at least under martial law, may be worth reconsidering.