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7 April 2020

COVID-19 outbreak in Ukraine: recommendations for the implementation of energy projects during the force majeure period

On 17 March 2020, the Parliament of Ukraine amended the list of the force majeure events in the Law on Chambers of Commerce and Industry in Ukraine. It added to the list the quarantine approved by the Cabinet of Ministers of Ukraine (“CMU”). The force majeure event can have a significant impact on the fulfilment of contractual obligations in the energy projects both at the development stage and at construction stage. For this reason, in the process of implementing energy projects during a period of force majeure, it is important to understand the features of the force majeure event and take into account the following recommendations:

  • Take into account constant changes in legislation

Since the beginning of the force majeure period, the Parliament adopted two legal acts amending Ukrainian legislation in connection with COVID-19. The Resolution of the CMU On preventing the spread of COVID-19 coronavirus in Ukraine No. 211, dated 11 March 2020, was amended three times within four weeks. The latest amendments to the Resolution were adopted by the government on 2 April 2020. These amendments include stricter rules for the movement of people, clarify the rules of work for electricity suppliers, distribution system operators and gas suppliers. These amendments cover all other aspects of the quarantine for the state authorities, business entities, and citizens.

Therefore, it is important to monitor all changes in the legislation and update the conditions of the work on energy projects in accordance with applicable requirements.

  • Conduct an audit of force majeure terms of contracts

In case of force majeure, it is important to check the following force majeure conditions in the contracts:

  • list of events related to force majeure circumstances
  • terms and conditions of the force majeure notifications
  • other obligations of the parties during the force majeure period

If force majeure circumstances affect fulfillment of the contractual obligations, a party may rely on the force majeure clause of the contract.

  • Promptly inform the other party of the force majeure circumstances

A notification of a force majeure event should be sent as quickly as possible and in accordance with the terms of the contract. In the absence of a proper notification, the party to the contract cannot rely on exemption from liability for breach of contract due to force majeure.

Therefore, timely and proper notification on force majeure circumstances is paramount for exemption from liability.

  • Obtaining a certificate from the Ukrainian Chamber of Commerce and Industry to confirm the force majeure event

To obtain a certificate of confirmation of the force majeure event, the following documents must be submitted to the Ukrainian Chamber of Commerce and Industry (UCCI):

  • a request
  • a copy of the contract
  • a copy of the order on the need to terminate the business activity
  • original of the notification sent to the counterparty

The period of time for consideration of this request according to the regulations is seven business days. However, due to the large number of such requests, issuing a certificate can take significantly longer.

We draw your attention to the fact that the right to apply for a certificate of force majeure exists only in case of non-performance of the contractual obligations due to the quarantine.

  • Be aware of a possible refusal by the Ukrainian Chamber of Commerce and Industry to issue a certificate

Documents for issuing a certificate of force majeure must indicate:

  • emergency of the event
  • unpredictability of the event
  • inevitability of the circumstances of the event
  • a cause and effect connection between the event and the inability of the party to fulfil its obligations

The UCCI analyses each request for a certificate of force majeure and in case of non-compliance with these criteria may refuse to issue such certificate.

  • Do not rely on a court appeal in case of the refusal by the Ukrainian Chamber of Commerce and Industry to issue a force majeure certificate

According to the position of the Supreme Court of Ukraine, even though the UCCI is obliged to consider a request for a force majeure certificate, it is not obliged to issue a certificate of force majeure.

It is recommended, therefore, to submit all documents confirming the impact of the force majeure circumstances on the fulfillment of the contract obligations.

  • Negotiate with the counterparty new terms of contract

Regardless of the results of applying to the UCCI for a certificate, it is worthwhile:

  • to initiate negotiations with the contractual counterparty
  • to review the terms of the contract taking into account the quarantine
  • to amend the contract

UCCI recommends to amend the contract with a view to establish new time periods for fulfilling the contractual obligations  after the end of the force majeure event. The parties may amend the terms of the contract without having to apply to the UCCI for a certificate.

  • Strive to reduce the negative effect of the force majeure

Each party to the contract must take measures to reduce delays in performance and the losses due to the force majeure event. This means that the parties must do everything possible to prevent additional costs or losses for implementation of the energy project during the period of the force majeure circumstances.

Conclusion:

We hope the above is useful for you to cope with the effect of the quarantine on your business. In order to avoid liability for breach of the contractual obligations due to the force majeure event, you may contact the SK Energy practice team:

  • to conduct a professional audit of the contractual obligations of the parties and the force majeure clauses with a focus on your business interests
  • to receive qualified assistance in obtaining a force majeure certificate from the Ukrainian Chamber of Commerce and Industry
  • to renegotiate and amend the terms of the contract to limit losses and delays

If you would like to discuss in more detail the issues highlighted in this document, please contact the SK Energy practice team.

Information contained in this legal alert is for the general information purposes only, does not constitute legal or other professional advice, and should not be relied upon as a substitute for the specific professional advice tailored to the particular circumstances.

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