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27 March 2020

Legal implications of coronavirus for business: performance of obligations and judicial system

Performance of obligations during quarantine

  • Are parties exempted from performing contractual terms due to quarantine measures imposed to contain the outbreak of COVID-19? Does quarantine constitute grounds for contract termination or amendment?

Current legislation provides for certain legal implications of the inability to fulfil obligations as a result of force majeure.

Presently, the quarantine introduced by the Cabinet of Ministers of Ukraine throughout the territory of Ukraine is classified as force majeure. The quarantine restrictions have been set for the period from 12 March to 3 April 2020.

Force majeure may have different consequences. In particular, force majeure may be grounds for exemption from liability for default (such as exemption from penalties, fines), termination of contractual obligations, or termination or modification of contracts subject to certain terms.

The mere fact of quarantine is not an absolute reason to believe that a force majeure has occurred for a party to the contract. The party to the contract must prove both the existence of force majeure and the fact that the inability to fulfil the obligations is caused by the force majeure.

The sequence of actions that must be taken to properly confirm the existence of force majeure and notification about such events to one’s counterparty are very important. Otherwise, the right to invoke force majeure may be forfeited.

It should be noted that not all circumstances of non-performance can be considered as force majeure. In particular, the court practice of past years shows that this list does not include economic crisis, default, growth of official and commercial foreign exchange rates, lack of cash or necessary goods on the market. In each case, it is necessary to understand how specific objective reasons affect the possibility or impossibility to execute contracts.

Moreover, parties to the contract should not expect to be exempt from the obligation to fulfil monetary obligations. In addition, legislation stipulates that past due inflationary costs and three per cent per annum are subject to payment, unless otherwise provided for by the contract.

  • What actions should be taken to prevent negative outcomes from the impossibility to fulfil obligations as a result of quarantine and other restrictive measures?

To confirm the existence of force majeure circumstances that undermine the ability to perform the terms of the contract, a force majeure certificate should be obtained.

The above document is provided by the Ukrainian Chamber of Commerce and Industry and regional chambers of commerce and industry.

The law also stipulates that a party unable to fulfil an obligation must make every effort to duly perform it. It is also common for some contracts to require the parties to take a particular sequence of actions in the event of force majeure.

Therefore, in order to prevent further negative implications, it is necessary to observe the terms of the contract governing interaction of the parties affected by force majeure, as well as to take measures to ensure the ability to fulfil obligations.

In that case, in the future, should any disputed situations take place, it will be possible to invoke the respective consequences for the party caused by force majeure.

However, a potential negative outcome should not be anticipated, as contracts may be modified so as to provide for performance of the obligations on new terms.

When amending contract terms, the contracting party must also be cognisant that an agreement is reached during force majeure, and consequently, if the situation in the State does not change, it will be difficult enough to invoke force majeure.

  • What if the counterparty ceases to fulfil its contractual obligations? Does it make sense to resort to court?

Choosing a legal remedy is individual and highly dependent on many factors.

First, it should be borne in mind that, in some cases, the terms for case consideration by the court may exceed the expected quarantine period. In this regard, if there is a chance to return to normal partnership, we recommend trying to recourse to amicable settlement.

If, nevertheless, a party decides to file a claim, it is necessary to consider whether the parties were affected by the force majeure and whether such events prevented the performance of the contract. This will influence dispute resolution prospects.

Operation of judicial authorities

  • How do courts operate during quarantine? Are courts obliged to suspend or adjourn court proceedings because of quarantine measures?

On 19 March 2020, the State Judicial Administration of Ukraine and the Verkhovna Rada Committee on Legal Policy informed that the judiciary system is working and will continue to work.

However, some courts have introduced measures to prevent the spread of the coronavirus. In particular, in some courts, the work of the court office is restricted, decisions are taken to hear cases without summoning the parties, or proceedings are suspended until the quarantine period is over.

The State Judicial Administration of Ukraine has informed that the parties of court proceedings were given the opportunity to submit documents remotely, including by post or to the official e-mail of the court, review case materials on the basis of respective applications by e-mailing the scanned document copies, copies of procedural documents may be sent to the applicant’s e-mail address.

According to the Supreme Court, it will, where possible, take steps to minimize verbal proceedings. At the same time, case consideration in written procedure and receipt of documents will take place in regular mode. The parties may apply to the court to postpone the case hearing due to quarantine measures.

It should be noted that quarantine measures alone do not imply an obligation of the court to adjourn or suspend proceedings. The respective issue must be resolved on the basis of a reasoned motion or by the court itself, taking into account all circumstances of the case.

  • Does the quarantine affect the time frame for committing procedural actions, filing procedural documents, and contesting court decisions?

The imposition of quarantine does not affect the term of procedural actions to be taken by the litigants. However, the respective circumstances may be taken into account by the courts when deciding whether to renew or extend such terms.

  • How can the risks be mitigated if the parties’ representatives are unable to arrive at court because of restrictions on interregional transport connections?

The issue of participation in court hearings is now acute because of restrictions on intercity connections due to quarantine and other restrictive measures.

In many cases, this prevents litigants from attending a court hearing.

If you or your representative are unable to attend the hearing, for example due to illness or inability to arrive at court, we recommend that you notify the court in advance, stating the reasons for your failure to appear. In addition, a motion must be filed to the court to postpone the hearing to another date, with appropriate justification.

If such motion cannot be submitted through the court office, we recommend that you send it by all available means of communication, such as: post, e-mail, and ‘Electronic Court’ system, if technically feasible.

Given that the quarantine period may continue for an extended period of time, it is advisable to apply to the court for the hearing to be held by videoconference. However, given the limited number of technically equipped rooms, such motions may be rejected.

In certain circumstances, we also recommend submitting a motion on consideration of the case without the participation of party to the dispute. This applies to claimants whose participation in the case is obligatory. Otherwise, the court may leave the claim without consideration.

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