Can the Coronavirus and Quarantine Be Considered a Force Majeure in Ukraine?
Due to the COVID-19 pandemic, it becomes an increasingly relevant issue as to whether the coronavirus, quarantines and closure of state borders can be considered force majeure circumstances that relieve liability for non-fulfilment of contractual obligations under the laws of Ukraine.
Partner at AURUM Law Firm Sergey Ostrovskiy and Senior Associate Illia Shenheliia discover when force majeure is present and when you cannot refer to it.
This article was first published on AIN.UA.
What Is a Force Majeure?
In essence, a force majeure comprises the circumstances caused by a superior and irresistible force. As a general rule, according to the norms of the Civil and Commercial Codes of Ukraine, a party to an obligation is exempt from liability for failure to fulfil or for improper performance of its obligations if it proves that it happened as a result of a force majeure.
The list of force majeure circumstances is not exhaustive and may include any extraordinary and inevitable circumstances that make the fulfilment of obligations under a contract or law impossible. For example, force majeure circumstances may include hurricanes, tornadoes, earthquakes, revolutions, riots, and war. An epidemic is also one of those circumstances.
The most common practice is to include a force majeure clause in the contract text. In other words, most often the parties to a contract themselves determine what circumstances will be considered a force majeure and what consequences they will have.
It should be noted that the Ukrainian Chamber of Commerce and Industry has the right to certify the occurrence of force majeure circumstances. The President of the Ukrainian Chamber of Commerce and Industry recently spoke on this issue, saying that if the agreement explicitly refers to force majeure circumstances such as an epidemic, a public health emergency or restrictive government actions, this strengthens the position of the party that relies on recognising the coronavirus as a force majeure circumstance.
On 17 March, the Verkhovna Rada of Ukraine adopted, as a whole, Bill №3219 which introduces amendments to Art 14–1 of the Law ‘On the Chambers of Commerce and Industry in Ukraine,’ adding the quarantine introduced by the Cabinet of Ministers of Ukraine to the list of force majeure circumstances.
The Bill has not entered into force yet and is to be signed by the President. The introduction of this norm in the current situation will greatly simplify the procedure for obtaining force majeure certificates at the Ukrainian Chamber of Commerce and Industry.
At the same time, the party to a contract should be prepared to provide evidence that the coronavirus or the measures combatting its spread are circumstances that really impede the fulfilment of its obligations.
In Which Cases Is the Coronavirus Pandemic Considered a Force Majeure Event?
By default, the mere existence of an epidemic or pandemic is not a force majeure event. At the same time, the interested party can prove that the coronavirus, and actions of state bodies aimed at preventing the spread of the coronavirus, are a force majeure if they can justify that the relevant circumstances are:
- unpredictable, and
- prevent the fulfilment of the obligations of the parties to a contract.
There should be no problems with the first three points, unless an agreement was concluded after the coronavirus was declared a pandemic or the quarantine was introduced, as in such a case the parties knew about the situation and could predict the possible consequences. Therefore, special attention must be paid to the last point, since proving a causal relationship between a particular circumstance and the inability to fulfil a contract will be the most important and difficult task.
Also, in addition to the epidemic, force majeure circumstances may include actions by state authorities and measures aimed at preventing the spread of coronavirus, such as quarantine and closure of state borders. For example, as mentioned above, Bill №3219 relates the quarantine to a force majeure, but not the coronavirus pandemic as such.
Closure of State Borders
It shall be recalled that, on 11 March 2020, the Cabinet of Ministers of Ukraine established a quarantine throughout Ukraine from 12 March to 3 April 2020, effectively prohibiting visiting educational institutions and public events if more than 200 people take part.
On 13 March 2020, by means of a decree of the President of Ukraine, a decision of the National Security and Defence Council of Ukraine was introduced that restricted the entry of foreigners into Ukraine from 16 March 2020 and closed regular passenger traffic through the state borders of Ukraine for two weeks from 17 March 2020.
Later, on 16 March 2020, the Cabinet of Ministers of Ukraine amended its decree on the quarantine and imposed additional prohibitions and restrictions for the time of the quarantine.
As mentioned above, closing borders and cancelling passenger communications can be considered a force majeure if they directly interfere with the fulfilment of an agreement by one of the parties. Consider the example below.
Imagine a situation where, as part of a major contract, a foreign company must send a specific specialist to Ukraine to carry out certain work. Due to the closure of the border, the foreign counterparty is deprived of the opportunity to send the person to Ukraine. Hence, in this situation, the decision of the National Security and Defence Council and the decree of the President of Ukraine can be recognised as a force majeure circumstance that relieves the foreign company from liability for non-fulfilment of the contract.
Event Cancellation Due to the Quarantine
As in the example above, the organisers of events with over 200 participants are most likely to be able to refer to the introduction of the quarantine as a force majeure circumstance, which would enable them to avoid the responsibility for cancelling events. In such a situation, it would most likely be possible to receive compensation in connection with the cancellation of the event only if it is provided for by the contract or the offer on the website.
Flight Cancellation Due to Border Closure
If a flight was cancelled not at the initiative of the passenger, including cancellation by the air carrier due to the decisions of state authorities, in accordance with the Rules of Air Carriage and Services for Passengers and Baggage, the air carrier must pay the passenger the cost of the ticket within seven days. These rules apply to both scheduled and charter flights.
In a case of emergency, the airline may cancel the flight without notifying the passenger. Therefore, in the current situation, it is advisable to check the status of the flight yourself, not wait for notification from your airline.
Due to the termination of regular passenger connections across the Ukrainian border, most air carriers will be forced to cancel international flights. If a flight does not fall under the restrictions and has not been cancelled, in the case of a no-show on the flight, getting compensation will most likely be extremely difficult for the passenger.
In any case, make sure to study the rules of air transportation and the conditions for the provision of services of the particular airline operating the flight, as they may contain an additional list of force majeure circumstances or other conditions that will allow you to receive compensation in the current situation.
Cancelling Accommodation Booking
With the reservation of accommodation, the situation is different. Since this field is not regulated by the state, such as in the case of air transportation, the rules for the payment of compensation in the event of cancellation of booking are determined by the agreement between the parties. If you have booked your accommodation through an online platform (for example, Booking.com or Airbnb) the user agreement of the relevant website acts as such an agreement.
Thus, you can receive compensation for cancellation only if this option is provided for by the user agreement of the website through which the accommodation was booked.
It is worth noting that some websites introduced special cancellation rules in connection with the coronavirus. For example, as of 15 March 2020, Airbnb changed its cancellation policy and established that, due to the outbreak of the coronavirus, its users can receive full compensation for the cancellation of bookings with an arrival date between 14 March and 14 April, if the reservation was made before 14 March 2020.
The Effect of Coronavirus on the Supply of Goods and Freight
As things stand, the coronavirus, and the actions of the state authorities of Ukraine, should not significantly affect the supply of goods and freight, since the closure of state borders has affected only regular passenger traffic and the quarantine impacted only educational institutions and public events.
However, it must be borne in mind that some special restrictions may have been imposed by government authorities in other countries. If you cannot fulfil the obligations under a contract in such a situation, you must correctly certify the existence of the force majeure circumstances and be prepared to prove a causal relationship between the restrictions introduced and the inability to fulfil the contract.