Force Majeure Releases from Liability, Rather Than an Obligation


Alexander Borodkin

Partner, Attorney-at-Law

Real Estate and Construction,
Trade and Commercial,
Transport and Infrastructure

Surfing the Internet, you may come across a large number of publications regarding Force Majeure and its seemingly helpful effect during the quarantine.

In particular, the news about the enactment of a law saying that the quarantine is Force Majeure has become quite a big talk.

In fact, it is all about the amendment to Article 14-1 of the Law of Ukraine on Chambers of Commerce and Industry in Ukraine, in which the “quarantine declared by the Cabinet of Ministers of Ukraine” has been listed (which list still is and remains non-exhaustive) as Force Majeure.

We note that this amendment does not lead to the quarantine being recognized automatically as Force Majeure nor makes the relevant certificate no longer needed, but facilitates obtaining it.

Article 617 of the Civil Code of Ukraine states that “a person who is in breach of an obligation shall be released from liability for such breach if such person proves that this breach is due to Force Majeure.”

According to Article 218 of the Commercial Code of Ukraine, “(…) a business entity that is in breach of a commercial obligation shall bear commercial law liability unless it proves that it could not perform properly due to Force Majeure, i.e., extraordinary and inevitable events affecting the conduct of business operations.”

In other words, Force Majeure releases from liability for improper performance of an obligation only, rather than the obligation itself. To put it otherwise, if your store is closed because of the quarantine, Force Majeure may release you from liability for delay in rent payments (penalties or default interests) only, not from payment of the rent itself, during this period.

However, it is a contract that may contain specific provisions to such effect. For example, it may state that, as long as Force Majeure exists, the parties (or one of them) shall be released from obligations, payments, etc.

There may be the other options to think about in terms of modifying or terminating the contract in whole or to the extent related to the payment of the rent, as may be provided by the applicable law or contract (for example, a material change in the circumstances (Article 652 of the Civil Code of Ukraine), inability to use property (Articles 762 (4) and (6) of the Civil Code of Ukraine), etc.).

We also draw your attention that the Force Majeure clause in contracts usually sets out a time limit and manner to give notice to the other contractual party. Any failure to do so may result in being prevented from invoking these contractual provisions.

To sum up, without denying that Force Majeure can be a "solution" during quarantine, we have to admit that it does not apply automatically, nor has at all times the expected outcome. Each case should be examined separately and, based on results of the analysis, it should be determined what provisions of the law or contract will lead to the desired result. Moreover, it is important to choose the right approach and not to waste time on futile attempts.

Published: The Page, 20 March 2020 

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