Yulia Shilova published “Coronavirus in Russia: How does a lawyer respond to new business demands?” in the Arbitration Practice magazine

Source: Arbitration Practice

Force majeure is not the epidemic itself but the measures the authorities take

One can consider the coronavirus epidemic as a force majeure. However, in most cases, it was not the epidemic itself that made fulfilling contractual obligations impossible but rather the restrictive measures of the authorities in the Russian Federation to counteract the spread of the pandemic.

The increased readiness regime that some regions introduced does not signify an actual emergency (Resolution 6AAS dd., of 29 January 2020, in case № A04-3320/2019, AC of the Central District of 14 August 2015, in case № A35-8264/2014). There is some question about the powers of the executives of Russia’s federal subjects to qualify the event as a force majeure.

Force majeure circumstances are an element of civil law, which, by virtue of Article 71 of the Constitution, is the exclusive jurisdiction of the Russian Federation. Normative legal acts of the subjects of the Russian Federation are not included in civil legislation (Article 3 of the Civil Code). In the event of a dispute, however, the courts may consider the acts of the heads of the federal subjects as one of the proofs of the existence of force majeure circumstances.

The court recognizes a force majeure situation of a party to a contract as a factor of force majeure, provided that the circumstances were beyond the party’s control and the party took all measures necessary to minimize or eliminate the negative consequences of such a circumstance (Decision of the Moscow Administrative Court, dated 4 August 2017, in case No. A40-39224/17). If the party has not taken such actions, there are no grounds for the recognition of force majeure circumstances.

The occurrence of force majeure circumstances relieves the party of responsibility for the breach of the contract, but it does not terminate its obligations. However, there is the possibility of changing or terminating the contract due to crucial changes of circumstances.

In one of the cases, the court recognized the beginning of the spread of avian influenza as a significant change of circumstances that served as the basis for terminating the contract of sale for an egg-sorting machine. This entailed a reduction in prices for poultry farm products, a decrease in the sales of goods, and as a consequence, a decline in the need for additional equipment (Resolution 9AAS dd., of 29 February 2008, in case No. A40-46947/07).

Thus, if coronavirus or the restrictive measures of the authorities threaten the fulfillment of obligations, the following recommendations may apply:

1) notify counterparties, in writing, of the situation and of the measures taken to fulfil obligations and minimize losses;

2) apply to the Chamber of Commerce and Industry of the Russian Federation for a certificate of force majeure (the Chamber of Commerce and Industry of Russia issues the certificate within ten working days from the date it registers the application);

3) receive a certificate from the counterparty that the failure to perform its obligations is due to force majeure (if the counterparty is an intermediary);

4) amend the agreement, based on the fact that coronavirus and restrictive measures taken by the authorities are force majeure;

5) amend the agreement, with regard to the terms of performance of its obligations; and

6) take measures to find an alternative way of fulfilling the obligations.

Read the full version of the article at https://e.arbitr-praktika.ru/803680.