Russian Federation: Covid-19 and compliance with contractual obligations

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published on 13 March 2020 | reading time approx. 3 minutes

 
The events caused by the outbreak of Covid-2019 have affected more than one hundred countries in the world since the virus was mentioned for the first time. Governments of some states are taking extensive measures for prevention of infection, including tightened migration control and even entry ban, quarantines, cancellation of major events etc. Naturally these measures affect the economic position of private companies, in particular in connection with the inability to fulfil contractual obligations in a timely manner. Therefore, the following ques-tion arises more and more frequently: is Covid-2019 a sufficient and acceptable ground for the failure to comply with or late fulfilment of contractual obligations or even termination of the contract? In this article, the problem is analysed from the point of view of the Russian law.



Experts in civil law distinguish the following types of non-compliance with obligations:      

  • non-compliance due to objective reasons (obligations can be fulfilled neither by the obligated party nor by third parties authorized to act on behalf of the obligated party);
  • non-compliance due to internal reasons (fulfilment of obligations by third parties is not for-bidden by law or by any agreement);
  • temporary non-compliance (temporary impediments which will most probably be removed in future);
  • permanent non-compliance (the circumstance is of absolute nature and cannot be eliminat-ed).

     
If it may be justifiably assumed that the circumstances are caused by objective reasons and are of permanent nature, the obligation shall be terminated pursuant to Article 416.1 of the Russian Civil Code. Part 1 of Article 416 of the Russian Civil Code stipulates that an obligation is terminated due to the inability to fulfil it if this inability is caused by an event which has arisen after the creation of the obligation and no party is liable for it. As for the obligations of tempo-rary and objective nature which include epidemics and pandemics, in this case the fulfilment of obligations may be delayed and Article 328.2, Article 405.2 and Article 450.2 of the Russian Civil Code will apply.

If the obligated party fails to comply with its obligation under the contract or there are circum-stances proving that the obligation will not be fulfilled within the agreed term, the counterpar-ty shall be entitled to suspend the fulfilment of its obligations or refrain from the fulfilment thereof and claim damages. In this case the contract may be terminated in judicial proceed-ings. Therefore, in case of temporary inability to comply with obligations it is the creditor (and not the debtor) that is protected by the legislators, while the existence of these circumstances shall be proved in court.


Article 417 of the Russian Civil Code regulates termination of obligations due to a resolution of public or local authorities. In particular, it stipulates that the obligation will terminate in full or in part if the full or partial fulfilment thereof becomes impossible due to the issuance of a reso-lution by public or local authorities. If the resolution is declared illegal or void, the parties will be entitled to file a claim against these authorities seeking the recovery of damages caused by termination of the obligation.
    
Part 3 of Article 401 of the Russian Civil Code stipulates that a party shall be released from liability if it proves that the failure to comply with obligations has been caused by force majeure events. Therefore, if further fulfilment of obligations is impossible from the legal perspective due to a resolution of public or local authorities the parties shall be entitled to terminate these obligations. As provisions of Articles 401 and 417 of the Russian Civil Code are optional, the possibility of terminating obligations shall be expressly stated in the contract. Moreover, it should be considered that force majeure circumstances need to be proved by corroborative evidence. As for the resolution of the authority itself, the issues to be taken into account are: which authority and under which circumstances has issued this resolution? Otherwise the statement of inability to fulfil the obligations due to this document may be declared groundless.

Thus, in Judgement no. 02AP-9649/2017 pronounced by State Arbitration Court of Appeal no. 2 in Case no. А82-8594/2017 on 16 January 2018 the debtor proved its inability to fulfil the con-tractual obligations as a result of force majeure circumstances referring to the telegram of OAO RZD according to which the ban was imposed on cargo loading. However, the court found that the telegram of OAO RZD of 23 September 2019 and the reply of OOO Centr optimalnykh tekhnologiy were not a relevant resolution of the federal railway authority and thus may not be deemed incontestable admissible evidence of the well-known occurrence of force majeure circumstances which prevented the defendant from timely return of the disputed empty cars to the claimant.
     
The authority which may certify the occurrence of force majeure events for international contracts is the Russian Chamber of Commerce and Industry. According to the “Regulation on Procedure of Certification of Force Majeure Events by the Chamber of Commerce and Industry of the Russian Federation” (Addendum to Resolution no. 173-14 passed by the Managing Board of the Chamber of Commerce and Industry of the Russian Federation on 23 December 2015), force majeure events include but are not limited to mass diseases (epidemics), shipping restrictions, governmental bans, trade bans including embargos for particular countries as a result of international sanctions as well as other circumstances beyond the reasonable control of the parties to the agreement (contract).

A certificate proving the occurrence of force majeure events is issued upon application. A number of documents, in particular the contract with the description of the force majeure events referred to by the parties as well as documents issued by relevant authorities and con-firming the events referred to as force majeure by the applicant shall be attached to the appli-cation. Certificates confirming the existence of an epidemic are issued by the Health Ministry of Russia.
     
Therefore, to confirm the occurrence of force majeure events including those related to the epidemiological situation, the parties shall describe types of force majeure events in the contract in as much detail as possible. To get confirmation of the force majeure events one shall file a request with the state agencies authorized to confirm the occurrence of these events. As for international contracts in Russia, a certificate confirming force majeure circumstances shall be received in the Chamber of Commerce and Industry of Russia upon application.

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