Force majeure will play back – Newspaper Kommersant No. 159 (7360) dated 08/31/2022

The Ministry of Justice has developed a draft law providing for the right of the courts to independently determine the date of change or termination of the contract due to force majeure, including retrospectively – now obligations are considered terminated or changed from the entry into force of the decision. According to lawyers, more than six months may pass from the occurrence of force majeure, and during this period a penalty may be collected from the party that violated its obligations, which is why their counterparties sometimes deliberately do not agree on changes in conditions out of court.

The Ministry of Justice proposes to expand the possibilities for terminating and revising the terms of contracts in court due to force majeure – as follows from the amendments to the Civil Code developed by the department, it is planned to enable the courts to independently determine the date from which obligations will be considered modified or terminated. Let us explain that now the parties, due to a significant change in circumstances (we are talking about situations in which counterparties, if they could have foreseen them, would not have concluded an agreement or would have done it on other terms) can change the terms of the agreement on their own and determine the moment from which new provisions are considered valid (until the conclusion of the original contract). If the counterparties cannot agree, it remains possible to change the contract in court – in this case, the amendments become effective only from the moment the decision comes into force.

The current procedure for reviewing the terms of contracts by the courts, follows from the explanatory note, does not take into account “sanctions” realities – for example, situations in which one of the parties does not fulfill the contract due to the lack of the necessary equipment after the refusal to supply foreign partners, and at the same time, counterparties do not can agree on changes to the terms of the contract – for example, on the replacement of imported Russian equipment. The Ministry of Justice admits: “the violating party is actually put in a more disadvantageous position,” since the court cannot recognize the obligation as changed from the moment the contract was concluded and cancel the consequences of non-fulfillment or improper fulfillment of the obligation during this period.

Kirill Stepanov, Senior Partner at the law firm Kaminskiy, Stepanov & Partners, notes that “since March 2022, there have been frequent situations in which a business cannot fulfill its obligations under contracts” – against this background, he considers the proposed amendment “necessary and very relevant.” Forward Legal lawyer Oles Gruzdev adds that the problem existed even before the introduction of sanctions against Russia, but the latter led to an increase in the number of disputes related to the termination and amendment of contracts. In his opinion, “the court should be able to independently determine the moment of the onset of the consequences of the decision it makes – often a fair decision requires that the consequences come before the issuance of a judicial act, but now this possibility is formally blocked.”

As Ruslan Petruchak, BGP Litigation’s Dispute Resolution and Bankruptcy Practice Advisor, explains, between the occurrence of force majeure circumstances and the moment the contract is terminated or amended by the court, “there is a long gap in time – it usually takes more than six months to consider a claim and the decision comes into force.” Because of this, he adds, the counterparty may require the party that cannot perform the contract to pay a penalty for this period, and now the defendant has no reason to resist such demands in court. “The other party may deliberately refuse to enter into an agreement to change the terms of the contract in order to recover a penalty,” says Ruslan Petruchak.

However, according to Kirill Stepanov, such a bill is not enough for a comprehensive solution to the problem – “there are many questions” that need to be resolved. For example, whether a political situation can be considered a change in circumstances, on what grounds a party can invoke force majeure, and what evidence can be submitted to the court. “It is impossible to find exact answers to these and many other questions, since judicial practice is still in the formative stage,” he says.

Evgenia Kryuchkova