30 April 2020
We are providing here a further update on the force majeure certificates, which were briefly mentioned in our previuus Newsletter
on force majeure in the context of the current meausres relating to the Covid-19 pandemic.
When and How to Apply for a "Force Majeure Certificate"
The Chamber of Commerce and Industry of the Russian Federation (the CCI) is presently attesting the existence of the force majeure circumstances and is issuing the certificates on the legal status of the legal entities accordingly.
The existence of the force majeure circumstances are attested by the CCI in accordance with the terms of the foreign trade transactions and international treaties on the basis of the Federal Law of July 7, 1993 No 5340-I
"On Chambers of Commerce and Industry in the Russian Federation".
The decision whether to issue a force majeure certificate is made by the Chamber on a case-by-case basis in accordance with the Rules
for Attesting Force Majeure Circumstances, approved by the decision of the Board of the CCI No 173-14 of December 23, 2015. The CCI makes their decisions based on the contract terms and the documents issued by the relevant authorities of the Russian Federation, confirming that the event, which the company refers to in its application, did really take place.
On the basis of a force majeure certificate issued by the CCI, the party of a foreign trade contract may be released from the liability for a failure to perform or for an improper performance of its contractual obligations due to a force majeure event.
In a situation when a force majeure event should be certified under the contract between the companies registered in the Russian Federation, the CCI recommends to apply to a relevant Chamber of a Russian region. This recommendation is included in the minutes of the Government Commission on Sustainable Development of the Russian Economy as of 20 March 2020 No 3.
It should be noted that in case of an epidemic threat, the restrictive and prohibitive measures may be taken not only by the federal authorities of the Russian Federation, but also by the regional authorities. In case if these measures contain direct prohibitions and limitations and therefore make it impossible to perform the obligations by contract parties, these measures may also be regarded as a force majeure.
In the Russian legislation as well as the case law there is a clear position regarding a failure to perform the obligations and exemptions from paying penalties, as well as a delayed performance of the obligations in case of a force majeure. As stipulated in the Article 401 of
the Civil Code of the Russian Federation a person, who failed to perform his contractual obligation or performed it improperly shall be liable unless he proves that the due performance was impossible due to a force majeure.
Therefore, if a certain circumstance is recognized as force majeure, it may relieve a party of contract from a civil liability such as paying damages, fine or penalty.
As for the contractual obligations, in accordance with paragraph 9 of the decision of the Plenum of the Supreme Court of the Russian Federation of March 24, 2016 No 7
the event of force majeure itself does not terminate the debtor's obligations if their performance remains possible once the event ceased to exist. However, if due to debtor's delays the creditor is no longer interested in performance of obligations by the debtor, he may unilaterally rescind the contract. In this case the debtor will not be liable for the losses, caused by the delays in performance of obligations due to force majeure.
The terms and certain specifics of the force majeure certification, the list of necessary data and documents needed to issue the force majeure certificate, the application procedure, the assessment procedure, and the procedure for processing and issuance of the certificate are set out in the Provisions for a force majeure certification by the CCI approved by the order of the Board of the CCI No 173-14 of December 23, 2015
How Will the Courts View the CCI Force Majeure Certificates?
It is difficult to predict whether the courts of arbitration in the Russian Federation will still decide in favor of the claimants, whose claims are based on the force majeure circumstances, if the CCI certificate is absent or if the CCI refused to issue it.
Also it is difficult to predict whether this document will be taken into account by the arbitrazh courts of the Russian Federation in cases, involving situations, in which the debtors will try to enforce their right to change the terms of a credit agreement or a loan agreement, providing for a suspension of a performance of the obligations by the debtor.
This is primary due to the fact that the relevant case law is not yet available, and there are no cases where the relations between the creditors and the debtors, being the legal entities, would have been reviewed for the reasons prescribed by Russian legislation.
The CCI Force Majeure Certificates in Practice
According to the available data, over the last three weeks the CCI of Moscow received about 1,400 applications from the companies for the force majeure certificates. At the same time, more than 90% of applications have so far been rejected due to the fact that the circumstances stated in the requests were not corresponding to the requirements, which were set out as a criteria to recognize the event as force majeure.
It must be noted that in business relations the responsibility is based upon the grounds of risks rather than the grounds of fault. The only situation when a businessperson may be released from the liability to perform the obligations is force majeure, i.e. the circumstances, making it impossible to perform the obligation in question.
In a view of this, it is necessary to clearly define these circumstances. In order to categorize an event as a force majeure, it must be satisfy all of the following conditions:
1) extraordinarity. No other reasonable person in the same situation could foresee this circumstance due to its exclusivity;
2) unavoidability. It must be objective, meaning that any other participant of civil life who carries out activities similar to the debtor, could have avoided this circumstance and its consequences;
3) insurmountability. It may have an absolute form or a form when the obstacle might be surmounted by the defendant but the performance will be extremely burdensome (relevant insurmountability). There are cases in legal practice when the circumstances are classified as force majeure due to relevant insurmountability;
4) objectivity. The circumstance should emerge beyond debtor's reasonable control.
During the coronavirus pandemic every obligation and every contract should be reviewed on a case-by-case basis, since not every businessperson will be able to rely on force majeure effectively. In many cases due to a nature of a particular business or due to certain restrictive measures, imposed by the Government of the Russian Federation, some or all of four of the force majeure conditions may not be present.
Here we shall mention some circumstances, which definitely are not going to be regarded as force majeure
. They include:
- breach of obligations by the counterparts;
- absence of the necessary goods in the market;
- debtor's lack of necessary funds;
- change of currency exchange rate and devaluation of national currency.
Also, the force majeure event does not release a party from performance of an obligation, but only from a liability for a failure to perform the obligation.
It should be noted that the Russian businessman have recently encountered another serious problem. According
to RBC, some companies cannot receive any deferral on their loans or fail to obtain the CCI force majeure certificate.
This is caused by the mismatch between the codes of activity of these companies in the register of the legal entities with codes included on the list of the Russian economic sectors most affected by the spread of the coronavirus
which was approved by the Ruling of the Government of the Russian Federation of April 3, 2020 No 434
with the addendums made on April 18, 2020.
The situation is caused by the fact that the code in the Russian Classification of Types of Economic Activity may not coincide with an actual type of the company's activity, while the list of sectors approved by the Government is quite limited. In this regard the Head of the CCI Council on Financial Policy and Investment Activities Vladimir Gamza suggested that the best way here was for the tax authorities of Russia to issue the additional documents, confirming the actual activities of the company.
On top of the above, the Chairman of the CCI Sergey Katyrin asked the Chairman of the Supreme Court of Russia to explain whether the temporary lockdown of restaurants, shopping malls and cinemas can be classified as a force majeure event during the pandemic.
Mr Katyrin pointed out that the CCI receives numerous letters from the businessman and the heads of the Russian regions about the conflicts related to an exemption from paying the fines (penalties) and payments for the rent of commercial premises, as well as about the conflicts, related to payments for leasing of vehicles, caused by the special measures imposed by authorities in order to restrict the free movement of people. The CCI believes that the future clarifications of the Supreme Court will provide for more legal certainty over these issues.
Anna Burdina, Head of Projects, Khrenov&Partners