Volodymyr Zelensky, President of Ukraine, issued Decree 64/2022, “On the Imposition of Martial Law in Ukraine,” which was adopted by people’s deputies by a vote of 300. [1] According to the proclamation, Martial Law was implemented on 24 February 2022, at 5:30 a.m. for 30 days. This decision was taken in response to the Russian Federation’s military aggression against Ukraine, based on the National Security and Defense Council’s recommendation and compliance with the Ukrainian legislation. [2] The same was extended from 05.30 on 26 March 2022 for 30 days. The extension of the Martial Law in Ukraine is stipulated in bill No. 7168 on the extension of the Martial Law in Ukraine. [3] Together with Ukraine’s Ministry of Internal Affairs, other executive bodies, and local government bodies, the Military Command ensures that the measures and powers contemplated by Ukraine’s Law “On the Legal Regime of Martial Law” are implemented in order to protect Ukraine’s defense, public safety, and the national interests. Ukraine’s State Emergency Service, in collaboration with local state administrations and other state bodies, institutions, enterprises, and organizations of all types of ownership, is tasked to immediately prepare a unified state civil protection system, including its functional and territorial subsystems, to implement such tasks during the extraordinary circumstances. Additionally, regional, Kyiv, and local self-government administrations must create defense councils and support the military command in executing martial rule measures. [4] Ukraine’s Ministry of Foreign Affairs was also tasked to ensure that the UN Secretary-General and other foreign officials are fully informed about the imposition of Martial Law in Ukraine, restrictions on human and civil rights and freedoms, which constitute a violation of the International Covenant on Civil and Political Rights’ obligations, the extent of these violations, and the reasons for such a decision. [5]
Article 8 of the Law of Ukraine “On the Legal Regime of Martial Law” implementation results in temporary restrictions on the rights and freedoms according to Decree No 64/2022. [6] In fact, Due to the imposition of Martial Law in Ukraine, derogation on the constitutional rights and freedoms guaranteed by Articles 30 to 34, 38, 39, 41 to 44, and 53 of the Ukrainian Constitution came into effect. The same may also impose temporary restrictions on legal entities’ rights, legitimate interests, and activities within the jurisdictions [7]. This means that international business transactions and Multinational Enterprises’ (MNEs’) activities within the country will be affected by the situation. One of the most critical issues for these transactions and activities that could be affected by the imposition of Martial Laws and the restrictions on the rights and legitimate interests of legal entities and their activities is the impediment in performing international contracts and issues related to fulfilling the contractual obligations. Parties have started considering whether their contractual obligations can be discharged due to the Martial Law imposition in Ukraine by means of the force majeure clause or the doctrine of frustration.
First, it is essential to identify the Ukrainian Martial Law’s main restrictions and mandates that could have an adverse effect on business operations. The 64/2022 Decree of the President of Ukraine (as amended of the Presidential Decree of Ukraine of 14.03.2022 No. 133/2022) imposed a series of restrictions and obligations upon male citizens of Ukraine. [8] For instance, the “introduction of a warlike situation in Ukraine” imposed a general mobilization for the military service, under which reservists and conscripts were mobilized for the military services. However, males falling under the scope of a series of derogations may be exempted, considering the human and medical situation of the person. For example, the derogation from the general mobilization for the military services applies to persons having a deferment certificate from conscription, persons who concluded military-medical commission on unsuitability, or persons who maintain a child with a disability or maintain three or more children under 18 years. Further, under the same Decree, Ukrainian males aged from 18 to 60 years old are restricted from leaving the country during the period of the Martial Law. Restrictions of the freedom of movement are also prescribed under an imposed Curfew – which varies based on the region, as the Decree prohibited being in public places and on the streets during specific hours without issuing a permit from the competent authority.
The above-mentioned general mobilization for military service, Curfew, restriction of freedom of movement would resolve business impediments or even discontinuity. Furthermore, the legal regime of Martial Law, due to the “introduction of a warlike situation” in Ukraine, may introduce more measures causing a derogation from the rights and freedoms of doing business within the country and restricting the legitimate interests of the legal entities. The imposed measures may force an alienation of private property expropriation and the use of the labor and resources of entities of all forms of ownership. Usually, Martial Law is considered an obstacle that occurs outside of the parties’ control by which unforeseen circumstances may lead to substantial issues and substantial monetary losses. In most war cases, goods to be delivered are lost in a shipwreck or destroyed by fire, or the authority withdraws licenses, and the delivery may be delayed months after the delivery date or maybe impossible to be delivered. The parties to an international contract may find recourses in the contractual provisions under the force majeure clauses to be dispensed from their obligations and liabilities and avoid legal claims when extraordinary circumstances or events beyond the parties’ control occur.
In the practical case of Ukrainian entities, it is possible that the performance of an agency, distribution, or a franchise agreement, for example, is suspended due to the military aggression of the Russian Federation against Ukraine. According to part 2 of article 141 of the Ukrainian Law “On Chambers of Commerce and Industry in Ukraine,” force majeure circumstances (circumstances of irresistible force) are extraordinary and unavoidable circumstances provided by legislative and other normative acts that make the fulfillment of obligations prescribed by the terms of an agreement impossible. According to such definition, circumstances are considered force majeure if they meet two criteria: (1) they are exceptional and unavoidable, and (2) they objectively make obligation fulfillment impossible. Furthermore, enemy attacks, foreign enemy actions, widespread military mobilization, military actions, and declared and undeclared war are all specified as probable force majeure events under the law.
Nonetheless, it is worth noting that, while the occurrences mentioned above are extraordinary and unavoidable, they cannot be termed force majeure situations if they do not directly influence the ability to meet their contractual obligations or, in other words, do not objectively preclude the fulfillment of the obligations. Further, Part 1 of Article 14, 14′ of 02.12.1997 № 671/97-VR, the Statute of the Ukraine Chamber of Commerce and Industry (UCCI) “On Chambers of Commerce and Industry in Ukraine” states that the UCCI and its authorized regional chambers of commerce and industry certify force majeure circumstances (circumstances of irresistible force) and issue certificates of such circumstances. [9] In fact, On 28 February 2022, the UCCI has issued a standard official letter certifying force majeure circumstances and confirmed that the witnessed circumstances from 24 February 2022 until their official ending are: “extraordinary, unavoidable and objective circumstances for business entities and or individuals under the contract, separate tax and, or other obligations the fulfillment of which occurred following the terms of the contract, agreement, legislative or other regulations and the fulfillment of which became impossible in the set deadline due to the occurrence of such force majeure circumstances.” However, as per the UCCI, parties shall meet the imposed requirements to be granted the force majeure certificate. [10]
We recap by emphasizing one crucial element in the case of contractual obligations impediment during exceptional circumstances, including enemy attacks, military actions, widespread military mobilization, or foreign enemy actions. The Pacta Sunt Servanda doctrine is recognized across jurisdictions within the civil and common law legal systems. [11] Such doctrine embodies a fundamental, agreed-upon general principle in all legal systems and constitutes the basis of international business dealings. Nonetheless, when the performance of the contract becomes impossible to be performed, a derogation from the principle using force majeure and hardship are both recognized in the common and civil law systems. [12] The term “force majeure” refers to situations in which performance has become (temporarily) impossible according to an incident beyond one party’s control, notwithstanding the fact that all reasonable preventative steps have been taken. On the other hand, hardship deals with situations in which the agreed-upon performance is still technically possible, but some underlying facts have significantly altered, such that while contractual obligations are still conceivable in principle, it no longer makes economic sense. It is critical to recognize that force majeure and hardship are two distinct notions. As stated, the two concepts differ in terms of preconditions and legal consequences. Depending on the contractual terms or the material law regarding the hardship or force majeure clauses, the contract may be adjusted, or the parties may have to re-negotiate the terms that were affected by the circumstances to find a solution or resort to dispute resolution. Unfortunately, conflicts usually occur in such situations due to issues related to drafting flows in identifying the scope of the force majeure or missing provisions on delays or prevented performance. Force majeure provisions are indispensable in international contracts, and when it comes to both the concept of force majeure and the accommodation of its effects on contractual obligations within the contract, international contract drafters with a more comprehensive legal systems knowledge have been inventive, compared to the romanistic attorneys. Thus, during negotiations, practitioners need to carefully examine the proposed terms in light of the transaction, the laws, and all possible variants and writing traps to avoid the risks during these difficult times.
References
[1] Ukraine Ministry of Defence. (2022, 02 24 ). From Ukraine Ministry of Defence: https://www.mil.gov.ua/en/news/2022/02/24/president-signed-a-decree-on-the-imposition-of-martial-law-in-ukraine-the-verkhovna-rada-approved-it/
[2] Ukrinform. (2022, 03 15). From Ukrinform: https://www.ukrinform.net/rubric-ato/3430438-parliament-supports-extension-of-martial-law-in-ukraine-from-march-26-for-30-days.html
[3] Ukraine Ministry of Defence. (2022, 02 24 ). From Ukraine Ministry of Defence: https://www.mil.gov.ua/en/news/2022/02/24/president-signed-a-decree-on-the-imposition-of-martial-law-in-ukraine-the-verkhovna-rada-approved-it/
[4] Ukraine Ministry of Defence. (2022, 02 24 ). From Ukraine Ministry of Defence: https://www.mil.gov.ua/en/news/2022/02/24/president-signed-a-decree-on-the-imposition-of-martial-law-in-ukraine-the-verkhovna-rada-approved-it/
[5] On The Legal Regime Of Martial Law Original Language Title: Про правовий режим воєнного стану . (2022) From Global Regulation: https://www.global-regulation.com/translation/ukraine/571687/on-the-legal-regime-of-martial-law.html
[6] President of Ukraine Volodymyr Zelenskyy. (2022, 02 24). President of Ukraine Official Website: https://www.president.gov.ua/en/news/prezident-pidpisav-ukaz-pro-zaprovadzhennya-voyennogo-stanu-73109
[7] Presidential Decree Of Ukraine of 24 February 2022 No. 64/2022. (2022, 02 24). From CIS Legislation: https://cis-legislation.com/document.fwx?rgn=138138
[8] FORCE MAJEURE CERTIFICATION. (2022). From Ukrainian Chamber of Commerce and Industry: https://ucci.org.ua/en/services/zasvidchennia-fors-mazhornikh-obstavin
[9] Ukraine Ministry of Defence. (2022, 02 24 ). From Ukraine Ministry of Defence: https://www.mil.gov.ua/en/news/2022/02/24/president-signed-a-decree-on-the-imposition-of-martial-law-in-ukraine-the-verkhovna-rada-approved-it/
[10] Chambers of Commerce and Industry in Ukraine. (2022). From UCCI Official site https://ucci.org.ua/en/zaghal-na-informatsiia
[11] DiMatteo , L., & Lucien, D. J. (2021). INTERNATIONAL BUSINESS LAW: A TRANSACTIONAL APPROACH. Routledge, 4th edition.
[12] Bortolotti, F., & Ufot, D. (2018). Hardship and Force Majeure in International Commercial Contracts: Dealing with Unforeseen Events in a Changing World. paris: Kluwer Law International B.V.
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