Unrest Does Not Necessarily Mean Force Majeure
Perhaps there is no contract devoid of any reference to force majeure circumstances upon occurrence of which the other party becomes eligible to termination of the performance of the contract without any further consequences. In the light of the developments in Ukraine and other current matters, a question arises, in what cases it would be possible to take advantage of this circumstance; could the political developments in a country be considered to be the irresistible force; what really are these circumstances beyond the party’s control which could not be reasonably foreseen at the time of conclusion of a contract? Although I sincerely hope we would never need that in practice, however, what should be the companies’ actions in case of unrest taking hold in a country?
Force majeure: what is truly unexpected
Force majeure is considered to be very extraordinary and rarely occurring. The following features are inherent to such circumstances in business relations: they have not been in place at the time of entering into a contract, and their occurrence was not reasonably foreseeable (i.e. their occurrence did not seem likely at all to the parties to the contract), objectively preventing its fulfilment, whereas the defaulting party was not in a position to control such circumstances or prevent them from occurring and had not assumed such a risk.
A hypothetical example: if, let’s say, a Lithuanian company has signed a contract for the delivery of goods throughout the territory of Ukraine several years ago, it would be able to refuse delivery of cargo to Donetsk and other “hot spots” within the country referring to force majeure (it is likely that the other party (or otherwise – the court) would agree with that). A case would be different, if a contract is signed by a company, for instance, in March of this year, when the probability of unrest in the eastern regions of Ukraine was very high.
The obligations would remain in force even in the event of war, in such case.
War, civil war, insurgencies and revolutions, piracy, sabotage are the examples listed in the Resolution of the Republic of Lithuania on the exemption from liability in the case of force majeure. However, the existence force majeure is to be considered on a case-by-case basis; therefore, it would be wrong to say one or another event is to be regarded as a force majeure circumstance per se. For example, unrest in Klaipėda should not be considered force majeure circumstance, which could result in suspension of the performance of the contract, with respect to a contract for cleaning services concluded between two companies in Vilnius.
It should also be noted that force majeure is an institute of private law. This means that the existence of force majeure has no bearing on the payment of taxes and other public relations with public authorities.
When may a company be exempt from the liability for failure to perform?
Mutual agreement is the best option, which is as old as the world. It is when one party to the contract claims that it is unable to fulfil an obligation due to irresistible force and the other agrees that such irresistible force preventing the fulfilment of the obligations does indeed exist. It is not always easy to reach a consensus, and this is where it is up to a court to decide on the issue.
In any case, a contracting party seeking exemption from liability has a duty to inform the other party about the situation as soon as possible after becoming aware of the impediment and its impact on the performance of the obligations. The party is to be relieved from liability for failure to comply with terms of the contract, if it proves that the contract is not fulfilled due to force majeure circumstances. The defaulting party is exempt from compensation of damages, payment of fines and other penalties provided for in the contract (other than the obligation to pay interest) for the period a force majeure circumstance is in effect of circumstances preventing the performance of the contract is of a temporary nature, a party shall be exempt from liability only for such a period which is considered reasonable in the context of the impact of the circumstance on the performance of the contract. For example, if the communication infrastructure, the Internet connection required for the fulfilment of the company’s obligation would be damaged as a result of the unrest, the party is likely to be exempt from liability for the period during which the connection was not operational.
Benefits of referring the matter to the Chambers of Commerce, Industry and Crafts
In practice, in order to prove the existence of force majeure is useful to refer the matter to the Lithuanian Chambers of Commerce, Industry and Crafts, which will issue a certificate confirming this fact. Of course, in the event of the dispute reaching the court, the latter, having assessed all relevant circumstances, would be able to invalidate the certificate and make the opposite finding. While such a situation has occurred many times in practice, it should be noted that such a statement of the Chambers is considered to be substantial evidence in a case.