The senior lawyer of the law firm S&K Vertical Gennady Skutsky comments on the material “There is no use complaining on the crisis”

20 March 2009

Economic cataclysms cause thousands of companies to delay the salary payment and to violate partnership agreements as well as provokes people’s failure to pay back for the credits etc.

They justify it for crisis. However, world financial shocks are not admitted as force-majeure circumstances releasing the violator from the duties undertaken.

The company that violated the conditions of the agreement is reputed to be guilty until otherwise proved. For example, until the facts that it was impossible to supply the goods or to pay for them because of the force-majeure circumstances (force majeure – supreme, insuperable force) – “extraordinary and insuperable in the present conditions circumstances” are proved. Among such according to the Russian Civil Code are specifically not the cases of the duties’ violation committed by the counter-agents, absence of the required goods on the market, absence of the necessary means. That is why even in case the company has completely lost its monetary assets for the reason that the license of the bank where it has an active account was withdrawn, it shall not be released from the responsibility. And the situation that took place is regarded as the risk of the account’s owner.

Let’s consider it honestly…

The lawyers consider that the term force-majeure should be interpreted very accurately. “The crisis itself by its nature cannot be regarded as the circumstance of insuperable force” – explains Nikolay Vilchur, the head of the International consulting company “Vilchur and the partners”. “The specific trends of the crisis may be of force-majeure nature – exchange rate devaluation, inflation, changes in investment and credit climates etc. Consequently, one should define concretely those very circumstances of insuperable force when trying to substantiate the fact that they took place. The fact that this or that circumstance is admitted as a force-majeure may only turn out to be the reason to release one from, for example, obligation to pay the percents or the forfeit over the obligation, but does not abolish the obligation itself. Anyway, this issue is to be resolved by the court on the basis of the concrete facts. One should analyze the situation itself, its influence upon the relations of the parties, their legal and economic position etc. Everything is very individual and subjective”.

Some of the companies are using such an opportunity, and in some cases it is successful. For example, St. Petersburg and Leningradskaya region Court of Arbitration has by almost two times decreased the amount of percents imposed upon the bank “KIT-Finance” for the ultimate deposit repayment to the Managing Company Svinyin & Partners LLC. The defendant asked to reduce the amount of percents substantiating it by the fact that the delay “was caused by the objective reasons produced by the financial crisis – in September 2008 the bank suffered from the situation when a huge amount of depositors simultaneously applied to the bank with the request of preschedule payments, which entailed the necessity to determine the priority of payments and failure to fulfill simultaneously all the duties before the depositors”. The court considered this argument valid.

We haven’t even thought of

The legislature also permits the alteration or cancellation of the agreement in case the circumstances significantly change. The purpose of this legal norm is to prevent the losses in future and to equalize the rights of the parties. Theoretically it provides, for example, the bank to request the increase of the credit rate, the supplier of the import goods to insist upon the growth of the price as of the ruble equivalent etc.

“However the unilateral alteration of the agreement’s conditions or its cancellation for the reason that the circumstances significantly changed are in most cases impossible if the agreement does not provide such an opportunity”- expresses his confidence Gennady Skutsky, the senior lawyer of the law firm S&K Vertical. “Consequently, there is a need to agree with the counter agent and to sign the correspondent agreement or otherwise to apply to the court”.

It will be rather complicated to achieve the alteration or cancellation of the agreement in the court, as the initiator of the dispute (for example, the bank or the supplier of the import goods) should prove the aggregate of several factors simultaneously: when concluding the agreement the parties could not foresee the changes, the changes of the circumstances were significant, their influence upon the agreement, the notability of the damages caused and other ones.

Above this, one may not request the increase of the rate, price etc., in case according to the business customs or the nature of the agreement it becomes apparent that the risk of changes in circumstances is taken by the interested party. For example, the risk of refinancing rate change lays on the credit institution – that is the reason why the correspondent qualified specialists are employed there in order to forecast the situation. If the contract does not contain the condition concerning the interdependence between the goods’ price and the exchange rate, then it is scarcely possible to demand the increase of price because of the ruble devaluation – the supplier should have anyway foreseen that. However, in every concrete case these issues will be produced to the court’s justification individually.

“Even if the party to the dispute considers that the circumstances which constitute the reason for alteration or cancellation of the agreement are really significant but at least one of the stated in the Civil Code factors lacks, such an agreement is most likely kept unamended. To prove such circumstances even though they may prima facie seem obvious is in practice connected with the sizeable difficulties. That is why the cases of alteration or cancellation of the agreement on the grounds of significant changes in the circumstances are not spread in judicial practice” – concludes Gennady Skutsky.

It may be forecast but not prevented

There is no exactly determined list of cases that are considered to be force-majeure ones in business. For the most part the agreements contain the conditions concerning the consequences of conflagrations, strikes, floods, earthquake, convulsion of nature, military operations etc. as well as the decisions of the governmental authorities and “other actions beyond reasonable forecast or control”.

There also are branch peculiarities. For example, telecoms operators consider it a force-majeure when the electricity or the data transfer channels are cut. On the one hand these may be the cases of emergency, on another – the counter agent’s failure to fulfill the obligation - whether it be the energy companies, the providers or others. The travelling companies are insuring themselves of the exchange rates fluctuations, increase of the air companies’ service costs, and the transport companies provide the opportunity of contract alteration in case of the fuel price growth.

One of the Moscow advertising agencies have already included into the model agreement ‘the economic crisis” as the circumstance of insuperable force. However, according to the Fontanka’s data, some of the clients have refused to conclude such an agreement as since the very signature there appeared an occasion to violate it.

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