The state of emergency: why it is necessary to prove the occurrence of force majeure for businesses in Kyrgyzstan

The recognition of force majeure could help. How to do this we will describe in this article.

Since the beginning of the state of emergency the commandants of the localities have issued a number of orders including restrictions of movements within the territory, suspend the operation of public transport, as well as suspend the activities of organizations and enterprises as there are not included in the list of permitted activities during the state of emergency.

Obviously, all these measures caused significant difficulties in the normal functioning of organizations including business. In this regard many enterprises are forced to work remotely and some of them completely suspend their activities. As a result the proper performance of their obligations under contracts becomes either impossible or extremely difficult. In this regard many sole proprietors began to wonder about the possibility of limiting or excluding their responsibility in this situation. Indeed such an opportunity according to the legislation of the Kyrgyz Republic exists in the form of recognition of the occurrence of force majeure circumstances (force majeure).

So can your company make a reference to the force majeure?

In answering this question sole proprietors should consider the following:

1. Force majeure itself does not exempt from the obligation. As per rule it refers only to exemption from liability of non-fulfillment or improper fulfillment of an obligation, for example, exemption from payment of a forfeit in the form of a penalty or a fine; from compensation of damage caused in the form of real damage and/or lost profit and other types of liability provided by contracts. For example, if under an agreement it is necessary to transfer goods, perform work or pay a loan then a person who has proved the occurrence of force majeure circumstances for him may be exempted from payment of a penalty or a fine for untimely or improper fulfillment of this obligation. At the same time, it is not exempted by itself from fulfilling the obligation in the form of the same transfer of goods, performance of work or repayment of a loan. You can find information in our next publication about how to terminate the obligation and what kinds of consequences arise in this case.

2. The recognition of the occurrence of force majeure is not universal and is not recognized automatically for all sole proprietors or for all existing agreements.

In other words, sole proprietors should not rely on the fact that the onset of the state of emergency is well-known and somehow automatically relieves them from obligations and responsibilities under all contracts. It is necessary to consider the impact of the state of emergency specifically on each agreement (a group of same agreements) only after that a decision on the possibility of using force majeure. The above is also confirmed by the following article of the Civil Code of the Kyrgyz Republic (CC KR):

As you can see the exemption from liability is the proven fact of the occurrence of force majeure and its direct impact on the fulfillment of an obligation. For this reason sole proprietors are advised to take a proactive position, take care of this issue and take all necessary legal actions.

What to do?

1) It is necessary to form a register of contracts (if not previously exist) and analyze them for the impact of the state of emergency on the performance of obligations under each contract/each type of contract.

2) Conduct an objective and reasonable sorting of the contracts, at least according to the type as “executable” and “non-executable”. For example, an IT company or a company providing consulting services can carry out its activities without the need of physical movement around the city; moreover, even in the state of emergency, such a company has all basic conditions for normal functioning (electricity and Internet providers are supplied in regular regime), therefore, it is not allowed for such companies to say that the state of emergency made impossible to fulfill their obligations. Such organization which provided services remotely has no reason to invoke force majeure circumstances and ask for release from liability. Therefore, these types of contracts should be classified as “executable” and continue to work on them in the prescribed manner.

3) “Non-executable” contracts should be divided into sub-types depending on the degree and nature of references to the provisions of the force majeure clause in the contract. These contracts are:

a) there is not mentioning about force majeure;

b) there is mentioned, it is required to notify the counterparty;

c) there is mentioned, it is required to notify the counterparty and attach the certificate of the Chamber of Commerce and Industry of the Kyrgyz Republic (CCI KR). As per rule, such provisions contain all international supply contracts.

4) Notify counterparties about the occurrence of force majeure.

4-1) If among your contracts there are contracts of category a), they do not contain any information about force majeure or force majeure circumstances, it does not mean that you are not entitled to invoke force majeure since such an opportunity is already provided in Art. 356 of the CC KR. Moreover, the term for notification in contracts of category a) is usually not specified, you should notify the counterparty about force majeure as soon as possible.

4-2) Notification of counterparties under the contracts of category b) is carried out in the terms and conditions stipulated by these contracts.

4-3) Counterparties under the contracts of category c) are notified within the time periods stipulated by these contracts and it is necessary to obtain a certificate about the occurrence of force majeure from the CCI KR in advance. The procedure for obtaining such a certificate can be found here.

NOTE! In all notifications describe the causal relationship between the state of emergency and the impossibility of fulfilling or properly fulfilling of obligations under a specific contract, as well as record the fact of receipt of a notice by the counterparty.

5) Contact the counterparty and discuss further “destiny” of the contract. It is important to record the results of the decided agreements in the following form:

- additional agreement (for example, if it is decided to suspend or postpone the fulfillment of obligations under the contract, in this situation the contract will be executed after the state of emergency or after the occurrence of other conditions in accordance with the agreements of the parties)

or

- agreement for termination of contract (for example, in case the fulfillment of obligations becomes irrelevant for both parties and both parties agree to recognize the contract as terminated or when the fulfillment of obligations has become impossible due to circumstances for which neither of the parties is responsible (Article 377 of the CC KR) or by virtue of the issuance of the act by public authority or by local government (Article 378 of the CC KR).

6) If the counterparty does not agree with your arguments regarding the occurrence of force majeure, further dispute resolution is carried out in the way provided by the contract. This is usually decides by the court. In this case, it is important to clarify the jurisdiction and applicable law that you have established in the contract, evaluate the judicial prospects and collect evidence.

Be careful, failure to notify or improper notification about the occurrence of force majeure deprives the contracting party from the opportunity to make a reference to these circumstances for exemption from liability.

Do you have questions? Contact our lawyers and get a free consultation.

Prepared by the Managing Partner of the Law company DE URE consult, Attorney Nargiza Abdraimova.