How to mitigate the consequences caused by the breach of the contract obligations due to the state of emergency declared in Kazakhstan
How to mitigate the consequences caused by the breach of the contract obligations due to the state of emergency declared in Kazakhstan
Following the WHO declaration of the COVID-19 as a pandemic, the President of the Republic of Kazakhstan imposed the state of emergency rule on the whole territory of the RoK from March 16 to April 15. In this article, I would like to share how you could prove the impossibility of proper fulfillment of your contract obligations under these emergency conditions.
First of all, we need to understand that the state of emergency is a temporary measure. It is a special legal regime of the operation of the state authorities, allowing for certain restrictions of the rights and freedoms of citizens, as well as, the rights of legal entities and imposes additional obligations on them.
The duration of the state of emergency on the territory of RoK shall not exceed 30 calendar days. However, if the circumstances, due to which the state of emergency was imposed, are still present, the President has a right to extend it for another 30 calendar days.
All regulatory acts adopted during the state of emergency shall be considered void without any special notice once the state of emergency ended.
How can the state of emergency affect business?
In the state of emergency, some restrictions that directly or indirectly affect business operations may be adopted, like for example:
•\tTraffic restrictions;
•\tInterruption and suspension of networks and communications;
•\tSpecial procedures for the distribution of the food and other essentials;
•\tRestrictions on certain types of financial and economic activities, including the transfer of goods, services, and funds;
•\tSpecial procedures for use and distribution of the medical supplies, drugs, psychotropic substances, precursors, ethyl alcohol, and alcoholic beverages;
•\tQuarantine
•\tOther measures deemed essential
Measures mentioned above, may lead to improper fulfillment of contract obligations such as interruptions in the supply of goods, delayed payments, delayed performances, and other consequences and losses.
How to prove the impossibility of fulfilling the contract obligations in the state of emergency?
In some contracts, parties specify the grounds and size of the liability in the case of force majeure. But what shall you do if you have not included such provisions into your contract? How could you reduce losses in this case?
According to Article 349 of the Civil Code of the Republic of Kazakhstan (the “Civil Code”), if it is impossible to properly fulfill the obligations, the debtor must immediately notify the creditor.
According to Article 359 of the Civil Code, the debtor is liable for non-performance or improper performance of the obligations in the presence of a fault, unless otherwise provided by the law or contract. The debtor shall not be guilty if he proves that he has taken all measures depending on him for the proper performance of the obligations.
A person who has not fulfilled or improperly fulfilled obligations in carrying out entrepreneurial activity shall be liable if he does not prove that proper performance was impossible due to force majeure, i.e. extraordinary and unavoidable circumstances under given conditions (natural disasters, military operations, etc). Such circumstances do not include, in particular, the absence on the market of goods, works or services necessary for the execution.
The Kazakhstan Chamber of Commerce (the “KCC”) is authorized to issue the businesses certifications of force majeure in accordance with the terms of foreign trade transactions, international treaties of the Republic of Kazakhstan, agreements concluded on the territory of the Republic of Kazakhstan, as well as in accordance with international practice.
Such certification of force majeure could be issued upon a written request from the interested party.
The absence of the reference to force majeure circumstances (force majeure) in the contract does not preclude the interested party from filing such request and its consideration.
The only case when such certification may not be issued is due to the lack of the confirming documents.
In case of impossibility to fulfill the contract obligations due to force majeure, we recommend you to:
(1)\tApply to the KCC for certification of force majeure circumstances. This service is provided now free of charge, the term of consideration is reduced to 5 (five) business days, and the application could be submitted electronically at info.icc.kz@gmail.com, call center: +7-705-852-25-05; +7-776-021-08-04; +7-707-490-32-29; +7-747-793-32-53;
(2)\tSend a notice to the counterparty about the impossibility of fulfilling the obligations, citing relevant provisions of the contract (if any), the Decree of the President of the Republic of Kazakhstan dated March 15, 2020 “On the introduction of the state of emergency on the territory of the Republic of Kazakhstan”, and include a certificate of force majeure issued by the KCC.
We hope that you and your business partners will take into consideration restrictions imposed by the state of emergency and accommodate your business practices accordingly.
In addition, we believe that following our recommendations on establishing “no-fault failure to fulfill the contract obligations due to the force majeure” will help you to avoid or reduce your liability under contracts.
