04 Апрель 2020

State of emergency: how entrepreneurs might minimize risks in the circumstances of the coronavirus pandemic and the measures taken by the state

Over the past couple of weeks, Kyrgyzstan has been implementing strict measures to combat the coronavirus epidemic and prevent its spread and other negative consequences, which, despite their validity and social orientation, have a huge impact on business activities.  One of these measures was the introduction of a state of emergency on the territory of the cities of Bishkek, Osh, Jalal-Abad, as well as on the territory of Nookat, Kara-Suu districts of Osh region and Suzak district of Jalal-Abad region, as well as the approval of the list of permitted types of business activities during the state of emergency. In connection with these measures, contracts are might be disrupted, entrepreneurs may not be able to fulfill their obligations, and in this situation, entrepreneurs will understandably be concerned about potential losses and further business planning. They might forget about legal mechanisms that are designed to minimize future risk.  Force majeure  If due to the current force majeure circumstances, you cannot fulfill your obligations under the contract, which, in addition, also provides for a penalty and other types of sanctions, then you can resort to claiming majeure circumstances.  Force majeure is considered as a way to release from liability for breach of obligations, as well as a temporary release from performing obligations for the period of force majeure. However, if further performance of the contract is not possible due to force majeure, you might be able to touse the method indicated below.  The absence of a clause on force majeure in a contract is not an obstacle. According to art. 356 (3) of the Civil Code of the Kyrgyz Republic a party is relieved from liability for failure or improper fulfillment of obligations in entrepreneurial activities, if it proves that proper performance has become impossible due to force majeure.  To initiate this method, it is necessary to send a notification to your counterparty in accordance with the procedure and terms stipulated in the contract. If there is no procedure or time limit for notification in the contract, you can define them yourself and suggest an acceptable method of interaction in the notification.  It should be noted that clause on force majeure is required for foreign trade transactions, as when applying for certification of force majeure the Chamber of Commerce of the Kyrgyz Republic will require a duly certified copy of the contract, which must specify the circumstances exempting the parties from liability, list of the events which the parties agreed to consider as force majeure, the authorities which confirm the fact of occurrence of circumstances of force majeure, etc. In addition to the contract, the application must be accompanied by copies of specifications, a certificate of the scope of fulfilled obligations under the contract, documents from the competent authorities (usually at least two) confirming the existence of force majeure circumstances, as well as a copy of the document confirming payment for certification of force majeure. According to the results of the certification, the Chamber of Commerce of the Kyrgyz Republic must issue a certificate of force majeure within 10 working days, and at the request of the applicant - within 3 days. For more information about the certification of force majeure, you can visit the website of the Chamber of Commerce of the Kyrgyz Republic.  
 Impossibility of performance  If the fulfillment of a contract due to the current conditions becomes impossible, you might be able to use the method of termination of obligations provided for in art. 377 of Civil Code of the Kyrgyz Republic. This method states that an obligation is terminated by an inability to perform if it is caused by circumstances for which neither party is responsible. The coronavirus pandemic, as well as the introduction of a state of emergency, are circumstances for which neither side is responsible. In this case, the creditor has no right to demand from the debtor the fulfillment of the obligation. For example, if a party was supposed to deliver a product, but cannot due to the measures taken, then the counterparty does not have the right to demand the specified delivery.   It's important to note that a party that has fulfilled a contractual obligation has the right to demand the return of the fulfilled one. For example, if somebody has entered into a sale-purchase contract, transferred money and not yet received the product, they can request a refund of your money. However, if the other party wants to deliver the goods, but the counterparty prevents this in every possible way, then there is no right to request a refund, and the other party is not obliged to return the money to you.  To do this, as previously stated, it is necessary to notify a counterparty under the terms of the contract, and in their absence – suggest an acceptable method of interaction in the notification.  
 Significant change in circumstances The Civil Code also provides for a protection mechanism that allows parties to change or terminate the contract in the event of significant changes in circumstances. According to art. 412(1) of the Civil Code of the Kyrgyz Republic a change of circumstances is deemed significant if they are changed so that if the parties could reasonably foresee this, the contract generally would not have been concluded by them or would have been concluded on significantly different conditions. For example, if a party could have foreseen that a type of economic activity would be prohibited during a state of emergency in the territories mentioned above, they would not have entered into contracts aimed at carrying out such activities.   If counterparties do not come to a mutual agreement to change or terminate a contract due to a significant change in circumstances, such action is possible only by a court decision and on the grounds and conditions specified in art. 412 of Civil Code of the Kyrgyz Republic.  
 It should be noted that these mechanisms can only be used by those entrepreneurs who have been directly affected by measures aimed at fighting the coronavirus pandemic, as well as preventing its spread and other negative consequences.  
 *This article is prepared for informational purposes only and does not constitute either a recommended course of action or legal advice