A supplier does not fulfill terms of an agreement without a reason. What should a retailer do?
In peacetime if a supplier fails to fulfill the terms of an agreementit becomes a cause for a legal dispute. However, it cannot be done during the war. Therefore, affected retailers should contact the military administration and the Economic Security Bureau of Ukraine (ESBU). How does the algorithm work?
The war addressed both retailers and suppliers, whose businesses have been adversely affected or completely destroyed. However, the war has also revealed unfair suppliers who violate the terms of goods delivery or try to change the terms of agreements and increase prices or refuse to fulfill their obligations at all.
Such breaches of agreements by suppliers or producers of goods affect an ultimate consumer: prices rise or essential goods disappear from store shelves.
In peacetime the suppliers’ misbehavior would immediately become a cause to file a court claim. However, during the wartimeit is virtually impossible to bring action due to the limited functioning of the judicial system.
Under martial law the regional military administrations and the Economic Security Bureau of Ukraine (ESBU) control the pricing of socially important goods/services and respond to the complaints that interfere with businesses’ ability to rebuild the state economy. Additionally, in cooperation with the city halls, the police and the State Service of Ukraine on Food Safety and Consumer Protectionthey should conduct explanatory work with businesses that evade normal food supply.
Powers to control the pricing are assigned to these bodies by the Cabinet of Ministers of Ukraine according to the Directive dated 06.03.2022 under the No. 223.
What to do if a supplier fails to fulfill the terms of the agreement
Retailers who have become victims of circumstances because of unscrupulous suppliers should:
- apply to the regional military administrations and file a complaint directly to the military administration of the relevant region, and
- contact the Economic Security Bureau by sending a complaint via e-mail: firstname.lastname@example.org or via Telegram bot: https://t.me/StopOverpriceBot.
The complaint should contain detailed description of the violations of agreements by suppliers and producers, as well asshould substantiate the impact of the violations on the food provision and the business functioning under martial law.
Terms for consideration of such complaints have not yet been determined. However, the relevant authorities assure prompt response to violations.
A waiver from or a modification of obligations may be consideredto be:
- unfair, that is, as an attempt by the counterparty to put itself in a better position than the other party, or
- bona fide, in case it is due to objective circumstances of inability to fulfill obligations under the terms of the agreement.
Exemption from liability is possible if the contractor proves that he took all appropriate measures to fulfill the obligations, but was not able to perform them due to force majeure.
In peacetime, the parties to a dispute had to apply to the Ukrainian Chamber of Commerce and Industry (UCCI) and go through a bureaucratic procedure to get a confirmation of force majeure.Today it is not necessary to obtain a certificate of force majeure. After the declaration of martial law, the UCCI posted a letter on its website certifying existence of force majeure.
However, the supplier shall prove that these circumstances were force majeure in a particular case. That is, the supplier shall prove by evidence that he was not able to make the supply exactly because of the declaration of martial law and prove the causal link between these events.
Model provision for a “force majeure” in agreement:
“The party that cannot fulfill the obligations under this contract due to force majeure circumstances, must notify the other party in writing not later than 7 days from the date of their occurrence. The relevant documents issued by the Ukrainian Chamber of Commerce and Industry or another body authorized to do so shall serve as a proof of occurrence of force majeure circumstances and their duration”.
If the debtor does not notify about force majeure circumstances in accordance with the terms of the agreement he may be deprived of the right to refer to such circumstances and he may be held liable.
Plan of action
The following algorithm can be recommended to the businesses that faced non-fulfillment of obligations by their counterparties:
- Submitting a formal request to the debtor regarding the grounds for non-fulfillment of the obligation (by e-mail or courier service).
- Addressing to the Economic Security Bureau and military administrations with complaint in case of non-response or refusal to fulfill obligations without giving reasons. In addition, sending an official claim demanding fulfillment of obligations and payment of penalties. Subsequently, filing a lawsuit to recover the penalties.
- Sending a demand for evidence of the impact of such circumstances on the inability to fulfill obligations in case the debtor cites force majeure circumstances.
- Trying to resolve the situation and amend the agreement if the answer of the debtor confirms the fact of force majeure.
- Complaining to the Economic Security Bureau and military administrations, sending a claim with a demand to pay fines, and further filling a lawsuit in case the extraordinary and unavoidable circumstances are not confirmed, and the debtor still refuses to fulfill his obligations.
Olena Volianska, LCF Law Group partner, exclusively for Forbes Ukraine.