On October 28, 2020, in Letter № 2990/1.2, CCI expressed its view on the situation in the agricultural market related to drought and crop losses as well as noted a substantial change of circumstances for the terms of contracts (hardship) concluded by farmers with counterparties for the harvest of 2020.
At the same time, the agricultural market players should consider the following peculiarities of the legislation regarding the substantial change of circumstances.
1. Circumstances change is substantial if the circumstaceds have changed significantly, i.e., to the extent the parties would not have concluded the contract or would have concluded it on other terms if they could have foreseen such a change.
2. Circumstances change provides for simultaneous existence of the following conditions:
(1) at the time of concluding the contract, the parties assumed that such a change of circumstances would not happen;
(2) the change in circumstances is inflicted by the causes which the interested party could not avoid after their occurrence having exercised all due attention and diligence;
(3) the performance of the contract would violate the balance of the parties’ property interests and would deprive the interested party of what was expected when concluding the contract;
(4) it does not follow from the essence of the contract or applicable business practices that the risk of the circumstances change vests into the interested party.
3. Circumstances change is not force majeure. Thus, it does not provide a possibility for a justified default under the contract and does not lead to release from liability for such a default.
4. Circumstances change can be confirmed by the conclusion of a regional chamber of commerce and industry.
5. Circumstances change may serve as a ground for amending or terminating the contract inter alia by court, but the judicial practice on this issue has not mature yet.
CCI concluded that the current situation in the agricultural market shall not be deemed as force majeure. Instead, there is the substantial change in circumstances, which does not release the parties from their obligations under the contract, but may be deemed as a ground for amending or terminating such contracts.
We monitor the status of CCI initiatives implementation and judicial practice on the matter and will be informing on developments.
For more information, please contact Partner Vadym Samoilenko and Counsel Anton Sintsov.