Is it force-majeure if GD is in deadlock abroad due to coronavirus?
Can COVID-19 be acknowledged as force majeure?
In principle – yes. COVID-19 may be acknowledged as a force majeure event from a legal perspective.
Force majeure is defined by the Civil Code of the Russian Federation as circumstances beyond the parties’ control which are extraordinary and unavoidable under the existing conditions.
A party referring to force majeure must prove that when they entered into an agreement and accepted obligations, there was no indication of possibility of a force majeure event.
New court practice concerning COVID-19 as force majeure
Currently, there are only a few court practices regarding COVID-19 as force majeure. We expect the future court practice to be very case-oriented (and even contradictory), so it will be difficult to develop general standards. Please find two recent, interesting court rulings below:
In its resolution on February 13, 2020 in case No. A66-17378/2019, the State Commercial Court of the Tver Region found that COVID-19 should be considered force majeure. The court suggested that a party submit additional documents proving completion of certain stages of work. However, the party has not submitted the documents on time, referring to the unavailability of the general director in the Russian Federation due to COVID-19. The court evaluated this argument as weak.
In its resolution of March 10, 2020 in case No. A19-10914/2018, the State Commercial Court of the Irkutsk Region judged indirectly that COVID-19 should be considered force majeure. The court satisfied a party’s motion referring to COVID-19 to postpone a court hearing. In the motion, the party, which could not pay off a debt, mentioned that its main activities are wood processing and supplying wood products to Chinese companies, that COVID-19 has significantly affected the Chinese economy, and that the payments for the delivered goods were temporarily suspended. The court satisfied this motion. However, we consider the decision of the court as doubtful as under Russian law in principle, as lack of financial resources is not a reason for force majeure.
What to do? Practical solution: a second director
In order to avoid delays in the performance of your company’s duties caused by an absence of the general director (either due to circumstances in connection with COVID-19, or for any other reason), the company should be kept active. An excellent solution would be to appoint two or more directors, which has been permitted in Russia for the last five years. The general directors may be authorized to act either jointly or independently from each other. One director can perform administrative tasks and enable the other one to focus on business issues.