Supreme Court: A General Reference to War Does Not Release a Business From Contractual Liability
⚖️ Ukraine | Commercial Disputes | Force Majeure
Case Details
Case No.: 910/8580/22
Court: Supreme Court, Commercial Cassation Court
Decision Date: 15 June 2023
Case Category: Commercial Law
Subject Matter: Bank Guarantee / Contractual Performance
Sub-Subject: Force Majeure / Martial Law / Public Procurement / Commercial Risk
Underlying Contract: Supply agreement concluded through a public procurement procedure
Claim: Declaration that a bank guarantee securing the supplier’s contractual obligations was not enforceable
Defendants: JSC Ukrposhta and JSC Bank for Investments and Savings
Legal Context: Russian full-scale invasion / Martial law / Force majeure
Key Issue: Whether Russia’s full-scale invasion and the Ukrainian Chamber of Commerce and Industry’s general letter of 28 February 2022 were sufficient to establish force majeure affecting performance of the specific contract
Outcome: The Supreme Court upheld the lower courts’ dismissal of the claim.
Background of the Dispute
An individual entrepreneur brought proceedings against JSC Ukrposhta and JSC Bank for Investments and Savings seeking a declaration that a bank guarantee issued to secure the entrepreneur’s obligations under a supply agreement was not enforceable.
The underlying agreement had been concluded following a public procurement procedure.
The claimant argued that Russia’s full-scale invasion of Ukraine and the introduction of martial law had affected performance of the supply obligations secured by the bank guarantee.
The commercial court dismissed the claim. The appellate commercial court upheld that judgment.
The dispute subsequently reached the Commercial Cassation Court of the Supreme Court, which also upheld the decisions of the lower courts.
The Contract Was Concluded After the Full-Scale Invasion Had Begun
A central circumstance in the Supreme Court’s reasoning was the timing of the contract.
The claimant submitted its tender proposal and voluntarily entered into the disputed agreement in March 2022.
By that time, Russia’s full-scale invasion of Ukraine had already begun.
The Supreme Court therefore considered that the existence of the war was already a generally known circumstance when the claimant decided to participate in the procurement procedure and assume the contractual obligations.
This significantly affected the claimant’s attempt subsequently to rely upon the war as a basis for avoiding the consequences of non-performance.
A Business Must Assess Known Wartime Risks Before Contracting
The Supreme Court emphasised the commercial nature of the claimant’s activities.
A business participating in commercial transactions is expected to assess the benefits and risks associated with entering into a particular agreement.
In this case, the claimant voluntarily decided to contract at a time when the full-scale invasion was already under way.
The Court considered that the parties were therefore capable of taking the existing circumstances into account and assessing the risks they created.
The claimant could not enter into the transaction with knowledge of the existing wartime circumstances and subsequently rely merely on the general existence of those same circumstances to avoid the negative consequences associated with its contractual decision.
The War Itself Does Not Automatically Establish Force Majeure for Every Contract
The judgment illustrates an important distinction in Ukrainian contract law.
The existence of war and martial law may constitute extraordinary circumstances. But their existence does not automatically establish that performance of every contractual obligation has become impossible.
The relevant question is whether the particular circumstances relied upon actually affected performance of the specific obligation in dispute.
The claimant therefore needed more than evidence establishing the general existence of Russia’s invasion and martial law.
There had to be a sufficiently specific connection between the alleged force-majeure event and the inability to perform the particular supply obligation.
The Ukrainian Chamber of Commerce and Industry’s General Letter Was Not Enough
The claimant relied on the Ukrainian Chamber of Commerce and Industry’s letter No. 2024/02.0-7.1 dated 28 February 2022.
That letter generally recognised Russia’s military aggression against Ukraine and the introduction of martial law as extraordinary circumstances.
The Supreme Court, however, stressed the general character of that document.
The letter did not identify the claimant’s particular contract.
It did not establish that performance of the specific supply obligation secured by the bank guarantee had become impossible because of the circumstances described in the letter.
Accordingly, the general letter could not, by itself, prove force majeure in relation to the particular contractual relationship before the Court.
Force Majeure Must Be Connected to the Specific Obligation
This is one of the most important aspects of the judgment for businesses operating in Ukraine.
A party seeking to rely on force majeure must be able to demonstrate more than the existence of a major external event.
It must establish the relevance of that event to the particular obligation that was not performed.
The Supreme Court noted that the claimant was not prevented from approaching the Ukrainian Chamber of Commerce and Industry or an authorised regional chamber to obtain an appropriate certificate concerning force-majeure circumstances in relation to the disputed obligation, following the applicable certification procedure.
The distinction is therefore between:
general evidence that extraordinary circumstances exist, and
evidence that those circumstances prevented performance of a specific contractual obligation.
The former does not necessarily establish the latter.
Commercial Risk Remains With the Business
The Supreme Court also reiterated the principle that entrepreneurial activity is carried out at the entrepreneur’s own risk.
A business must independently assess the potential consequences of its commercial decisions and the possibility that adverse circumstances may arise.
That principle had particular significance in this case because the claimant decided to enter into the transaction after the full-scale invasion had already commenced.
The Court therefore treated the claimant’s knowledge of the existing wartime circumstances as relevant to the allocation of contractual risk.
This does not mean that a business contracting during wartime can never rely on force majeure.
Rather, where the relevant circumstances were already known when the agreement was concluded, a party will need to identify the subsequent or specific circumstances that actually prevented performance rather than relying solely on the general existence of the war.
The Bank Guarantee Remained Effective
The dispute was not simply about whether force majeure existed in the abstract.
The claimant sought a declaration that the bank guarantee securing its obligations under the supply agreement was not enforceable.
Because the claimant failed to establish the necessary basis for relieving it from the consequences of its contractual obligations, the courts rejected the attempt to neutralise the guarantee.
The case therefore demonstrates the potential consequences of force-majeure arguments for security instruments associated with commercial contracts.
A party cannot assume that invoking war or martial law will automatically prevent a beneficiary from relying on contractual security.
The Supreme Court’s Decision
The Commercial Cassation Court of the Supreme Court upheld the decisions of the lower courts dismissing the claim.
The Court considered particularly significant that:
the claimant submitted its tender proposal and entered into the contract in March 2022, after the full-scale invasion had already begun;
the wartime circumstances were therefore generally known when the claimant voluntarily assumed its contractual obligations;
a commercial party was expected to assess the corresponding risks before contracting;
the Ukrainian Chamber of Commerce and Industry’s general letter of 28 February 2022 did not identify the particular contract or establish impossibility of performing the specific obligation;
the claimant could have sought appropriate certification of force majeure in relation to the particular contractual obligation; and
the general existence of war and martial law did not establish sufficient grounds for declaring the bank guarantee unenforceable.
Why This Decision Matters
The decision is particularly important for foreign companies contracting with Ukrainian businesses during the war, as well as banks, suppliers, purchasers and participants in Ukrainian public procurement.
It demonstrates that Ukrainian courts distinguish between the existence of war as a general fact and its legal effect on a particular contract.
For a foreign business assessing a Ukrainian counterparty’s force-majeure claim, several questions therefore become important:
When was the contract concluded?
Was the relevant wartime risk already known at that time?
What specific event allegedly prevented performance?
Which contractual obligation was affected?
Is there a causal connection between that event and non-performance?
Does the contract contain a force-majeure clause and notification procedure?
Was appropriate evidence or certification obtained?
Does the alleged force majeure affect liability, performance, termination or contractual security?
What happens to a bank guarantee or other security if the underlying obligation is not performed?
These questions should be considered individually rather than assuming that martial law automatically suspends contractual obligations in Ukraine.
Lions Lawyers’ Analysis
The practical significance of this judgment is particularly strong for contracts concluded after 24 February 2022.
A party entering into a Ukrainian commercial transaction after the beginning of the full-scale invasion does so against an existing background of war. Consequently, relying later on the war in general terms may be insufficient to establish force majeure.
The analysis should instead focus on the specific event and the specific obligation.
For example, destruction of a particular production facility, closure of a specific transport route, prohibition of an export, occupation of the place of performance or another subsequent event may require a different legal analysis from a general reference to martial law. What matters is whether the relevant circumstances satisfy the contractual and statutory requirements and can be connected to the particular failure to perform.
The judgment is also significant because the dispute involved a bank guarantee. Foreign businesses should not assume that establishing difficulties with the underlying contract automatically eliminates rights arising under associated security arrangements. The wording and legal nature of the guarantee must be analysed separately.
For contracts connected with Ukraine, force-majeure provisions should therefore identify notification requirements, evidence, consequences for performance deadlines, termination rights and the treatment of guarantees or other security. Reliance on general statements concerning the war after a dispute has arisen creates substantially greater uncertainty.
Lions Lawyers advises Ukrainian and international clients on commercial disputes and contracts in Ukraine, including force majeure, wartime contractual performance, bank guarantees, public procurement, supply agreements, contractual security and cross-border disputes. We provide full-service legal representation as well as standalone Ukrainian-law opinions for foreign companies, banks, investors and international counsel assessing contractual rights and risks in Ukraine.
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