Quarantine has become a challenge for Ukrainian business not only in the financial sphere. Claims were added regarding lease agreements and understanding of force majeure. Judicial practice, meanwhile, is in the process of being formed, as the relevant cases only reach the highest instance. As part of RAU Summit 2020, the managing partner of ADER HABER Law Firm, Honored Lawyer of Ukraine Yuriy PETRENKO spoke about the trends in contract law and the state’s attempts to help small and medium-sized businesses.
“Judicial practice is really diverse, so it was before the pandemic, and now even more so”
– Yuriy, this year has become very stressful for both the world and for Ukrainian business. In our country, a lot of disputes concerned the legal relationship related to the lease. Can you tell us about the case law that has developed in this category of cases?
– Judicial practice is a very important element of any disputes and legal cases. Since 2006, our company has been devoting a lot of time to the study and analysis of case law, because a lot depends on it. Based on personal experience, I can say: where there is a conflict, the end of the dispute will always be in court. Especially if you can not find a qualified moderator to resolve conflicts.
For Ukraine, as for the whole world, the situation with the coronavirus arose very unexpectedly, and few people prepared for it. In the run-up to the pandemic, many participants in various economic forums have tried to reflect on the risks that the global and sectoral economies will inevitably face. However, few spoke of the risks associated with the spread of the virus.
The judicial system, which has never faced such difficulties before, is only now returning to normal. Although unequivocal case law on these issues has not yet been developed.
Unfortunately, the principle of legal certainty does not work today, as the courts were not ready for such a turn of events. The result is a situation where the parties who have a contractual relationship, but have not reached a compromise on further cooperation, can not even count on the expected court decision. Today, only some trials in this category of cases have ended at the appellate level. But only after the decisions of the Supreme Court will it be possible to talk about a single practice.
So far, it is really diverse here. That was before the pandemic, and now even more so. For example, in one area the courts consider that a certificate of the Chamber of Commerce and Industry on the occurrence of force majeure is necessary, in another – on the contrary, that such a certificate is not required to satisfy the claim. Therefore, we are waiting for the Supreme Court to put an end to such disputes.
– So not all courts recognize the pandemic as force majeure?
– There are precedents when, in the presence of a CCI certificate stating that quarantine circumstances and a global pandemic were force majeure, the court still referred to the decision of the Grand Chamber of the Supreme Court from 2018. It stated that regardless of the existence of certain restrictions by the state
the subject or party to the process must prove that these restrictions have directly affected the nature and nature of the counterparty’s activities.
That is why we cannot say that the presence of a CCI certificate automatically releases from certain obligations. The judge, in addition to being guided by the current legislation, may also refer to his own opinions and be guided by internal convictions.
– Do you have cases concerning disputes between the landlord and the tenant between shopping centers and banks?
– Of course, there are a lot of such cases now. Tenants can easily win disputes with shopping centers that charged rent during the lockdown. Entrepreneurs may allege that quarantine restrictions have been imposed and that they have not been able to work normally or make a profit due to bans on certain activities.
After the introduction of quarantine, special legislation appeared to regulate certain, including business, situations. Entrepreneurs are now actively referring to this legislation, as well as the courts, which on its basis exempt from rent. At the same time, if
back to practice, not all courts interpret this legislation in the same way.
I will give an example. There are businesses such as gyms that did not operate during quarantine because a direct ban on their activities was imposed. There is a provision in the law that states that in this case, gyms must be exempt from rent.
At the same time, all these halls and clubs, including large network ones, are also serviced in separate offices, for the rent of which you also have to pay. There is a controversial situation: clubs do not work, and there should be no rent, but there is a question of what to do with the office that serves these clubs. After all, the company’s office can be located in another business center.
The position of the landlord is as follows: you go to work, develop this area, etc. And here is a very thin line, because the landlord is right. I believe that in such situations, the courts should be guided only by the spirit of the law. That is why it is really difficult for the courts at this time.
– Are there any cases in which the courts sided with the tenant?
– The practice is different. There is also unequivocal, when the businessman showed the kind of activity under NACE and, accordingly, nobody rents
contributed.
Adequate shopping centers avoided conflict situations, taking into account the position of the legislator that rent during the quarantine period should not be. However, there are conflicting cases where the shopping center, despite the objections of the other party, argued that the landlord did not terminate access to the leased premises, so both visitors and employees of the tenant could freely use the leased property. Therefore, there were no grounds for exemption from monthly payments under the terms of the contract.
“Very rarely banks take a completely unconstructive position”
– The tenant says: reduce the rent, and the shopping center refers to its relationship with banks. In the relationship between landlords and banks, what aspects should you pay attention to?
– In this case, the shopping center, as a big business, can speculate on such situations. On the one hand, there are tenants who rent space from it, and on the other – banks with which the shopping center cooperates. In the same case, different shopping centers can tell different stories to tenants and banks. Of course, this is a business, and he builds a strategy on his own, how and with whom to talk.
During the quarantine, the National Bank in its instructions recommended that commercial banks take a flexible position on borrowers. The NBU’s recommendations are a rather important document that can be referred to. All our banks look towards the NBU and focus on it as the main regulator. Every financial institution knows that if it bends the stick, sooner or later it can be used against itself.
There are a number of cases when the parties tried to reach an agreement. For example, this was the case with large metropolitan malls. In these cases, both the bank and the borrower tried to agree on the terms of restructuring and reduction of the financial burden. Financial statements before and during the quarantine period were provided as a basis for such negotiations. This is proof of the nature of the company’s behavior under normal and quarantine conditions. And very rarely do banks take a completely unconstructive position in such negotiations.
– Do you know of any cases of deferred payment or reduction of interest on loans? In what direction is the jurisprudence moving in these situations?
– Although she, as I mentioned, definitely not
formed, however, there are separate court decisions. For example, when the borrower, given all the processes, sends a proposal to the bank to reduce the interest rate and thus enters into a negotiation process with the financial institution.
If a compromise is reached, the subjects go to court to approve the new commercial terms by recognizing the contract as legal. However, in such cases, entrepreneurs must be prepared for a very long process.
In cases with foreign banks, they still try to subject the contract to the requirements of foreign jurisdiction. Therefore, negotiations and litigation here may take even longer.
“Agreements have changed significantly, the parties express their position more and try to anticipate everything”
– How have contracts in this area changed and what innovations have appeared in contract law?
– When I was still a student, we had a course “Contract Law” and our teachers talked about the structure of the contract. Subject, price, force majeure. And we always focused on the subject and price, and no one paid attention to force majeure. This item usually roamed from one contract to another, and no one ever looked at it.
Everyone understood that these were about 10 specific cases that were clear to everyone and agreed to. And only after the quarantine, everyone rushed to read what was in these special sections. We have returned to the basics of contract law, where every point and word has more meaning. Today, all customers pay a lot of attention to this small section.
We prescribe in detail all the conditions, defined formulas, logic of action, which will help in case of deterioration of the situation, so that the parties reduce the time for the negotiation process. The agreements have changed significantly, and now the parties are trying to anticipate that there will be a specific algorithm or logic of action in certain situations. This simplifies communication between the parties, saves time and business money. I think this is a very positive trend.
Currently, when concluding a contract, be sure to ask to show the rent algorithm, the cost compensation algorithm. In fact, previously 95% of the contract was occupied by provisions on the subject, price, delivery time, and other conditions, such as force majeure – only 5%. Now the section on force majeure can take up to 20% of the total volume of the document.
– Recently passed bills introduced by the President, which provide assistance to entrepreneurs. But for some reason – only for small and medium businesses. Did you have the opportunity to analyze these documents, how to get help from the state?
– We analyzed all these bills at the stage of their development. We even have the opportunity to send messages from the market to our legislator so that he understands where there are problems. Given that there are many parties in parliament that can influence the legislative process, in addition, there is a lobby of the head of state, much can change, and very quickly.
In the absence of a law already signed by the President, it is very difficult to say definitively what provisions are included in the document. We can assume that some element of business support will still be. Despite the criticism when discussing this ridiculous amount (UAH 8,000), it is worth noting that the state is still trying to do something.
In some cases, it offers criteria for cooperation. Sometimes it takes part of the credit load of the business in exchange for certain obligations. For example, do not cut jobs or require additional payments. In other words, the state is trying to create a symbiosis and a constructive in
cooperation with entrepreneurs.
– How to use the help?
– The mechanism exists, it provides for an appeal to certain government agencies to obtain real compensation. These bodies are tax inspections.
I do not rule out that the process of obtaining this assistance may work through the application “Action”. I would also like to remind you of the introduction of a moratorium on inspections of regulatory authorities. This is a good measure because checks distract business and create discomfort. Do not forget about the exemption from other payments.
There will always be those who say that the government is not doing anything, but at the same time there will always be another side that will support and show the achievements of the state. Of course, our country is limited in money, resources, financial corridors, which are dictated to us by international financial institutions, which sometimes try to manipulate our state bodies in a manipulative form. However, I would very much like us to become a center of decision-making in the future and to be a very rich country