In January 2023, an EVERLEGAL team representing Louis Dreyfus Company Ukraine, a subsidiary of a global buyer and processor of agricultural products, settled a dispute over the collection of a fine of 30% of the value of unfulfilled orders from a supplier, a producer of agricultural products.
The complexity of this case lay in the fact that the supplier asserted that there was no basis for holding him liable for failing to fulfil the supply contract, provided the court with documents created by his employees regarding the alleged damage to the crop of agricultural products he had grown as a result of unfavourable weather conditions that had occurred after the supply contract's conclusion, and filed a counterclaim against the client for termination of the contract in connection with the alleged damage.
EVERLEGAL team presented a legal argument addressing the lack of justification for exempting the supplier from paying a fine or reducing its size and terminating the supply contract in this case, and the courts in all instances accepted that argument, establishing that:
- the business entity is held accountable regardless of fault and is only released from it when it can demonstrate that the failure to fulfil the obligation was caused by unforeseen circumstances, which must be confirmed by law by a certificate from the Chamber of Commerce and Industry of Ukraine and regional authorities authorised by it about force majeure circumstances. However, the supplier must show that the failure to fulfil the obligation was caused by unforeseen circumstances;
- the supplier's documentation describing the damage to his crop of agricultural products was created solely by him and is merely informative, casting doubt on its reliability;
- the supplier could have fulfilled his contractual obligations under the supply contract by purchasing the agricultural products that were to be delivered from other agricultural producers rather than having to grow them himself, which is what the supplier ultimately chose not to do. The specified circumstances indicate that the supplier has the opportunity to fulfil the contract without sacrificing the crop grown by him, as well as the absence of circumstances of unforeseen force for the fulfilment of the supply contract and the absence of grounds for relieving the supplier of responsibility for contract non-fulfilment.
- it is the party seeking a court reduction of the fines to be assessed against its responsibility to establish the existence of exceptional circumstances that the law ties to the possibility of their reduction; however, the supplier has not established the existence of such circumstances with sufficient evidence;
- in claiming the termination of the supply contract due to a significant change, the supplier failed to demonstrate the simultaneous presence of four conditions for contract termination by the court, as defined in Part 2 of Article 652 of the Ukrainian Civil Code. At the same time, the absence of these conditions is evidenced by the fact that the parties to the contract for the supply of agricultural products, when concluding it, could not help but assume that adverse weather conditions could not occur after the contract's conclusion because this is a normal risk in the activities of the agricultural product producer, on whom the contract is based;
- because the Chamber of Commerce and Industry of Ukraine and regional chambers of commerce and industry lack the authority to certify the occurrence of a material change in the circumstances giving rise to the contract, the court cannot consider the opinions of the Chamber of Commerce and Industry of Ukraine or regional chambers of commerce and industry on this matter in the event of a dispute regarding the modification or termination of the contract on this basis.
This project was worked on by the Agriculture and Land Law team at EVERLEGAL, led by Counsel Svitlana Teteria.
You can find out more about EVERLEGAL`s experience in Agri sector at the LINK.
If you have any questions or need any help you can send us a message at teteria@everlega.ua.
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