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17 april 2020

Significant Change in Circumstances

Unlike force majeure, which only relieve the party from liability for breach of the obligation, but does not terminate it, significant change in circumstances is the ground for either amending or terminating the contract (Article 421 of the Civil Code of the Republic of Belarus).

A change in circumstances is deemed significant if the parties, could they reasonably anticipate such a change, would not have entered into the contract at all or would have concluded the contract on significantly different terms and conditions.

As a general rule, a significant change in circumstances leads to termination of the contract. Amendment of the contract is possible in exceptional cases when its termination:

  1. is contrary to public interests; or
  2. will result in damage to the parties, that significantly exceeds the costs necessary to perform the contract on the amended conditions.

If the parties have not reached an agreement to adjust the contract in line with significantly changed circumstances, an interested party may lodge the claim for amendment or termination of the contract with court.

For the claim to be satisfied, the following conditions must be met simultaneously:

  1. while concluding the contract the parties proceeded from the assumption that such a change in circumstances would not occur;
  2. a change in circumstances is caused by reasons that the interested party, acting with the degree of good faith and discretion required by the nature of the contract and market conditions, was not able to overcome after their occurrence;
  3. the performance of the contract on unchanged terms would so violate the balance of the parties’ interests and would lead to such damage for the interested party that it would be largely deprived of what it was entitled to expect while concluding the contract;
  4. it does not stem from the substance of the contract that the risk of a change in circumstances is borne by the interested party.

As one may see, the above criteria are largely evaluative in nature, and therefore require an extensive evidence base.

Besides, a significant change in circumstances shall be weighted against the idea that commercial activity is a priori associated with commercial risks, including the risk of spontaneous changes in the economic, political and other spheres.

Currently case law under Article 421 of the Civil Code tends to favor stability of parties’ obligations. For instance, the following occurrences were not recognized as significant change in circumstances:

  • change in the currency exchange rate;
  • inflation;
  • deterioration in the financial condition of the party;
  • amendments to regulation that do not impede the performance of the contract.

The issue of whether COVID-19 pandemic and related restrictive measures may be recognized as significant change in circumstances has not been considered by the Belarusian courts yet. Undoubtedly, these circumstances shall not serve as a universal ground for the termination of obligations and will be assessed by court on case-by-case basis. In particular, the courts shall take into account the length of existence of restrictive circumstances (quarantine, self-isolation, etc.), as well as terms of the contract itself.

 

We will be happy to provide any further information or assistance should you are interested in the above procedures.

Should you have any further queries, please contact VMP commercial practice team partner Konstantin Mikhel (konstantin.mikhel@vmp.by) or associate Marina Khomich (marina.khomich@vmp.by)