In today’s unpredictable world, businesses often face circumstances that disrupt contractual performance. Whether it's war, sanctions, pandemic, or skyrocketing costs, many turn to legal safety nets such as force majeure and hardship to mitigate the consequences. Yet, in Ukraine, commercial actors often conflate the two doctrines, leading to uncertainty and practical difficulties in their application. For international companies entering into contracts under Ukrainian law or working with Ukrainian partners, drawing a clear boundary between these concepts is vital step in safeguarding their interests when the unexpected strikes.

At first glance, force majeure and hardship appear to address the same circumstances – both dealing with extraordinary events that disrupt contractual performance. However, in the eyes of the law, they are fundamentally distinct mechanisms, each with its own requirements and consequences. Understanding which applies to your situation is critical, as it can determine whether non-performance is legally excused or constitutes breach of contract.

What is force majeure?

Under Article 141 of the Law of Ukraine “On the Chambers of Commerce and Industry”, force majeure (Ukrainian: obstavyny neperebornoi syly or "circumstance of irresistible force") is defined as extraordinary and unavoidable circumstances that make it objectively impossible for the affected party to perform its contractual obligations. Classic examples include armed conflicts, natural disasters, or government-imposed restrictions, such as quarantines or export bans.

Further clarification is provided in paragraph 6.9 of the Regulation on Certification of Force Majeure Circumstances by the Ukrainian Chamber of Commerce and Industry (approved by Resolution of the Presidium of the UCCI dated 18 December 2014, No. 44(5)), which outlines four cumulative criteria that must be met for an event to qualify as force majeure:

1. Extraordinary nature – The event is exceptional and beyond the control of the parties;

2. Unpredictability – The occurrence or consequences of the event could not reasonably have been foreseen, particularly at the time of concluding the relevant contract or prior to the obligation’s due date;

3. Inevitability (Irresistibility) – The occurrence and/or its consequences are unavoidable despite the exercise of due care and diligence;

4. Causal link – There must be a direct causal connection between the event and the impossibility of performing a specific contractual or legal obligation (under contract, statute, regulation, or decision of a local authority).

Crucially, simply invoking force majeure is not sufficient to safeguard a party from liability or contractual penalties. To rely effectively on this legal mechanism, the affected party must:

1. Obtain a certificate of force majeure from the Chamber of Commerce and Industry of Ukraine confirming that the specific event qualifies as force majeure in the context of the relevant contract and in relation to the affected party.

Note: The Supreme Court of Ukraine has clarified that the general certificate issued by the Chamber of Commerce and Industry of Ukraine on 28 February 2022, which recognized the russian armed aggression as a force majeure event, does not in itself exempt parties from liability for non-performance. The Court held that such general certificate, addressed "to whom it may concern," lacks the necessary link to a specific contract or obligation, and does not constitute sufficient proof to justify non-performance without additional evidence demonstrating the impact of the unforeseen event on a specific contractual obligation.

2. Demonstrate a clear causal link between force majeure event and the party’s inability to fulfill its contractual obligations.

3. Establish that no reasonable alternative means of fulfilling the contractual obligation were available. The party must prove that, even with additional effort or expense, fulfilling the obligation was objectively impossible under the circumstances.

What is hardship?

Hardship – legally referred to as a material change in circumstances under Article 652 of the Civil Code of Ukraine – is a significant change of the conditions that the parties relied upon at the time of contracting. A change is considered material if, had it been foreseen, the parties would not have entered into the contract at all, or would have done so on significantly different terms.

As clarified by the Supreme Court of Ukraine, hardship must stem from external factors unrelated to the conduct of the parties and must arise independently of their legal relationship.

According to the Court`s case law, in order to qualify as hardship, the event must meet all four legal criteria:

1. Be Unforeseeable – The change could not have been reasonably anticipated at the time the contract was concluded.

2. Be Unavoidable – The affected party could not have prevented or mitigated the consequences of the change through reasonable efforts (due diligence).

3. Disrupt Contractual Balance – The change significantly distorts the contractual equilibrium, significantly diminishing the value of performance expected by one party.

4. Provide No Assumption of Risk – The affected party did not, either contractually or customarily, bear the risk of such a change.

Common examples include sharp increase in cost of raw materials, hyperinflation, significant changes in legislation, etc.

Importantly, in order to benefit from the hardship mechanism, the affected party has to proactively raise the issue and seek to re-negotiate the terms of the contract – either directly with the counterparty or by initiating judicial proceeding. If the opposing party files a claim for non-performance before hardship is invoked, the affected party loses the opportunity to rely on it as a legal basis for modifying or terminating the contract.

So, what is the difference?

As recently confirmed by the Supreme Court, the difference between the two concepts lies in both degree of disruption and legal consequence that follow:

1. Force majeure renders the performance of contractual obligations objectively impossible – where no amount of effort or financial outlay can overcome the barrier hindering the performance of the obligations. Hardship, by contrast, arises where performance of a contractual obligation remains objectively possible, but has become excessively burdensome or economically impractical for the affected party due to fundamental change in circumstances.

2. Force majeure affects the timing and feasibility of performance and exempts the affected party from liability for non-performance during the force majeure period. Hardship, on the other hand, does not release the party from performance or liability. Instead, it provides the affected party grounds for seeking modification or termination of the contract in order to restore the balance of interests that has been disrupted by the unforeseen changes.

Legal consequences

It is crucial to distinguish the legal consequences of the two doctrines. When properly invoked, the doctrine of force majeure can shield the affected party from liability, relieving it of penalties or fines arising from non-performance. In contrast, hardship does not exempt a party from liability for non-performance. Instead, it gives a legal foundation to seek revision or termination of the contract – either though negotiations with the counterparty or by applying to the court.

In essence, force majeure is aimed to safeguard an affected party against the consequences of non-performance, while hardship offers a pathway to reshape a contract in light of fundamentally changed circumstances.

What this means for your business

With the Supreme Court providing clear guidance the application of the two doctrines under Ukrainian law, it is more important than ever for business owners to understand the distinction – especially since misinterpretation is likely to result in lost opportunities for legal protection.

At Koziakov and Partners, we specialize in helping businesses navigate these legal complexities. Whether you need to invoke force majeure, renegotiate a contract under hardship, or defend against contractual claims, our team is here to protect your interests.

If your business is facing contractual challenges due to unforeseen events or shifting market realities, we are here to guide you in choosing the best course of action and safeguard your commercial interests.