COVID-19 - Contracts in Moldova

COVID-19 - Contracts in Moldova

• 18.03.2020

Authors: Marina Zarija,  Associate, Schoenherr; Andrian Guzun, Senior Associate, Schoenherr

How might businesses in Moldova be impacted by the Covid-19 pandemic?

Aside from public health, the outbreak of the Covid-19 pandemic is negatively impacting the Moldovan economy by disrupting a range of industries and business activities conducted in Moldova, affecting supply chain, services, and labor arrangements, among other areas.

On March 17, 2020, the Moldovan Parliament declared a state of emergency for a period of 60 calendar days, this state of emergency allows the Moldovan Government to impose certain restrictions on the state, the first set imposed being: quarantine; special rules regarding work regimes; banned flights; restricted movement and access to and within the territory of the Republic of Moldova; and special rules regarding local and central public authority activities. In addition, the activities of certain economic agents have been restricted or completely disallowed. 

It is difficult to assess the extent of damage this will cause to the economy of the Republic of Moldova and, in particular, to Moldovan companies, in the long term. However, it is obvious that substantial losses have already been caused, while contractual relations may be affected by improper or non-performance due to the current state of affairs.

If it becomes impossible for a party to perform its contractual obligations because of an external event beyond its control (such as the Covid-19 pandemic), can that party cancel its contract?

If a party ("Debtor") proves that it is temporarily impossibile to perform its contractual obligations due to a justified impediment beyond its control, it may request either suspension of execution of its obligations under the respective contract or, in case of a definitive impossibility, the termination of the contract. Also, the Debtor may propose to the opposite party ("Creditor") an adjustment of the obligation (redistribution of risks).

Otherwise, several remedies are available to the Creditor in case of the Debtor's inability to execute its obligations, such as:

• reduction or suspension of execution of the Creditor's correlative obligation;
• request for termination of the contract;
• any other legal remedy provided by the applicable law or by the respective contract.

The Creditor may use any and all remedies indicated above.

If a party’s performance of its contractual obligations is adversely affected by an external event beyond its control (an “FM Event”) but does not become completely impossible, can that party typically seek relief from compliance with its obligations?

A case of failure to execute an obligation is considered justified if caused by an impediment (either external or internal) which is insurmountable, unpredictable, and inevitable, and which objectively causes the failure (impossibility) to execute the obligation. The Debtor has the burden of proof with regard to the concrete circumstances of the impediment. In this context, we tend to consider that if the impediment does not make the execution of the obligation impossible, the Debtor's failure to execute the obligation is not to be considered justified.

If yes, what considerations should be borne in mind by such parties, in particular in relation to:

Any notification obligations (Is the affected party typically required to notify any counterparties of the FM Event within a specific time period?)

The Debtor has the obligation to ensure that the Creditor receives a notification of the impediment and its effects on the Debtor's ability to perform its obligations, within a reasonable time after the Debtor knows or should have known these circumstances. The Creditor is entitled to compensation for any damage resulting from the failure to notify.

Any causation requirements (Is the affected party typically required to demonstrate that it would have performed its contractual obligations but for the FM Event?)

Under applicable civil law, the Debtor has the burden of proof with regard to the circumstances of the impediment and the effects of the impediment on its ability to execute the obligation.

Any mitigation obligations (Is he affected party typically required to demonstrate that it took specific steps to avoid the impact of the FM Event as far as possible?)

If taking into consideration that a diligent professional should be able to foresee and mitigate risks under various circumstances, the Debtor must prove that the impediment was inevitable taking into account all precautions and reasonable measures taken to avoid or to overcome it.

Schoenherr Attorneys at Law

Schoenherr is a leading full service law firm in Central Europe. About 300 professionals service national and international clients from our offices in Belgrade*, Bratislava, Brussels, Bucharest, Budapest, Kyiv, Ljubljana*, Prague, Sofia*, Vienna, Warsaw and Zagreb* (*cooperation office). Operating in a rapidly evolving environment, we are a dynamic and innovative firm with an effective blend of experienced lawyers and young talent. As one of the first international law firms to move into CEE/SEE, we have grown to be one of the largest firms in the region. With 12 offices and several country desks, our comprehensive coverage of the region means we can offer solutions that perfectly fit the given industry, jurisdiction and company. Schoenherr’s Moldova Office is headed by Vladimir Iurkovski. There have been several Schoenherr lawyers permanently based in Chisinau since January 2009. The office serves as a primary point of contact for our international clients interested in doing business in the Republic of Moldova and focuses mainly on high-end transactional work for international and local clients. Current mandates include M&A, corporate and commercial, real estate transactions for clients from the oil & gas (energy), communications, external advertising, insurance industries, financial institutions and public sector. It also advises / supplies services on banking & finance, competition, arbitration & dispute resolution and IP matters. The Moldova Office provides clients with full language assistance and an understanding of local business practices.