- Poltava Regional Commercial Court
LONG-TERM CONTRACTS - ADMINISTRATIVE CONTRACTS - LEASE CONTRACT - BETWEEN AN UKRAINIAN CITY COUNCIL AND AN UKRAINIAN COMPANY - REFERENCE TO UNIDROIT PRINCIPLES TO INTERPRET THE APPLICABLE DOMESTIC LAW (UKRAINIAN LAW)
HARDSHIP - FUNDAMENTAL CHANGE OF CIRCUMSTANCES - REFERENCE TO ARTICLE 652 OF THE UKRAINIAN CIVIL CODE AND TO ARTICLE 6.2.2. OF THE UNIDROPIT PRINCIPLES
Claimant, a Ukrainian city, entered into a land lease agreement (hereinafter "Agreement") with Respondent, a Ukrainian company. When subsequently new legislation was enacted increasing the rental rates for land lease agreements, Claimant requested the revision of the Agreement to adapt the rental rate therein stipulated to the higher rates as established by the new legislation. According to Claimant due to the new legislation the original equilibrium of the Agreement was substantially changed and consequently it was entitled to the revision of the Agreement.
The Court decided in favour of Respondent. The Court held that the article 652 of Civil Code of Ukraine on revision and termination of contracts due to substantial change of circumstances, on which the Claimant relied, would only apply if the change of circumstances was substantial. Indeed article 652 (1) of the Ukrainian Civil Code states that the change must be of such nature that if the parties could have foreseen it, they would have not entered into the Agreement or entered into it on other terms. For this reason, the Court pointed out that the Agreement could be modified or terminated in accordance with the article 652 of the Civil Code of Ukraine only in exceptional circumstances, in the event of occurrence of hardship for either party to perform the contract.
In support of this argument, the Court referred to article 6.2.2 of the UNIDROIT Principles of International Commercial Contracts, which defines the notion of hardship as the occurrence of events that fundamentally alter the equilibrium of the contractual obligations either because of the cost of a party's performance has increased or because the value of the performance a party receives has diminished.
The Court concluded that the new law that changed the lease rates did not create hardship for the performance of the Agreement, and thus does not constitute a substantial change of circumstances, as set out in article 652 of the Civil Code of Ukraine. In fact, because upon the conclusion of the Agreement the parties agreed upon all the essential terms and the lease rate was set at a fixed amount, regardless of changes in legislation. Therefore, the Court of First Instance decided to deny the claim.
Original in Ukrainian available at the Unified State Register of Court Decisions: http://www.reyestr.court.gov.ua/}}