- Cherkasy Regional Commercial Court
LONG-TERM CONTRACTS - LEASE CONTRACT - BETWEEN AN UKRAINIAN BANK AND AN UKRAINIAN INDIVIDUAL - UNIDROIT PRINCIPLES APPLIED AS AN EXPRESSION OF INTERNATIONAL TRADE CUSTOM - REFERENCE TO UNIDROIT PRINCIPLES TO INTERPRET APPLICABLE DOMESTIC LAW (UKRAINIAN LAW)
HARDSHIP - TERMINATION OF CONTRACT - REFERENCE TO ART. 6.2.2 UNIDROIT PRINCIPLES AND TO ART. 652 OF THE UKRAINIAN CIVIL CODE
Claimant, a Ukrainian bank, entered into an office space leasing agreement (hereinafter “Agreement”) with Respondent, a Ukrainian individual entrepreneur. Subsequently, Claimant stated that due to the financial crisis of 2008 leading to the significant difficulties, among others, in the rental market, including that of leased property, it was not able to pay the rent at the rate established in the Agreement. Claimant initiated court proceedings, seeking termination of the lease due to the substantial change of circumstances supervening after the conclusion of the Agreement. In support of its claim, Claimant invoked Article 652, on the change or termination of the contract due to a substantial change of circumstances, of the Civil Code of Ukraine.
The Court decided in favor of Claimant and terminated the lease.
In support of its decision, the Court argued that at the time of entering into the Agreement the parties could not foresee the changes of circumstances such as a sharp fall of prices in the real estate rental market and the appreciation of U.S. dollar, which was the currency in which the rental rate was calculated in the Agreement.
Moreover, according to the Court the change of circumstances was caused by reasons that Claimant could not reasonably overcome, as such reasons were caused by the financial crisis worldwide and therefore beyond Claimant's control. The Court mentioned in particular the devaluation of the Ukrainian national currency, which caused a sharp appreciation of the U.S. dollar currency, upon the stability of which the parties had relied when concluding the Agreement.
The Court also stated that the performance of the Agreement would deprive Claimant of what it had expected at the conclusion of the Agreement, in view of the fact that not only due to the supervening devaluation of the hryvnia the rental cost has doubled, but as a consequence of the general financial crisis also Claimant's customers were diminished and therefore its business seriously damaged.
According to the Court neither the substance of the Agreement nor the applicable trade customs, such as the UNIDROIT Principles of International Commercial , allocated the risk of the change of circumstances at stake to Claimant. In particular, the Court referred to Article 6.2.2 of UNIDROIT Principles, which provides that “the occurrence of events that fundamentally alter the equilibrium of the contract either because the cost of party’s performance has increased or because the value of the performance a party receives has decreased" is a sufficient ground for termination of the contract.
The Court also referred to Article 652 of the Civil Code of Ukraine on the substantial change of circumstances and decided to terminate the Agreement.
Original in Ukrainian available at the Unified State Register of Court Decisions: http://www.reyestr.court.gov.ua/}}