Entrepreneurial risk VS Force Majeure

Starting  from  February 1, 2014 called in Kazakhstan “black Tuesday” due to severe devaluation of the national currency, only a lazy person doesn’t  talk over this event.

Undoubtedly, devaluation affected every person and especially business structures. In particular, we were addressed by one of our foreign client having worth a billion contract with state company which was denominated in Tenge without binding to exchange rate.

The client has already entered into the subcontracts with foreign subcontractors for respective project denominated in USD.  Obviously that our client faced with unenviable situation when the attractive project had become unprofitable unexpectedly. Moreover, the contract concluded by the client is a state procurement contract the price of which could be increased only on the base of the certain reasons stated in the Law on state procurement  and  variation of exchange rate is not such reason. In the issue, the only way for client to resolve this situation was an attempt to acknowledge devaluation as force majeure. Thus the client was interested in if it possible to consider the devaluation as force majeure in accordance with Kazakh law. In favour of force majeure version the client said that a decision on devaluation is a deed of the state  authority and he was not able to foresee this event (according to the contract force majeure, in addition, includes deeds approved by the state authorities which could not be foreseen by the parties and result in impossibility of the contract execution).

On the base of analysis of the situation we see following reasons which do not allow us to consider the devaluation in Kazakhstan as force majeure:

  1. Considering situation with national currency of Russia which started long before the devaluation in Kazakhstan variation of exchange rate could not be attributed to the circumstance which could not  be foreseen and  prevented;
  1. In compliance with Kazakh law deeds of the state authorities include legal documents and laws/by-laws, forms and manner of the approval of which must correspond to the requirement of the law. In turns National bank of the Republic of Kazakhstan (hereinafter “NB RK”)  determines the Tenge’s official exchange rate to foreign currencies on the base of  weighted average stock price  of Tenge to US dollar set on the morning session of stock market. NB RK does not approve some special deed on official exchange rate but only publishes official rates of foreign currencies to Tenge. Thus there is no legal way to assert that a decision on setting Tenge’s rate to US dollar at 20 % lower in comparison with the rate set on the day earlier is a deed of the state authority;
  2. The sense of the force majeure is a party liability exemption by reason of emergency and unavoidable circumstances resulted in non execution or improper execution of the contract obligations by such party. I.e. the main issue is impossibility to execute contract obligation but not unprofitableness of the contract.

Thus devaluation in Kazakhstan as a reason of losses of entrepreneurs, unfortunately, concerns to  entrepreneurial risk  which every entrepreneur has to carry by himself.

Aizhan Karzhaubayeva

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