Introduction

In our note of March 27, we discussed the possible impact of the COVID-19 pandemic, and the measures taken by the state to counteract against its impact, on the performance by the parties of their contractual obligations.

In that note, we analyzed the conditions under which the COVID-19 pandemic and measures taken by the state may be recognized as a force majeure event for the purpose of performing civil law obligations, as well as the legal consequences of such recognition.

In this note, we will highlight some aspects of applying the provisions of the law on force majeure to obligations in the subsoil use field.

Force majeure in subsoil use under a contract

The current Code On Subsoil and Subsoil Use of the Republic of Kazakhstan ("Subsoil Use Code") provides for a subsoil use right granted on the basis of: (1) a subsoil use contract (for hydrocarbons and uranium) or (2) a subsoil use license (for solid minerals and common minerals).

Since a subsoil use contract is a type of civil law contract, the general provisions of civil law apply to it, subject to the special rules provided for by the Subsoil Code.

Thus, paragraph 5 of Article 36 of the Subsoil Code provides for the possibility of extending a subsoil use contract for the duration of a force majeure event if the subsoil user provides evidence of such event in accordance with the law.

In addition, the parties in subsoil use contracts themselves provide provisions on force majeure. In particular, the model contract for the exploration and production of hydrocarbons contains the following provisions on force majeure:

• None of the Parties shall be liable for non-performance or improper performance of any obligations under the contract if such non-performance or improper performance is caused by force majeure circumstances.
• Provides for a definition of a force majeure similar to the definition provided for by the Civil Code.
• Regulates the procedure of the parties' response to the event of force majeure. Thus, a party affected by a force majeure must immediately notify the other party by handing or mailing a written notice specifying the start date and describing the force majeure event.
• The parties should also immediately hold a meeting to find a solution to the situation and use all means to mitigate the consequences of force majeure.

Thus, in the performance of a subsoil use contract: (1) the general provisions of civil law apply, providing for exemption from liability for non-performance or improper performance of obligations under a contract caused by force majeure, (2) there is the possibility to extend the subsoil use contract for the period of the force majeure event, (3) the provisions of the contract regulating force majeure apply.

The force majeure in subsoil use under a license

The Subsoil Use Code establishes an identical rule with regard to all types of subsoil use licenses, according to which the license shall not be revoked if failure to perform or improper performance of obligations, which served as the basis for the revocation of the license, was due to force majeure, that is, emergency circumstances that were unavoidable under these conditions (natural disasters, military operations etc.). Such circumstances do not include the lack of technical and/or financial resources of a subsoil user or the absence of necessary goods, works or services on the market.

In addition, with regard to mining licenses, the Subsoil Use Code provides for the possibility of assigning a retention status upon the occurrence of force majeure. The retention status provides, in particular, for the right of the subsoil user: (1) not to start or suspend the production of solid minerals, (2) not to pay the annual minimum costs of operations for the production of solid minerals, (3) to extend the license term for the period of the effect of the retention status.

May COVID-19 and measures taken by the state be considered force majeure for subsoil use activities?

In the light of the foregoing, the issue of whether the outbreak of COVID-19 and subsequent actions taken by the government is a force majeure event, which has affected the performance by subsoil users of their obligations, is currently very relevant.

According to Kazakhstan legislation, an event shall be recognized as force majeure if it simultaneously meets the two following criteria:

• The circumstances preclude the subsoil user from performance of its obligations under the contract;
• The circumstances are objectively insuperable and do not depend on the will of the subsoil user.

As we understand, the most significant restrictions on subsoil users are: the restriction on foreigners to enter the territory of the state, as well as the ban on movement established in some localities (for example, in the cities of Nur-Sultan, Almaty and Aktau).

This restrictive measure can theoretically affect the ability of subsoil users to perform their obligations, as it can deprive them of the necessary human resources. Nevertheless, in order to recognize this circumstance as force majeure, it is necessary to prove the existence of a causal relationship between this restrictive measure and the ability of the subsoil user to perform its obligations.

Thus, the possibility of using the COVID-19 pandemic and the measures taken by the state to counteract against its spread, as a circumstance of force majeure for the activities of subsoil users, depends on the terms and conditions of the relevant contracts for subsoil use, as well as on the impact of the restrictive measures on the activities of the relevant subsoil user.