Due to Corona (Covid -19) many parties have breached their duties under the signed contract/SPA. Shall Corona (Covid -19) cause legal disputes to foreign businesses and even Vietnamese enterprises in Vietnam. Therefore, the article shall analyze legal disputes in terms of application of majeure conditions.
According to Vietnam law, for business contracts affected by the epidemic, or international contracts due to the epidemic that could not be performed properly as agreed upon, is it possible to apply force majeure events to exemption from contractual obligations?
Corona (COVID-19) has a strong impact on the economy of Vietnam as well as the situation of foreign investment in Vietnam. Especially in the context that investors from epidemic areas cannot return to Vietnam to operate normally or be isolated in a certain period of time. The corollary of this problem is that transactions and trade contracts between parties cannot be carried out. This is the cause of the post-epidemic legal disputes.
Therefore, it is very important to understand the legal provisions related to this matter, namely the law relating to force majeure events. Is an epidemic like this considered a force majeure event in commercial transactions prescribed in Vietnamese Law?
According to Clause 1, Article 156 of the Civil Code 2015: “A force majeure event is an event that happens objectively and unpredictably and cannot be overcome even though all necessary measures and capabilities are allowed.”
Accordingly, the force majeure event must meet three conditions:
+ Objective (1):
This event can be a natural event such as natural disasters (floods, droughts, tsunamis), good war or human-caused .etc.
+ Unpredictable (2):
These are events which occur completely independently without the will of the parties and the parties do not think they can happen at all.
+ Impossible to perform (3):
The consequences of that event cannot be overcome despite taking all necessary measures and allowances.
Therefore, it is necessary to analyze whether the Covid 19 epidemic has all three conditions mentioned above to be considered a force majeure event.
In the current context of the Covid 19 epidemic, the authorities issued orders not to allow activities and quarantine including activities of circulating goods, people and services among certain areas affected or at risk of being affected by the epedimic is considered to meet the requirements of Objective (1) and Unpredictable (2) because this is the decision of the state management agency. From there it is likely to lead to the third condition Impossible to perform (3).
In the circumstance of Covid 19, conditions (1) and (2) are relatively clear and not controversial. However, the condition Impossible to perform (3) will be the main legal dispute because the parties have to prove that the situation cannot be overcome despite taking all necessary measures and their ability.
Where Covid 19 is considered a force majeure event, the violating party shall not be liable.
How should foreign businesses affected by the disease respond?
The foreign businesses from the following countries could be affected by the epidemic: China, Taiwan, Hong Kong, Singapore and other possible ones.
As analyzed above, the most important thing in the case of a contractual obligation that cannot be fulfilled must be proved to meet all three conditions of force majeure prescribed by law, in which special attention to the quite qualitative and heavy factor on the ability to collect evidence that is “ Impossible to perform (3)“.
Accordingly, foreign businesses affected by the epidemic need to take the following steps to ensure their rights:
+ Notify the partner about difficulties in contract performance:
The party who fails to perform the contractual obligations should promptly notify the other party of the contract on the performance of its contractual obligations to reduce maximum damage.
+ Re-negotiate the contract:
Contract renegotiation of the portion of the obligation may not have been possible due to the Covid 19 epidemic. This should be the first preferred option before taking into account legal actions.
+ Collecting additional evidence for an important and controversial third element “Impossible to perform”:
Businesses should keep evidence that they have taken all necessary measures but are still unable to fulfill their contractual obligations. The retention of this evidence is very important to determine the “Impossible to perform” condition of force majeure as prescribed by law.
+ Notes about future commercial contracts related to force majeure events:
The current Vietnamese law prescribes generally the facts that are considered force majeure events. Therefore, when drafting a contract, the parties need to have a specified provision, clearly defining the force majeure events and the notice obligation of the violating party when a force majeure event occurs.