CONTRACTUAL OBLIGATIONS IN CASE OF A FORCE-MAJEURE EVENT?

FORCE-MAJEURE
By :
Thanh Nguyen
Associate
3 minute read
24 March 2020

CONTRACTUAL OBLIGATIONS IN CASE OF A FORCE-MAJEURE EVENT?

The COVID-19 epidemic is posing enormous challenges to businesses in addressing the effects of the epidemic on the fulfillment of obligations and responsibilities from signed transactions and contracts.

 

In our previous articles (which you can access on www.lawlinkvn.com), we have provided professional opinions on force-majeure events and some legal notes on matters. Today, we shall provide some quick opinions, focusing on THINGS TO DO AND NOT TO DO when force-majeure events happen to affect one’s ability to perform his/her contractual duties and transactions that he/she has signed before the event occurrence. 

 

According to Vietnamese law, regulations on force-majeure events can be found (although somehow limited) in the Civil Code Law 2015 (“CCL 2015”) and Commercial Law 2005 (“CL 2005”).

 

Article 351.2 of the CCL 2015 ruled about legal consequences in case of force-majeure events as follows:” In the event, the obligated party is unable to correctly perform their obligations due to force-majeure events they shall not be liable for civil liabilities, except otherwise agreed in the contract or the law stated otherwise.”

 

It is also mentioned in Article 584.2:” The party causing damages shall not be liable to compensate in the event damages arise due to force-majeure events.”

 

In the CCL 2005, Articles 294,300,303,308,310 and 312 provided a broader range of exemptions in case of force-majeure events, including remedies such as compensations, penalties for violations, cancellation, suspension of contract performance and unilateral termination of contract performance. However, alternative remedies such as delayed interest payments, clearance of obligations, forced contract performance and other concerning matters such as joint compensation obligations to a relevant third party have not been specified in the court of law.

 

In addition, should it be a contract for the purchase and sale of international goods, it is important to keep in mind that Vietnam is a member of the Vienna Convention on Contracts for the International Sale of Goods (CISG). Article 79.1 of the CISG stated that “A party shall not be held responsible for being unable to carry out their contractual duties if they can prove that they have attempted to find remedies within permitted capacity but was unable to; and that it is unreasonable to expect them to foresee such circumstances at the time of signing the contract.”

 

So, is the party violating contractual obligations due to a force-majeure event be exempted from liabilities?

 

From our experience, first of all, the party affected by a force-majeure event is obligated to provide evidence of their effort to do the best they could under the circumstance but was unable to or delayed performing their contractual duties and transactions, and that, such force-majeure event is the direct cause to such actions.

 

As a result, in the occurrence of force-majeure events, the affected party SHOULD NOT:

 

(i) Assume that Covid 19 is a force-majeure event and that you are exempted from all obligations and duties;

(ii) Make no effort while expecting that your business partners will, in course, acknowledge the situation and exempt you from your obligations and liabilities. 

(iii) Immediately notify your business partner of the force-majeure event and request them to waive your liabilities.  

 

Instead, here bellow is the things that the affected party SHOULD DO:

 

(i) TAKE RESPONSIBILITIES:

- REVIEW the contract carefully along with the terms and conditions related to the force-majeure event;

- EVALUATE impacts of the force-majeure event on the possibility of contract performance;

- CONSIDER whether the terms and conditions in case of force-majeure events can be applied (under contract and/or under applicable governing law); and

- Where it is applicable, which is the most applicable measure? 

In addition, it is also necessary to be aware of your business partner’s right in this circumstance. 

 

(ii) BE RESPONSIBLE

- INFORM the other party of the force-majeure event, its influence on the ability to perform the contract, as well as plans and efforts that deems to be appropriate to respond to the force-majeure event in order to maximize the continuous performance of the contract and minimize damages. 

- At the same time, immediately take effective measures to minimize the damages as much as possible.

 

(iii) BE REASONABLE

- After having the situation evaluated, notified, and attempted recovery, NEGOTIATE with the other party for an amicable solution in the spirit of cooperation, mutual benefit, and “win-win”.

 

 

We hope you find this article provided useful information for you and your businesses in handling and overcoming challenges posed by the COVID-19.

 

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