On January 31st 2020, the World Health Organization (WHO) declared a Public Health Emergency of International Concern (PHEIC) about the outbreak of a new strain of coronavirus in China (Covid-19). In Vietnam, Prime Minister Nguyen Xuan Phuc issued the Directive No. 05/CT-TTg on January 28th 2020 and Directive No. 06/CT-TTg on January 31st 2020 on strengthening preventive measures against new complex movements of acute respiratory infections caused by new strains of Coronavirus. On February 1st 2020, Prime Minister Nguyen Xuan Phuc signed Decision No. 173/QD-TTg on announcing the epidemic in Vietnam and directed drastically at all levels, sectors and localities to strengthen measures against the disease.
In such situation, a number of enterprises and projects had to change to a moderately operational condition, the service industries, production, trade, import and export … all fell into a difficult situation due to lack of raw materials, restricting movement, even having to suspend transactions, difficulties in concentrating manpower. In fact, many enterprises have promptly applied preventive measures to cope with the epidemic, however, it is impossible to deny the negative impact that the disease has on business and investment activities. One of the issues that enterprises are most interested now is with contracts affected by the disease, or international contracts can not be fulfilled as agreement due to the disease, can be based on force majeure factors to exempt contractual obligations?
Covid-19 can be considered as a force majeure event
According to Clause 1, Article 156 of the Civil Code 2015: “An event of force majeure is an event which occurs in an objective manner which is not able to be foreseen and which is not able to be remedied by all possible necessary and admissible measures being taken.”. Thus, the force majeure event needs to satisfy all three conditions: (i) objective, (ii) unpredictable and (iii) irreparable.
Compare with Covid-19:
- Events occur objectively: 2019 – nCoV happens completely out of the control of the parties.
- Unpredictable events: this factor depends mainly on the time of signing contracts between the parties to prove the unpredictable. At the time of signing the contract, the parties did not have information about the disease in Wuhan, the time when the Government announced the epidemic, the time there was a ban of other state agencies …
- Event is irreparable: in the conditions of the force majeure event, this one is considered to be the deciding factor for whether or not to apply the force majeure event. The irreparable may be due to the state agency’s decision to ban flights, restrict border transactions, blockade of areas suspected of being infected, et cetera.
In conclusion, Covid-19 has sufficient basis to be considered as the force majeure event. Attention should be paid to seeking documents/evidence relating to events issued by competent authorities, official news/articles published by the mainstream media… will be worth proving better than just stating the force majeure event without proof.
Consequences of Force Majeure Event “Covid-19”
According to Clause 2, Article 584 of the Civil Code 2015, the damage-causing party is not responsible for compensation in case the damage is caused by force majeure events.
In addition, point b, Clause 1, Article 294 of the 2005 Commercial Law also provides that, if a force majeure event occurs, the party that fails to perform the contract will be exempt from liability. The parties may also agree to extend the time limit, refuse to perform the contract in accordance with Article 296 of the 2005 Commercial Law.
Another consideration for the party affected by the force majeure event: it should be noted the deadline for notifying the other Party of the force majeure event and considering the other Party’s application of the provisions of Article 296 of the Commercial Law 2005.
Covid-19 can also be considered as basic circumstances change?
In the Civil Code 2015, there appeared a “basic circumstances change” in Article 420, which is a new and quite progressive provision compared to the Civil Code 2005. Basically, a ” basic circumstances change ” is quite similar to the force majeure event. The basic distinction of these two concepts mainly lies in the impact of the event on the affected party.
For the force majeure events, the right implementation or fulfilment of obligations as in the agreement/contract is impossible, because the event took place that prevented the implementation of such obligations even though the damaged party has taken all measures to prevent or remedy the consequences.
In basic circumstances change, continued performance of the contract under the previous conditions would cause “serious damage” to another party. When the circumstances for the performance of the contract change substantially, the affected party has the right to request the other party to renegotiate the contract, in order to change the contents of the signed contract to ensure the interests of the parties.
However, not all cases of Covid-19 are considered as force majeure event. The application of the provisions of the force majeure event or the basic circumstances change depending on the specific situation when the parties sign the contract and the goals that the parties are aiming for.