Is the Covid-19 epidemic considered a force majeure event?
According to Article 156 of the Civil Code 2015 (Civil Code 2015), a force majeure event is an event that occurs objectively, which cannot be foreseen and cannot be remedied even though all necessary and feasible measures have been taken within permitting capacity. Where the obligor fails to properly perform the obligation due to a force majeure event, it shall not bear civil liability, unless otherwise agreed upon or otherwise provided for by law.
According to the above definition, an event will be considered as force majeure if: (i) objectively occurs, (ii) unforeseen, and (iii) cannot be remedied despite all measures being applied with necessary measures and capabilities, and (iv) a force majeure event that causes the affected party to fail to perform its obligations.
(i) Occurs objectively:
Covid-19 is a global epidemic that occurs objectively because it is not created by the parties or arises due to the fault of the parties in the contract.
The law does not specify what is "unforeseen". However, according to normal logic, the "unforeseen" standard can be judged by whether the parties know the Covid-19 epidemic occurred at the time of signing the contract or not.
In case the parties signed the contract before the Covid-19 epidemic was announced, it could be considered an "unforeseen" event when signing the contract. However, if the parties sign the contract after the competent state agency has announced the Covid-19 epidemic, it cannot be said that the parties knew, did not anticipate that Covid-19 would occur or did not anticipate. In advance, competent state agencies will apply lock-down, isolation and social distancing measures due to the impact of the Covid-19 epidemic.
However, the application of lock-down, isolation, social distancing measures by the competent state agencies to affect the performance of the contract can still be considered an event that "happens in a certain way." objective” and “irreparable”.
Worldwide, on March 11, 2020, the World Health Organization (WHO) declared the Covid-19 acute respiratory infection caused by a new strain of corona virus (SARS-CoV-2) a pandemic. Global.
In Vietnam, on April 1, 2020, Prime Minister Nguyen Xuan Phuc announced Covid-19 as a group A infectious disease, a risk at a global pandemic level (according to Decision 447/QD-TTg 2020). . Group A includes particularly dangerous infectious diseases capable of being transmitted very quickly and spreading widely and with high mortality rates or with unknown pathogens (Clause 1, Article 3 of the Law on Prevention and Control of Infectious Diseases 2007).
(iii) The occurrence of the event cannot be remedied despite all necessary and permissible measures being taken:
Force majeure events are usually objective events beyond the control of the parties, so the affected party in many cases cannot be overcome. And the law only requires the affected party to take measures to the extent “necessary” and within the “allowable capacity”. In many cases, the affected party may not be able to literally fix it, but simply that the costs of remediation outweigh the benefits they could get from the performance of the contract.
For the Covid-19 epidemic, in order to be exempt from liability, the affected party must prove that it has taken “all necessary and permissible measures” to prevent the effects of the epidemic in the implementation of the epidemic. contract but still cannot fix it. In the event that the party affected by the Covid-19 epidemic is still able to overcome it or cannot prove that it has applied all necessary and permissible measures to overcome the impacts of the Covid-19 epidemic, may not be excused on the grounds that Covid-19 is a force majeure event.
(iv) A force majeure event that causes the affected party to fail to perform its obligations:
The Civil Code 2015 does not specify the cause-and-effect relationship between force majeure events and contract performance. It can be implicitly understood that a force majeure event is the direct cause of the inability of the affected party to perform its contractual obligations. With such an approach, failure to properly perform a contractual obligation on the basis of a force majeure event may be admissible only if the force majeure event is in fact the direct cause of preventing the obligee from doing so. proper performance of the obligation. Financial hardship arising from the stagnation or deterioration of business operations resulting in a party's inability to perform its contractual obligations is an indirect cause and should not be considered a reason for the failure to perform. perform obligations. If taking into account the event that is an indirect cause for the inability of the affected party to perform its obligations, the force majeure event can be explained very broadly, leading to the easy use of the affected party to release liability. Indirect effects should only be considered as exempt from liability if the parties agree in the contract.
There is not one correct answer for all cases to the question of whether the Covid-19 epidemic is considered a force majeure event, but it must be evaluated and considered according to the nature, circumstances and context of the situation. each transaction to determine whether the Covid-19 epidemic is a force majeure event for the parties to the contract.
Courts should evaluate and take a cautious approach to requests, declarations of termination or cancellation of contracts on the grounds of the Covid-19 epidemic such as a force majeure event or a fundamental change in circumstances to avoid taking advantage of Covid-19 to terminate or cancel contracts widely. Because this will damage the legitimate rights and interests of other individuals and organizations as well as cause instability and risks to the market which has been heavily affected by the Covid-19 epidemic.
Legal consequences of force majeure events
The legal consequences of force majeure events for civil and commercial transactions are different:
According to Clause 2, Article 351 of the Civil Code 2015: “In case the obligor fails to properly perform the obligation due to force majeure events, it is not liable for civil liability, unless otherwise agreed or otherwise provided for by law. ". It can be understood that if Covid-19 satisfies the conditions to be considered a force majeure event as analyzed above, the Civil Code 2015 allows the obligor affected by the force majeure event to have the right to unilaterally terminate the contract. terminate the contract without notice or compensation.
According to Clauses 1 and 4, Article 296 of the Commercial Law 2005: In case of force majeure, the parties may agree to extend the time limit for performance of contractual obligations; if the parties fail to reach an agreement or fail to reach an agreement, the time limit for performance of contractual obligations shall be counted for an additional time equal to the time of occurrence of the force majeure event plus a reasonable time to remedy the consequences, but may not extend beyond the following time limits: 05 months for goods and services for which the agreed time limit for delivery or service provision does not exceed twelve months from the date of conclusion of the contract; 08 months for goods and services for which the agreed time limit for delivery or service provision is more than twelve months from the date of signing the contract.
The extension of the time limit for performance of contractual obligations mentioned above does not apply to contracts for goods sale and purchase or provision of services with a fixed term for delivery or service completion. Within the time limit specified above, the parties have the right to refuse to perform the contract and neither party has the right to demand compensation from the other party.
In addition, according to Article 295 of the Commercial Law 2005, in order to be exempt from liability, the infringing party must immediately notify the other party of the force majeure and possible consequential events, and at the same time have the obligation to prove the unexpected event.
Thus, not in all cases when a force majeure event occurs, the obligor has the right to terminate the contract but must consider the contract they signed as a civil or commercial contract. Commercial 2005 stipulates that when a force majeure event occurs, the contract is not automatically terminated, but the time limit for performance of the contract obligation is added for a period equal to the time of the occurrence of the force majeure event plus the duration of the contract. reasonable time to remedy the consequences and at the same time the affected party must immediately notify the other party of the force majeure event, after this time limit, the affected party has the right to terminate the contract.
What should individuals, organizations and businesses do to minimize legal risks when signing and performing contracts during the current Covid-19 pandemic?
Firstly, when intending to invoke Covid-19 as a force majeure event to terminate the contract, the party terminating the contract should consider the transaction context and compare it with the constitutive elements of the unexpected event. to see if Covid-19 is a force majeure event? Because not every case of Covid-19 is considered a force majeure event.
Second, evaluate the signed contract as a civil or commercial contract because as analyzed on the consequences of force majeure events are different.
Third, to avoid disputes, controversies and risks to the question of whether Covid-19 is a force majeure event and the settlement of consequences and effects of the Covid-19 epidemic, especially the Indirectly caused by the epidemic such as revenue reduction, business closure and suspension at the request of competent state agencies, disruption of raw material supply, etc., the force majeure clause must be met. rigorous design and construction, covering possible scenarios and how to deal with them.
Fourth, renegotiate, amend and supplement the terms of the signed contract because of the fundamental change in circumstances. Due to the impact of the Covid-19 pandemic, many companies have had to ask their partners to renegotiate contract terms due to fundamentally changed circumstances. The most famous case recently was that CJ CGV Vietnam Co., Ltd (CGV) proposed Lapen Investment Consulting Joint Stock Company (Lapen). Accordingly, CGV proposes to adjust the rental calculation from December 1, 2020 to February 28, 2021, the rent is fixed at 8% of box office revenue so that CGV can overcome the current difficulties. After 3 months, the parties will continue to renegotiate the method of calculating the rent and in case no agreement is reached, either party is entitled to unilaterally terminate the contract without any compensation or penalty. any, including the deposit. However, the parties could not reach an agreement. Therefore, VCG sued Lapen to request the termination of the contract on the grounds that the circumstances had changed fundamentally.
According to the provisions of Clauses 2 and 3, Article 420 of the Civil Code 2015, in case of a fundamental change in circumstances, the party with affected interests has the right to request the other party to renegotiate the contract within a reasonable time. Where the parties cannot agree on the modification of the contract within a reasonable time, one of the parties may request the Court: (i) Termination of the contract at a definite time; (ii) Amend the contract to balance the legitimate rights and interests of the parties due to a fundamental change in circumstances. According to Clause 1, Article 420 of the Civil Code 2015 It is considered as a fundamental change in circumstances when the following conditions are fully satisfied: (i) The change in circumstances due to objective causes occurs after the conclusion of the contract; (ii) At the time of entering into the contract, the parties could not have foreseen the change of circumstances; (iii) Circumstances have changed so much that if the parties had known in advance, the contract would not have been concluded or was entered into but with completely different contents; (iv) The continuation of contract performance without changing the contract content will cause serious damage to one party; (v) The affected party has applied all necessary measures in its ability, in accordance with the nature of the contract, but cannot prevent or minimize the impact on the interests.
Fifth, in case the parties are not knowledgeable about the law, the parties should consult experienced lawyers before signing, amending, or terminating the contract.