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Is Covid-19 a force majeure event for exemption from liability?

Is Covid-19 a force majeure event for exemption from liability?

Wednesday 04, 03 2020
​"The event of force majeure" is a primary legal issue regulated in several legal documents of Vietnam.

From a legal perspective and the aspect of contract performance in business, a legal issue has been raised as to whether the Covid-19 virus is a force majeure event to be exempt from liability for breach of contract.

​Events of force majeure

​"The event of force majeure" is a primary legal issue regulated in several legal documents of Vietnam. According to the 2015 Vietnamese Civil Code (Clause 1, Article 156), an event can be considered a force majeure one if it fulfills the following conditions: being an event which happens objectively, as well as cannot be foretold and fixed despite the implementation of all the necessary allowed measures and capabilities.

Correspondingly, not all events which occur objectively, cause troubles for enterprises, prevent enterprises from fulfilling the contract, as well as make enterprises fail to meet the contract can be considered events of force majeure, as it needs to fulfill all the conditions mentioned above. By proving an event to be a force majeure one, enterprises that violate the contract will be exempt from liability, such as damage compensation for the violated parties.

Specifically, Clause 2, Article 351 of the 2015 Civil Code regulates that if the party with the liability fails to fulfill it due to unavoidable events, they will not have to face civil consequences, unless there are other agreements or other regulations of the laws. Point b, Clause 1, Article 294 of the 2005 Commercial Law also regulates that the party violating the contract will be exempted from liability in case unavoidable events take place.

It is also necessary to note that if they want to be exempted from liability, the party violating the contract must prove their liability exemption case, which is a force majeure one, to the violated party (Clause 2 Article 294, Clause 3 Article 295 of the Commercial Law). Therefore, a force majeure event is not one in which the liability is exempted as soon as the event happens, as it still required the announcement and proving procedures of the violating party.

Is the Covid-19 virus an event of force majeure?

It is clear that the widespread outbreak of the epidemic is an objective event that cannot be foreseen. However, in order to prove that this is an event of force majeure, it requires evidence of different factors as regulated by the law, such as "the inability to solve, despite trying all the necessary measures and allowed capabilities".

"The inability to solve" means that the event cannot be dealt with. It is obvious that until now, the Covid-19 epidemic is still developing complicatedly without a sign of improvement; several localities and areas are still implementing quarantine and other strict medical methods, etc. Thus, if an enterprise is affected by this epidemic, it will be impossible for it to improve the situation even with the help of all the necessary methods and the allowed capabilities.

Is Covid-19 a force majeure event for exemption from liability?

In fact, this epidemic is quite overwhelming for the enterprise to deal with. As a result, this epidemic should be considered an event of force majeure. There have been ideas saying that in order for an event to be a force majeure, it needs to fulfill the factor of "the inability to solve", and thus considering the Covid-19 not an event of such. In fact, as mentioned above, the law does not require the factor of "the inability to solve" to consider an even to be a force of Majeure.

Moreover, the contract may still be carried out in case of events of force majeure, but it may be carried out incorrectly or the contract may be violated. For example, the Covid-19 virus can make an area be strictly quarantined as goods and people are transported to that area.

This will cost time and result in the late delivery of goods, but in the end, the goods are still delivered and the contract is still fulfilled. The late delivery, in this case, needs to be considered for liability exemption due to an event of force majeure. Obviously, as mentioned above, the violating party needs to inform the violated one to enjoy the exemption.

Specifically, point d, Clause 1, Article 294 of the law specifies that one of the cases that may enjoy the exemption is "the violation of one party due to the implementation of a competent authorities' decision, which both parties could not foresee at the time of signing the contract".

Thus, if an enterprise is both affected by the Covid-19 and receives a competent authorities’ decision resulting in the enterprise’s failure in fulfilling the contract or violation of the contract, the enterprises will both enjoy an exemption due to an event of force majeure, as well as an exemption due to the implementation of the decision issued by the competent authorities which both parties could not foresee at the time of signing the contract according to the Commercial Law (this is double exemption based on 2 legal bases).

Recommendations

An event of force majeure is an important legal issue. Therefore, in practical trading – commercial contract, parties need to include this article, clearly determining the factors of the unforeseeable events according to the regulations of the law, and may come to agreements on which specific cases should be considered unavoidable, and in which cases should the liability exemption be implemented.

For example, parties may reach an agreement that an epidemic is an event of force majeure, etc. According to Article 294 of the 2005 Commercial Law, besides cases involving events of force majeure or the violation of one party caused by the implementation of decisions of the competent governmental managing agencies which all parties could not foresee at the signing of the contract, another case in which the liability exemption may be applied is the exemption due to agreements or the violation being entirely the violated party’s faults.

In the contract negotiation, signing and implementing process, enterprises need to understand clearly the regulations on liability exemption according to the laws to protect their legal rights and benefits.

​>> All businesses are affected by Covid 19

Source: https://www.thesaigontimes.vn/

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