Is Covid-19 still considered as a force majeure event?
- COVID-19 continues to disrupt businesses globally and has certainly caused numerous business uncertainties for companies whose contractual obligations are obstructed by the outbreak. Many are left wondering whether the COVID-19 can be considered as a force majeure event that would allow them to be exempted from the civil liability for not performing their contractual obligations. This article is will share our point of view on whether COVID-19 can still be considered a force majeure event, given the availability of COVID-19 vaccines and the State's dual goal of containing the outbreak and keeping the economy on track.
- What is a Force Majeure Event under Vietnamese Law?
Clause 2 of Article 156 of the Civil Code No.91/2015/ QH13 (the “Civil Code”) provides that: “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.”
As can be seen from the definition above, an event is considered as an event of force majeure when:
(i) occurring objectively;
(ii) being unforeseeable;
(iii) being unable to be remedied despite all possible, necessary, and admissible measures being taken by the affected party.
Is Covid-19 still considered as a force majeure event under contracts that are signed from 2021 onwards?
When considering the impact of the COVID-19 on the performance of the contractual obligations, the direct impact of the epidemic on the parties to the contract, for example, the infection of a party’s employees with the virus preventing such party from performing the contract, might not be considered by the dispute settlement body once the dispute arises. At this time, the impact of the acts, decisions, and documents of the competent State agencies for the purpose of preventing the spread of the virus on the contracting parties would be taken into consideration.
Firstly, acts, decisions, and documents of the State authorities to prevent the spread of the virus are beyond the reasonable control of the contracting parties. Hence, this would satisfy the objectivity of a force majeure event.
Secondly, in order to consider the “unforeseeable" factor of the COVID-19 epidemic for the performance of the contract, it is crucial for the parties to determine the time of the contract coming into force. Common sense is that at the time of the parties entering into the contract, the parties have acknowledged and must acknowledge the factors that potentially affect the performance of the contract. Both parties objectively assess whether these factors are indeed "unforeseeable" or not, for example, epidemic announcements, decisions on isolation, blockade of offices and factories, and other legal measures to be taken to prevent the spread of the epidemic. If the contract is concluded after the epidemic and the preventing measures having been announced, then the impact of the COVID-19 on the performance of the contract will not be considered as an event of force majeure except for other agreements of the parties or the issuance of the stricter measures of the State to prevent the epidemic.
Thirdly, regarding the “inability to be remedied” factor, only when acts, decisions and documents of the State are issued to prevent the spread of the virus making it is impossible for parties to a contract to perform the contract despite all possible, necessary and admissible measures being taken, the affected parties will not be liable for the breach of the contract.
Up to this point, the COVID-19 has been going on for more than one and half a year and most companies have transformed the way of operation to adapt to the "new normal" situation. Events that were once considered "unable to be remedied" in 2019 and 2020 are no longer remain obstacles.
In conclusion, in our opinion, the impact of the COVID-19 epidemic can only be considered as a force majeure event provided that such event must satisfy all conditions mentioned above, especially the second and the third conditions.
However, in determining whether COVID-19 will result in the affected party's inability to perform the contractual obligations or not so that the affected party will be exempted from the civil liability, the specific context of each contract should be carefully considered. When negotiating with partners, you should base on the specific scope of work of each contract as well as the method of contract implementation of each partner to reach the most commercially favorable agreement and minimize the impact of COVID-19 on the project implementation progress.
Our opinion hereabove is for reference only and the final decision shall rest with the dispute settlement body as the case might be. Nevertheless, we hope that our analysis will help you have a more solid ground when negotiating with partners or clients.