LEGAL UPDATE: In respect of Covid-19, did you know Vietnamese law does have provisions on ‘force majeure’? We explore here the implications.
Covid-19 has certainly caused disruptions to the global supply chain and many parties to contracts have given notice that a ‘force majeure’ event has occurred either excusing them from the performance of their contractual obligations temporarily or allowing them to terminate contracts.
In China, the China Council for Promotion and International Trade (CCPIT) has issued more than 3,000 certificates to Chinese companies to allow them to claim ‘force majeure’ due to the corona outbreak. CCPIT, however, also advised that the specific provisions of the contracts govern.
In France, it has been reported the French Finance Minister has indicated that companies can declare ‘force majeure” due to the corona outbreaks in contracts involving small to medium enterprises.
Foreign law firms all over the world have recently published articles on how force majeure is handled under the laws of their respective jurisdictions.
It seems English law strictly construes these events and even armed with the certificates issued by CCPIT in China, companies with contracts governed by English law may not necessarily be excused from performance or be allowed to terminate contracts as a matter of course, given the contradictory ways the Chinese government has handled the crisis and non-transparent decision making process in respect of these issues.
So what does Vietnamese law say about force majeure?
Vietnam law defines a force majeure event as an event that is unforeseen and cannot be remedied despite applying all necessary and possible measures to do so. In such an event, the party affects by force majeure: Can be excused from the performance of its contractual obligations; or
1. After expiry of a certain period (discussed below), be allowed to terminate the contract without liability.
However, the above are subject to the following conditions
2. The affected party must give notice immediately
3. The affected party must prove the existence of a force majeure event.
4.The affected party must also give notice if the force majeure event ends; failure to do so is deemed as breach and the affected party is liable for damages.
The law also says that the parties can agree in the contract to extend the period for performance of contractual obligations upon the occurrence of a force majeure event. If there is no provision in the contract, then the period imposed by law is a period equal to the duration of the force majeure event plus a reasonable period to remedy such event, provided that such periods do not exceed the following time limits:
(a) Five months in respect of goods or services for which the agreed time-limit for delivery or provision is less than twelve (12) months from the date the contract was entered into;
(b) Eight months in respect of goods or services for which the agreed time-limit for delivery or provision is more than twelve (12) months from the date the contract was entered into.
Upon expiry of the contractually agreed time-limits or those set out in the law above, the parties have the right to terminate contract and neither party has the right to demand that the other party pay damages for loss, provided that termination notice is given within ten (10) days from the date of expiry of the time-limits discussed above.
So, is Covid-19 a force majeure event under Vietnamese law?
Article 4.4(e) of Decree 62/3015/NDCP on Civil Judgment Enforcement states that a force majeure event that is not a natural disaster, fire, or war, such an event must be verified by competent authority or valid supporting documents stating the time, location of the event and what happened must be provided.
In respect of Covid-19, the Ministry of Health has issued Decision 219 to categorize Covid-19 as a Group A Infectious Disease. Article 3.1(a) of the Law on prevention and control of infectious diseases No. 03/2007/QH12, Group A consists of extremely dangerous infectious diseases that can transmit very rapidly and spread widely with high mortality rates or with unknown causes.
So far, the Vietnamese authorities have not issued any certificates such as in China confirming that this is a force majeure event and any party claiming force majeure still has the burden of proof.
Note that force majeure is never an excuse of a payment obligation for contractual obligations that have been performed.The lesson in Vietnam and elsewhere is that perhaps we have to beef up force majeure provisions in contracts to provide more certainty. Our view, however, is that in a globally devastating event such as Covid-19, may be the parties to contracts taking a sensible and reasonable approach to deal with this so that the parties’ respective businesses can survive is the best approach.
Note that there are also other legal concepts allowing the parties to get out of a contract, such as frustration or claiming that a “Material Adverse Change” has occurred.
DN Legal, 2 March 2020
