Can Covid-19 pandemic be considered as a force majeure event by which the liabilities of the contracting party will be released in case of a breach?

KNOWLEDGE CENTER Commercial Arbitration

Can Covid-19 pandemic be considered as a Force Majeure event by which the liabilities of the contracting party will be released in case of a breach?

Since the pandemic breaks out, the production, business doing and commercial activities among the enterprises have been severely affected. This may cause a contract breach and result in dispute and claim. However, in order to understand how to consider the Covid-19 pandemic as a force majeure and whether the pandemic affected companies are exempted from liability for breaches of contract, it is necessary to note a number of separate issues under the current laws and regulations.

To identify force majeure events in a contract, it is necessary to compare and compare key elements of the force majeure clause in contracts according to different criteria of law provisions:

 According to Article 156.1 – 2015 Civil Code, the “force majeure event” is interpreted as an event that occurs objectively which cannot be foreseen and cannot be overcome even though all necessary measures have been taken and ability allows. That is, events or phenomena are considered force majeure events when events and phenomena of individuals and organizations cannot be foreseen and controlled and events and phenomena leave uncontrollable consequences after the avoidance and remedy, even though necessary measures have been taken.

Thus, from the above analysis, in order to exempt the breaching party from liability, the violating party must prove that Covid-19 translation is a force majeure event.

 According to Article 294.1.b – 2005 Commercial Law, the “force majeure event” is the case of being exempted from liability for the breach of the contract and when the force majeure occurs, to be exempt from the liability of The breaching party, the violating party must promptly notify and prove that phenomena and events that occur affecting the work, contract performance tasks and beyond their calculation it is objective and it cannot prevent or overcome the consequences, even though the necessary measures have been taken.

Thus, commercial law allows the violating party to exempt the breaching party from liability if it proves that the Covid-19 translation is a force majeure event.

Under the United Nations Convention on contracts for international sales (Vienna Convention 1980), the breaching party is exempt from liability if the breaching party demonstrates that such failure was caused by an objective obstacle. It is beyond their control and they cannot calculate, be objective and it cannot prevent or remedy the consequences even though the necessary measures have been taken.

Consequently, under the 1980 Vienna Convention to view the translation of Covid-19 is exempt from liability to the breaching party if it satisfies the conditions specified in paragraph 1 of Article 79 of the 1980 Vienna Convention.

Can Covid-19 pandemic be considered as a Force Majeure event by which the liabilities of the contracting party will be released in case of a breach?

Criteria to be exempt from contract breaches due to force majeure events are at least 3 points below:

(1) There is a force majeure event under the terms of the contract;

(2) The delay in the contract performance is due to a force majeure event;

(3) The obligor must notify the other party of the failure to perform the contract due to a force majeure event within a certain period of time.

For Vietnamese enterprises when applying a force majeure event caused by the Covid-19 pandemic to be exempt from liability due to a breach of the contract:

(1) Review of contract terms and disease facts. Is the consequence of the pandemic a force majeure? What obligations should be performed to consider a pandemic as a force majeure event, which is exempt from liability such as the obligation to notify, the obligation to take remedial measure.

(2) Collect and arrange evidence of delay or obstruction of contract performance due to a force majeure event that is the Covid-19 translation;

(3) Consider the evidence of how the Covid-19 pandemic affects the supply chain in relation to the contract and the interim emergency measures related to the supply chain;

(4) Review and apply appropriate mitigation measures to avoid or reduce the impact on contract performance.

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