The business operation has been slowing down since the start of the diseases initially detected and spread in Wuhan, China.
The question is that whether the virus may constitute a Force Majeure Event under Vietnamese law, with a specific focus on the Energy Sector and projects subject to international project finance documentation.
1. Force Majeure Event:
1.1. What is Force Majeure Event (FME) under VIetnamese Law?
According to the under the Civil Code 2015, the definition of an FME is covered as “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.” However, definitions are also provided under other laws and regulations governing particular industries and generally speaking; however, fundamentally, they all are in line with the definition under the Civil Code 2015.
1.2. Elements to constitute an FME:
- Objectively occurred: such event must not occur due to any party’s fault.
- Unforeseeable: FME is the event which, at the point of signing the contracts, no party has anticipated such event to be happening and thus all the undertakings and obligations set out in the contracts are based on the objective conditions and situations at the point of signing the contract.
- Not able to be remedied by all possible necessary and admissible measure being taken
1.3. Consequences of FME:
Under the Civil Code 2015, an obligor shall not have any civil liability if it fails to perform an obligation due to an FME.
2. Is Covid-19 qualified as an FME?
When considering the concept and requirements of FME under Vietnamese law as present above together with the current situation of Covid-19 outbreak, it may be eligible to consider Covid-19 and/or any of its related subsequent events such as the international and domestic movement restrictions causing lack of labour, materials which lead to disruption of productions, services as an FME.
It is a common practice whether an event can be determined as an FME is interpreted according to the nature of the transactions as well as the contractual provisions agreed between the parties. Therefore, in light of different types of contracts below, there may be different views on the consequences and treatment of an FME.
For loan contracts or contracts for sales of goods or contracts for provision of services, where the obligations of one party are payment obligations, it is arguable that the affected party (e.g., the debtor, the purchaser of goods and services) cannot be excused from performing their payment obligations because Covid-19 by itself does not prevent payment obligations from being performed.
Nonetheless, in other transactions (e.g., lease contracts), Covid-19 can result in negative impact to their business of the lessees right after the pandemic occurs, (e.g., they are not allowed to use or enter the leased properties), which could satisfy the conditions for triggering an FME. Thus, Covid-19 may be considered as an FME in such circumstances
3. What can Corporates do in this pandemic?
3.1. Notification of FME:
In case of FME, the affected party claiming an FME does not have only obligation to provide written notification to the other party but also bear the burden of proof to the latter that how such FME affected their operation and released them from liability.
3.2. Mitigating the FME’s effect:
In the light of Covid-19, corporates should actively identify their standings under various agreements including commercial contracts and labour contracts. To be prudent, such contract’s key provisions (e.g: penalty, FME, breach, governing law and dispute resolution) should be reviewed, with the help of external legal counsels.
To deal with the current health pandemic, many enterprises are looking for innovative resolutions to minimize the effect of disruption to their businesses. Such suggested solutions could included using e-signatures, e-contracts, online dispute resolutions,…
Reference source: YKVN newspaper.