COVID-19 Pandemic: Legal perspective on force majeure event

Currently, due to the increasingly complicated situation of COVID-19, the Government of Vietnam has issued Directive No. 16 on the implementation of social distancing, causing many businesses to suspend production and business activities. This will lead to a range of different economic consequences, including a significant impact on the performance of international trade contracts for businesses engaged in transnational trade in goods and services. Is the outbreak of COVID-19 considered a "force majeure event" according to Vietnamese and international law? And then, what will be the consequences for international trade contracts?

Below, DTD offers some general analysis based on its views from a legal perspective.

"Force majeure event" is defined by Vietnamese law in Clause 1, Article 156 of the 2015 Civil Code: “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." Based on this basis, it can be understood that force majeure events are events outside the scope and control of human beings such as natural disasters, enemy sabotage, and epidemics. What at the time of the agreement's implementation or during the execution of the agreement, the parties could not have known, anticipated the consequences that would occur, and could not be remedied despite all the measures in permissible capacity have been applied.

As we have seen, the COVID-19 epidemic is an unexpected and unpredictable event. Vietnam, therefore, implemented social isolation to prevent COVID-19, which caused many businesses to "suddenly" stop operating. At the same time, with the dangers and rapid spread in the community, COVID-19 has been declared as a global pandemic by the World Health Organization (WHO) and has been added to Vietnam's list of Group A infectious diseases under the Law on Prevention and Control of Infectious Diseases 2007 in Decision No. 219 / QD-BYT dated January 29, 2020. From these analyzes, DTD stated that COVID-19 could be considered as a "force majeure event" under Vietnamese law. Of course, the evaluation of a force majeure situation must also take into account the specific terms of the Agreement, as well as the provisions of other relevant specialized laws.

More specifically, in this regard, Vietnam's Commercial Law (Commercial Law 2005) has provisions related to force majeure events. Specifically, Article 294 on Cases of Exemption from Liability with violations:

"1. The violating party is exempt from liability in the following cases:

a/ A case of liability exemption agreed upon by the parties occurs;

b/ A force majeure event occurs;”

And extending the time limit, refusing to perform the contract in case of force majeure prescribed in Article 296 of this Law. Accordingly, businesses that are unable to fulfill or execute their obligations in a commercial contract with their partners due to the COVID-19 epidemic may be exempt from liability or may agree to extend the duration or refusing to perform contracts with their partners when they are deemed to violate contractual obligations.

Besides, an international trade contract will involve different legal systems. Therefore, it is necessary to consider the view of international law on the force majeure event, namely the current COVID-19 pandemic and how to deal with it. According to the information learned, most of the legal systems in the world and international legal documents have made and acknowledged the "force majeure event" as one of the cases of contract exclusion.

In this article, DTD would like to introduce regulations on "force majeure events" of the International Chamber of Commerce (IIC). The ICC has launched the "ICC Force Majeure Clause 2003"[1] combining the ability to predict the events of force majeure listed with a general force majeure formula to catch situations outside the events listed. The objective events are not fully listed under Clause 3 of "ICC Force Majeure Clause 2003" as follows:

“(a) war (whether declared or not), armed conflict or the serious threat of same (including but not limited to hostile attack, blockade, military embargo), hostilities, invasion, act of a foreign enemy, extensive military mobilization;

(e) act of God, plague, epidemic, natural disaster such as but not limited to violent storm, cyclone, typhoon, hurricane, tornado, blizzard, earthquake, volcanic activity, landslide, tidal wave, tsunami, flood, damage or destruction by lightning, drought;”

According to this provision, DTD understands that "ICC Force Majeure Clause 2003" can recognize COVID-19 as a force majeure event because it is on the list of events considered as force majeure. In addition, the disclaimer clause - “ICC Force Majeure Clause 2003” can be applied in any international commercial contract as agreed by the parties, and it is also encouraged to put into practice as a provision of international contracts.

[1] https://iccwbo.org/publication/icc-force-majeure-clause-2003icc-hardship-clause-2003/

As is known, an international commercial contract is an agreement between the parties to establish, change, or terminate international trade rights and obligations. International commercial contracts have many types, such as international goods trading, service provision contracts, technology transfer contracts...[1] With high international nature, international trade contracts can be applied by the legal systems of different countries to resolve disputes when it depends on the agreement between the two parties. Therefore, the settlement of "force majeure events" of enterprises with respect to commercial contracts must be based on the agreement of the two parties and the law agreed to apply to resolve.

For Vietnamese enterprises engaging in international trade transactions during this period, Vietnamese commercial law may be applied to consider and resolve the exemption of liability when violations are committed (Article 294, Article 296 of the 2005 Commercial Law) in cases where the parties choose to apply Vietnam to settle disputes. On the contrary, if the parties choose to apply the law of another country, they must base on the provisions of the law of that country on force majeure events to give the best solution for both sides.

The above are all general analyzes of DTD on solutions to international trade contracts when a force majeure event occurs - the current COVID-19 pandemic. DTD hopes that these analyzes will be able to play a part in helping businesses facing this situation, which have more grounds and bases to propose solutions to ensure the best economic benefits for themselves in the context of the current recession. At the same time, DTD also hopes that all businesses and all Vietnamese citizens will join hands to continue to well implement the Government's Directive on social distancing to combat the pandemic, early on bringing the Vietnamese economy "bustle" again

[2]  https://moj.gov.vn/qt/tintuc/Pages/nghien-cuu-trao-doi.aspx?ItemID=1251