Force majeure

(VLR) Never the term “force majeure” has been as much concerned as since COVID-19 through a number of cases, such as, The tenant did not pay the rent, returned the house, reclaimed the deposit for the reason of force majeure. Was that right? Logistics service companies, trading companies could not deliver, receive goods or violated delivery deadlines because of a shortage of workers due to concentrated isolation, even companies had to close due to COVID-19. Could they refuse to pay damages? Could we claim insurance companies for damages caused by COVID-19? For flights canceled by a government order due to COVID-19, had the travel company to return the airfares or deposits to its travellers immediately? Borrowing money from banks to buy and sell goods or services but not being able to do business, was it allowed to refuse or delay the payment of interest or late payment of principal due to COVID-19? Bank was unable to collect debts due to COVID-19. Was it a force majeure event?

A force majeure event is an event that happens in an objective, unexpected and insurmountable manner despite the application of all necessary measures and allowances

A force majeure event is an event that happens in an objective, unexpected and insurmountable manner despite the application of all necessary measures and allowances

What is a force majeure event?

"A force majeure event is an event that happens in an objective, unexpected and insurmountable manner despite the application of all necessary measures and allowances” (Clause 1, Article 156 of the 2015 Civil Code). Thus, there are three issues to consider whether an event is a force majeure one or not: (1) objective; (2) unexpected; and (3) insurmountable. “Objective” is understood to happen due to natural or human causes which cannot be known by the affected party, such as tsunamis, earthquakes, natural disasters, epidemics, etc .; “Unexpected” is beyond the control of man; and “insurmountable” is an attempt to implement all solutions but cannot be resolved.

What are the conditions for being exempt from liability due to force majeure event?

In contractual relationship, the proof of a force majeure event will help the violating party not to pay damages or perform its obligations. Clause 2, Article 351 of the 2015 Civil Code stipulates: “In the case of failure to perform obligations by the obligor due to force majeure he is not liable for civil liability, unless otherwise agreed or otherwise provided for by law.” Clause 1, Article 294 of the 2005 Law on Commerce states: “A party that breaches a contract shall be exempted from liability in the following cases: ... b) A force majeure event occurs”. Regarding the liability to pay damages in tort, Clause 2, Article 584 of the 2015 Civil Code states: “The damage-maker is not liable to pay damages in case the damage is caused by force majeure events”. In order to be exempt from liability due to a force majeure event, the violating party must: (1) Immediately notify the other party in writing according to Clause 1, Article 295 of the 2005 Law on Commerce on the case of exemption from responsibility and possible consequences; (2) Prove that a force majeure event has occurred; (3) Prove that a force majeure event directly affects the performance of contractual obligations; (4) Prove that all necessary measures and permissible possibilities have been taken but cannot be overcome. If a contract (among Vietnamese legal entities) does not stipulate force majeure, it may be based on the provisions of Sub-clause b, Clause 1, Article 294 (Cases of exemption from liability for violations) of the 2005 Law on Commerce when a force majeure event happened.

Some disputes on force majeure

1. A Vietnamese company sold rice to a Philippine company. While the ship chartered by the buyer was on the way to Haiphong to receive rice, the seller said that the Prime Minister of Vietnam had decided to stop exporting rice from March 24, 2020 to ensure food security due to COVID-19. Therefore, they could not deliver rice to the ship and considered this to be a force majeure event. The buyer assumed that the seller was partly responsible for the damage due to the ship already on the way to port. The seller’s viewpoint that the buyer had to bear all the losses of no cargo for the ship due to force majeure was right.

2. That a logistics company shipping goods in a city did not carry out the contract with the reason that their workers left jobs due to COVID-19 as a force majeure was not a proof good enough for acceptance because it had to prove whether he had outsourced the carriage of goods to other company but in vain.

3. Two companies signed a barter contract. Accordingly, the Thai Company (TC) carried sugar to Vietnam to receive rice from the Vietnamese Company (VC). Under the contract, VC ought to apply for permits of rice export and sugar import; TC ought to apply for a permit of rice import. Although VC had not yet been granted permits of rice export and sugar import, VC still asked TC to charter a ship to carry sugar and load rice. TC had chartered a ship to carry sugar from Bangkok port of Thailand. The ship arrived at the port, waited for a long time but unexpectedly TC informed the carrier that it could not arrange a permit to import sugar and considered it a force majeure event. Therefore, he was exempted from liability for damages caused to the carrier. The carrier was right when holding that this case was a force majeure event but only for the barter contract between TC and VC, not a force majeure event for the voyage charter party of sugar between TC and the carrier because TC could “expect” the possibility that VC could not obtain the permit for sugar import by requesting VC to supply it before chartering the ship.

A few notes on force majeure

1. Conditions one and two of a force majeure event may be satisfied, but the condition three being “unexpected and insurmountable manner despite the application of all necessary measures and allowances” needs to be proven to be accepted by the dispute resolution institution in case of legal actions.

2. Many contracts list events that are considered force majeure but are still short of the word “epidemics” which need to add because no one can make sure that in the future there will be no more similarities.

3. When signing related contracts, there may be a force majeure event with this contract but no with the other one (the barter contract above mentioned).

4. It is better to negotiate and help each other if possible because the “winning” party also loses effort, time, and “time is money”.

5. It is not a must to perform obligations when force majeure occurs. Therefore, the parties suffer at their own risk and do not have the right to claim compensation or request to share the damage.

6. Do not abuse force majeure to refuse to perform the obligations because they will not be accepted by the judicial institution, and lose the case, having more damage because of discrediting and losing partners.

Ngo Khac Le - VIAC Arbitrator

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