On 1st Feb 2020 in Vietnam, the Prime Minister issued Decision No. 173/QD-TTg about the Declaration of Covid-19 epidemic – novel coronavirus acute respiratory disease[1] (“Covid-19”). On that basis, recently the State authorities have issued a number of documents to prevent and control this Covid-19, which may have affected company’s production, business and human resources activities, as well as the ability to perform contractual obligations previously concluded.
Therefore, QNT Law Firm would like to send this Legal Update to you in order to help you get a basic view on some of legal issues related to Covid-19, namely: Force Majeure and Basic Change of Circumstances under laws of Vietnam. Hopefully this document will be useful to you in the meantime.
1. Force Majeure
Under the provisions of laws of Vietnam, where an obligor is not able to perform a civil obligation due to an event of force majeure, it shall not have civil liability[2], commercial liability[3] unless otherwise agreed or otherwise provided by law.
In particular, a force majeure event (“Force Majeure”) is understood to be 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[4]. Accordingly, to an event is called Force Majeure when:
- An event occurs in an objective manner which is not able to be foreseen; and
- (Consequences of the event/Liability) which is not able to be remedied (by the exempt Party) by all possible necessary and admissible measures being taken.
In connection with the Covid-19, we understand that:
- Firstly, emphasize that, the Prime Minister’s Decision on the declaration of Covid-19 above is not a sufficient legal basis so that you do not have to bear civil and commercial liability due to the Force Majeure.
- Secondly, the Prime Minister’s Decision on the declaration of Covid-19 above is the legal basis for determining that the Covid-19 is an objective manner occurrence[5] – only one of the conditions for obtaining the Covid-19 could be considered a Force Majeure to waive liability for the exempt Party.
- Thirdly, when the Covid-19 may referred to as an force majeure event to waive liability for its failed obligations, the obligor must prove[6] that it failed to remedy the consequences of the event (cause of failure to comply with the obligations), although he/his has taken all necessary measures in its permissible capacity to remedy them.
In addition, from 18 December 2015, Vietnam officially ratified the accession to the Vienna Convention on the Contract of International Sales of Goods of the United Nations (CISG). In particular, Clause 1, Article 79 of the CISG also provides for exemption of liability, specifically: “A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.”.
The exemption of liability due to a Force Majeure shall be determined on a case-by-case basis, on the basis of consideration of the Parties’ lawful terms of agreement on definitions, conditions of application and legal consequences, etc. of the Force Majeure stipulated in the signed Contract.
2. Basic Change of Circumstances
Under the provisions of laws of Vietnam, in the case of basic circumstances change, the affected party may request the other party to the re-negotiate the contract in a reasonable period of time[7].
In particular, the basic change of circumstances (“BCC”) is construed as having fully met the following conditions:
- The circumstances change due to objective reasons occurred after the conclusion of the contract;
- At the time of concluding the contract, the parties could not foresee a change in circumstances;
- The circumstances change such greatly that if the parties know in advance, the contract has not been concluded or are concluded, but with completely different content;
- The continuation of the contract without the change in the contract would cause serious damage to one party;
- The party having interests adversely affected has adopted all the necessary measures in its ability, in accordance with the nature of the contract, cannot prevent or minimize the extent of effect. [8]
The BBC and Force Majeure are mainly different in the following:
| Criteria | Force Majeure | Basic Change of Circumstances |
| Desire | The obligor wishes to be exempt from liability. | The affected party wishes to renegotiate the Contract. |
| Conditions | Requests cannot overcome the consequences of an event even though all necessary measures have been taken in its ability (they cannot fulfill their obligations). | Requests has taken all necessary measures in its ability, in accordance with the nature of the contract, cannot prevent or minimize the extent of effect (they cannot prevent, minimize damage). |
In connection with the Covid-19, we understand that:
- Firstly, the Prime Minister’s Decision on the declaration of Covid-19 above is the legal basis for determining the condition of “objective reasons occurred”.
- Secondly, the affected Party must basically demonstrate the following issues:
- There is a great change in the circumstances of Contract performance compared to the signed time.
- Serious damage to them if the content of the Contract is not changed.
- It has taken all necessary measures in its ability, consistent with the nature of the Contract but could not prevent, minimize the extent of effect.
Therefore, if the consequences of the Covid-19 cause serious damage when performing the Contract, you can consider applying this BCC provision. If the Parties cannot reach an agreement on amending the Contract within a reasonable period of time, any of the Parties may request a Court to handle. Note that, in the process of negotiating amendments and termination of the Contract and the Court handling the case, the Parties must continue to perform its obligations under the Contract, unless otherwise agreed.
[1] Replaced by the Prime Minister’s Decision No. 447/QD-TTg dated April 1, 2020
[2] Clause 2 Article 351 Civil Code No. 91/2015/QH13
[3] Point (b) Clause 1 Article 294 Law on Commercial No. 36/2005/QH11
[4] Clause 1 Article 156 Civil Code No. 91/2015/QH13
[5] This issue is based on information officially published in Vietnam.
[6] Clause 2 Article 294 of Law on Commercial stipulates: “The contract-breaching party shall bear the burden of proof of cases of liability exemption”
[7] Clause 2 Article 420 Civil Code No. 91/2015/QH13
[8] Clause 1 Article 420 Civil Code No. 91/2015/QH13
