A Legal Perspective on How to manage the Corona-virus Pandemic (COVID-19)
“Whether COVID-19 is a force majeure event” remains to be a legal issue requiring further discussion, with the more crucial question of enterprises, employees, the government, and any other concerned party being “What should be done if Coronavirus does not end soon?”. It is also the question many Clients have asked CNC as of late.
In this article, Mrs. Nguyen Thi Kim Ngan, Partner of CNC, shares her professional opinion on the topic “A Legal Perspective on How to manage the Coronavirus Pandemic (COVID-19)” with the hope that enterprises, employees, the government, and all concerned parties will be able to use the provided measures effectively against the prolonged Coronavirus pandemic[1].
According to Mrs. Ngan, while COVID-19 persists, each person is likely to behave differently depending on their particular circumstances. For instance, tenants hope to reduce or be exempted from leasing costs and adjust payment agreements. In contrast, leasers (landlords) hope to continue the lease contract under the agreed conditions, or only have to make negligible changes that barely affect his/her expected income.
However, from a legal perspective, the following two groups of action should be considered:
- Focus on monitoring and managing concluded contracts
- Review corporate administration issues
2 groups of actions under the impact of COVID-19
Firstly: regarding management of the implementation of concluded contracts
When the contract is signed, each party must comply with the obligations they have committed to. However, with the present and unpredictable developments of COVID-19, compliance with contractual obligations become a challenge, and/or even impossible in some instances.
Therefore, it is inevitable that the parties to such contractual relationships have a need to know whether:
- COVID-19 is a force majeure event and
- should it be considered as a pretext for a party(s) to be exempted from their liability to the other party(s) of a contract?
- if not, which legal instrument is available for such party to reduce, or at least delay, the performance of their obligations?
3 legal considerations for COVID-19
It is not be easy to accurately answer these questions, because the reasons outlined in the article “Is COVID-19 an event of force majeure?” have pointed out that: the application of the law on force majeure in Vietnam is complicated, unclear, and contains risks or undesirable legal consequences if applied incorrectly.
However, in the professional opinion of Mrs. Ngan, the complete and meticulous implementation of the following recommended steps may help contractual parties, relevant authorities, and parties with related interests to possess a more informed legal basis with which to make appropriate decisions.
Specifically:
10 steps for managing signed contracts during a COVID-19 outbreak
In the process of implementing the above recommendations, Mrs. Ngan also notes that:
- The recommended steps outlined above may not be applicable in all situations – each party must strictly comply with specific agreements, for each specific period.
- When businesses, employers, employees, and government agencies (as a party to a contractual relationship) lack appropriate resources, or are uncertain about their legal status, they are encouraged to consult with a Lawyer prior to taking action.
- Globally speaking, the concept of “force majeure” is only used in some legal systems (such as in France and some countries under a civil legal system – “civil law” such as Vietnam), while in countries with other legal systems (common law, Islamic law), the concept of “force majeure” generally does not exist. In such cases, use of equivalent terms such as fundamental change (situation or consequence) may be more useful.
- For foreign trade contracts[2], it should be noted that: “a party is not liable for a failure to perform any of their obligations if they prove that the failure was due to an impediment beyond their control and that they 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”[3]. Therefore, for foreign trade contracts:
- Exemption events are not necessarily force majeure events, as long as they could be proven to be beyond the control of the exemption-seeking party; and
- Only events that make the performance of a party impossible could be relied on for liability exemption, events that increase the cost and time for performance of contractual obligations (do-able but at increased costs) are not considered “exemption events” and therefore more appropriate legal measures need to be considered, such as amendments to the contract due to hardship/materials/adverse change as outlined in the Civil Code 2015, Article 420).
- The obligation of notification about force majeure is a matter of a plethora of legal issues because it is directly related to the determination of “whether it is a force majeure event or not”, if it is, “When are the starting and ending points of the force majeure event”, “what obligations are affected and unable to be performed”? Therefore, a notification of COVID-19 pandemic without further clarification that the foregoing could be the basis for a liability exemption would be pointless. A proper notification must include a legal basis and a contractual basis, as well as detailed analysis.
- Finally, when force majeure remains to be a controversial legal issue and no one knows what COVID-19 has in store, preparation for disputes is also advised.
Secondly, in terms of corporate administration
Assess the risk of Covid-19
In terms of corporate administration, the COVID-19 pandemic can negatively impact all business plans, all intentions of enterprises, and enterprise owners and employees working for enterprises.
Therefore, assessing corporate administration issues such as human resource management, financial management, supplier management, and legal management will be the affairs that businesses may need to modify and fortify, to ensure that all businesses have more than one solution with which to manage the current situation.
According to Mrs. Ngan, each enterprise (depending on its size, operating model, and method of management) are encouraged to consider using the following three groups of solutions:
- Group 1: Eliminate the consequences or effects of the COVID-19 pandemic
- Group 2: Reduce the consequences or effects of the COVID-19 pandemic
- Group 3: Adapt and grow under the effects of the COVID-19 pandemic
Solutions encourage to be considered by enterprises and their employees
In each group of the solutions mentioned above, enterprises and employees can take many different actions, and each action requires a thorough study of relevant factors. CNC would like to summarize the most common actions of each solution group as follows:
Common actions for managing the COVID-19 pandemic
Simultaneously, the selection of one group of solutions will affect other groups of solutions. For example, by selecting the option of a business merger or acquisition, it is likely that the option of labor contract termination will also be applied (due to redundancy), which will be followed by compliance with the requirements on wages, benefits, and insurance for employees.
Or, when enterprises want to reduce operating costs, the solution to reduce the workforce is a top priority. However, from a legal perspective, there are many concerns that require enterprises to acknowledge, such as:
Concern 1: Are enterprises allowed to perform mass reductions of personnel due to the impact of the Coronavirus pandemic?
Concern 2: If the answer to the previous Concern is “No”, what other legal options – with respect to workforce reduction – are available for enterprises to rely on?
Concern 3: If the response to Concerns 1 and/or 2, is yes, what are those special conditions and procedures?
Concern 4: What happens if the enterprise does not comply with special conditions and procedures?
Concern 5: Will compliance with special conditions and procedures cost the enterprise more than maintaining the current workforce?
5 legal questions before terminating an employment contract
Even if the answer to these questions is yes, it is still a challenge for an enterprise to immediately terminate a labor contract with an employee, as such contract termination must be exercised within the time limit provided by law.
Therefore, when force majeure is still a controversial legal issue and no one knows what the next course of Coronavirus will be, it is necessary to prepare for disputes.
Conclusion
As Charles R. Swindoll said: “Life is 10% what happens to you and 90% how you react”. The negative impact of the outbreak of COVID-19 throughout the world is undeniable, however, COVID-19 does not worsen the situations of all people – some people have managed to adapt and become better off in life. In Vietnam, Vietnamese people have also become more united to stand together in each other’s struggle against COVID-19, gradually pushing back the pandemic.
Therefore, even if COVID-19 causes enterprises to become financially vulnerable and lacking in resources to conduct projects, or being put in any other undesirable situation, please remain calm and consider the most optimal solution (including legal solutions) to the unique circumstances resulting from COVID-19.
In any circumstance, it is advised to avoid any litigation or dispute. This is the probably the most important principle to keep in mind.
Further support:
Requests for support may be submitted to our legal team via phone or email as indicated below:
Nguyen Thi Kim Ngan | Partner
CNC© | Business and Commerce Law Firm
The Sun Avenue, 28 Mai Chi Tho Boulevard, An Phu Ward, Thu Duc City,
Ho Chi Minh City, Vietnam
T: (+84-28) 6276 9900 | F: (+84-28) 2220 0913
cnccounsel.com | contact@cnccounsel.com
Disclaimer:
This newsletter has been prepared and published for the purpose of introducing or informing Clients or potential clients about legal issues, opinions, and/or developments in Vietnam. The information presented in this newsletter does not constitute legal advice of any kind and may be amended without advance notice.
[1] Two choices of action introduced by CNC in this article are based on the legal perspective and aspect of Covid-19. Besides these two choices, enterprises, employees, the state and any related parties could choose any other action deemed suitable for their own circumstances.
[2] Contract between entities from two different countries/territories, or goods transferred through any national/territorial borders.
[3] Article 79 [Exemptions], Vienna Convention on Contracts for the International Sale of Goods 1980.”