Recently, Coronavirus or COVID-19 has not only emerged, but has rapidly become a worldwide problem, Vietnam is one of more than 163-countries compromised by this pandemic.

In addition to direct affects on human health and life, this pandemic has adversely affected the economy – locally and globally. In particular the business activities and  business lines affected the most are those involving education (language centers and schools), travel and tourism, transportation, trade (goods and services), entertainment, and of course, real estate and (housing, construction, and commercial development) – all involving and affecting a considerable amount of the workforce.

Business lines affected by Covid – 19

Business owners and employees are exploring opportunities to minimize damages and limit liabilities resulting from the current economic situation directly caused by the pandemic.

From a legal perspective, are there any legal mechanisms in place by which the rights of business owners and their employees are directly or indirectly protected from the pandemic?

The most pressing question or concern of lawyers and law experts is that of Coronavirus/COVID-19 being considered as a force majeure event.  Is it possible for legal entities to apply regulations or consequences related to force majeure events to limit the negative impact of the pandemic, as well as utilize appropriate action to exercise accommodating rights and obligations accordingly, or not?

CNC, from a legal perspective has analyzed and evaluated the present situation as such.

Issues that businesses and workers are concerned about

Is Coronavirus epidemic a “Force Majeure Event”?[1]

To answer the question, “Is the Coronavirus pandemic a Force Majeure Event?”, CNC advises that, there is not enough foundational information to accurately answer this question – For a variety of reasons, outlined below:

Firstly, each legal system has different rules and interpretations of force majeure events

Similar to other regulations in the law, the determination of a force majeure event depends on the laws and regulations of each country’s legal system. The choice and application of the legal system in each specific case depends on a variety of considerations. Succinctly, for the purpose of providing businesses with a legal perspective of the Coronavirus pandemic (situation) is analyzed based on the assumption of that of a civil/commercial transaction and within the contractual relationship in which the business entities are affected by the Coronavirus disease.

It can be seen that Vietnamese law does not automatically apply, referred to as applicable law (content law) in all contractual relationships in Vietnam. For foreign element transactions, the interpretation of the contract must comply with the provisions of the law selected by the parties and in accordance with the principles of law applicable in International Justice. Therefore, there is not enough basis to determine whether Coronavirus is a force majeure event or situation, because it depends on the laws applied or applicable to each transaction.

The determination of the law applied in each transaction depends on[2]: (i) the nationality/logistics of the business registration of one of the parties; (ii) the place where the transaction is established; (iii) the goods, assets, and services that the parties propose/provide in the contract (the objective of the contract); (iv) the intent of the parties; and (v) International treaties that the country has agreed to.

Select the applicable law

Put another way, when an event or situation arises during contract performance (such as the current pandemic), the parties will first have to answer many important questions, including:

  • Which law is applied by the parties selected or determined by international law, is it Vietnamese law?
  • Does the contract signed by the parties have a clause of force majeure or not?
  • If yes, is that regulation compliant with Vietnamese law or is the law applicable to the contract?
  • If not, is it possible to use Vietnamese law of force majeure to waive the obligation (responsibility) to perform the contract? and
  • If yes, what is needed to do it?

Thus, before Vietnamese law (particularly the 2015 Civil Code) or any applicable law, the question of force majeure must be answered by the parties themselves on the terms and conditions that the parties have signed and are implementing or have implemented

Secondly, regulations on force majeure are not clear under Vietnamese law

Force majeure events are and have been prescribed in many legal documents, especially civil law [3]. However, the dynamics that make up a force majeure event have not been clearly defined and specific guidance has not been provided.

Under Article 156 [Time periods excluded from prescriptive periods for initiating legal action for civil cases and from prescriptive periods for requesting resolution of civil cases], 2015 Civil Code:

“A Force majeure event is an event which occurs in an objective manner which is unable to be foreseen and which is unable to be remedied by all possible, necessary, and admissible measures being taken.”

Similarly, Decree 37/2015/ND-CP of 22/04/2015 guides the Law on Construction 2014, under Article 51 [Risks and force majeure]:

Force majeure is a risky event that takes place objectively, unforeseeably, and can not be controlled despite all necessary measures are taken and capabilities are employed such as natural disasters, environmental problems, enemy-inflicted disasters, conflagration, and other factors.”

Or in Decision 42/2002/QD-BCN of 9/10/2002 by The Ministry of Industry:

Force majeure incidents mean incidents, which happen objectively and cannot be controlled by the violating parties, are unforeseeable and unavoidable though all necessary possible measures have been applied. The force majeure incidents may be torrential rains, thunderstorms, hurricanes, whirlwinds, floods, thunder and lightning bolts, droughts, earthquakes, war, sabotage, or other cases prescribed by law.”

Although promulgated at various times and various instances, there are distinctly different terms used, but basically the concept of force majeure under Vietnamese law must meet (converge on) three important factors, as follows:

  • Objective nature of the event
  • Surprise and unforeseen events
  • Unavoidable or irreparable

Three factors to determine if/when events are force majeure

For the first factor “force majeure must be an objective event”

Force majeure events may be natural events such as natural disasters, floods, and tsunamis; moreover, there is also the perception that force majeure events may be social phenomena caused by humans, such as wars, sanctions, and government actions.

The meaning of “objectivity” should be understood as (i) regardless of the intention of any party and (ii) not caused by any party or (iii) not responsible for the event [4]. These serve as the important basis with which to distinguish which events occur objectively and which do not.  It also serves to determine which party is obligated to accept responsibility for it. However, to determine whether an event is objective or not really is a matter of simplicity and has no clear basis.

For example, consider the event when a worker or workers go on strike and the business is unable to fulfill an order as agreed (ex: processing a batch of shoes for a partner).

Strike and Force majeure event

In this case, workers go on strike because the enterprise did not pay salaries and forced workers to work overtime in excess of the prescribed hours. The strike was an inevitable consequence, not an objective factor. However, a strike that happened in 2014 – when China pulled HD – the 981 oil exploration rig into Vietnam’s exclusive economic zone, may be considered an objective event and there is no “fault” element of the business in this event (except for the businesses that engage in inciting or sponsoring such activities).

For the second factor “force majeure happens to be unpredictable

Each party shall determine whether the event or situation it is facing is a force majeure event, which should ensure that:

  • At the time of signing the contract, neither party could have anticipated that such an event would have occurred. In other words, the event must be beyond the ability of the parties to know, discuss, and anticipate.
  • The event occurred after the time of signing the contract.

According to the author, there are a few exceptions to the “anticipation” that even if one of the parties is able to foresee that event, it is still considered a force majeure event. These are uncertain situations. For example, transport of goods is carried out for a long time at sea or sails through pirate territory, it is very clear that situations such as extreme weather, or the circumventing, kidnapping, and piracy of goods is/are “probable” and “predictable”, but no one is sure about this. What the parties cannot foresee is “will it happen,” and “if so, where, how, and when”.

For the third factor, “when force majeure happens and is irreparable despite all necessary measures and permissibilit-ies”.

As it implies, “force majeure[5]” means an event that one or all parties cannot avoid, cannot change, cannot do otherwise. This is an important factor in distinguishing force majeure from other events or situations that may have the same consequences affecting contract performance.

Conversely, if one or all parties take different actions and can overcome, it may not be a force majeure event, but should be considered as an obstacle or an objective obstacle.

However, determining a party (the party suffering consequences of force majeure) has “applied every measure and ability allowed” or not is not simple. Unfortunately, so far, no Vietnamese judgments, precedents, or guidelines have been recorded on the basis of how an establishment is considered to have taken all necessary measures and capabilities.

Additionally, application of the provisions of Vietnamese law to conclude whether the current pandemic is a force majeure event depends on the interpretation of the definition of the word “event” in the phrase “force majeure event”, as follows:

  1. For Civil Law such as Vietnam’s legal system, one can infer if “event” from the context of force majeure of the 2015 Civil Code, or Degree 37/2015/ND-CP, includes the meaning of “condition”, “status”, “situation” or not, or just milestone?
  2. The discovery and emergence of Coronavirus can be considered as an event, but the Coronavirus pandemic, government restriction on entry, border blockades, and decline in trade and the economy is not an “event” and should be seen as a “condition”, “status”, or “situation”. In such a broad analysis, a “force majeure event” will include the meaning of “policy changes”, “government actions”, or “infection of the Coronavirus pandemic”.

Thirdly, each contract – reflects a different transaction, under different laws (especially contracts with foreign entities), force majeure consideration is not exactly the same in all contracts, or at all times. Based on each specific case, it is a way to evaluate the dynamics (factors, events, situations and efforts) of the parties to consider.

Even with the assumption that Vietnamese law has is applied, the conclusion of whether or not  the Coronavirus pandemic is a “force majeure event” is not easy and remains uncertain, because since the pandemic hit Vietnam a lot of events related events have occurred. Each such event (to a certain degree) has completely different consequences and it is not easy to determine what is or isn’t a “force majeure event” given the present situation. For example:

  • Event of Ministry of Health added acute respiratory infections caused by new strains of the Corona virus (named by WHO as Covid – 19) into the list of infectious diseases group A on January 29th, 2020, at Decision 219/QD-BYT.[6].
  • Event on February 1st, 2020, The Prime Minister announced the pandemic of acute respiratory infections caused by new strains of the Corona virus, in Decision 173/QD-TTg and there is currently no announcement of an end to the pandemic.
  • Event on March 1st, 2020, The Aviation Administration of Viet Nam requested that the two largest airports in Vietnam (Noi Bai International Airport and Tan Son Nhat International Airport) to cease receiving flights from countries reportedly to have people infected with Coronavirus.
  • Event on March 20th, 2020, The Ministry of Transport requires 14 days (2 weeks) of centralized isolation for all passengers arriving in Vietnam.

In conclusion:

There is no unique, versatile, and correct answer for all the situations or events that business owners or employees are facing. It is possible that in this case, the Coronavirus pandemic is a force majeure event, but in other cases, the same pandemic does not help one party to declare a force majeure event and the legal consequences arising from it. Therefore, businesses, employers, employees, and any entities affected by this pandemic should review the conditions, agreements, and legal provision specific to each transaction and then apply necessary and appropriate actions to ensure their rights, as well as minimize losses and damages during this time.

CNC is pleased to receive and respond to any and all inquiries in support of customers in the assessment, identification, and consultation of the legal perspective of specific transactions involving the Coronavirus pandemic.

Inquiries may be submitted via email or phone provided below:

Nguyen Thi Kim Ngan | Partner

T: (+84-28) 6276 9900

E: ngan.nguyen@cnccounsel.com

 CNC© | A Boutique Property Law Firm

The Sun Avenue, 28 Mai Chi Tho, An Phu Ward, District 2,

Ho Chi Minh city, Vietnam.

T: (+84-28) 6276 9900 | F: (+84-28) 2220 0913

cnccounsel.com | contact@cnccounsel.com

[1] This article analyzes Problem 1 according to the smart art above. Please refer to the “Related Monographs” below.

[2] Reference to the Fifth part [Civil Relations Involving Foreign Elements], 2015 Civil Code.

[3] See more at Clause 156, 2015 Civil Code; Clause 161, 2005 Civil Code.

[4] Parties are understood as the entities in a Civil transaction/relationship.

[5] A term of French origin “force majeure”, means “supreme power” or “unmanageable human power”.

[6] Infectious diseases group A arcording to 2007 Prevention and Control of Infectious Diseases Law including highly dangerous infectious diseases, which are capable of very rapid transmission, wide spread and high mortality or unknown causative agents. As of March 20, 2020, the Coronavirus epidemic fully met such characteristics (over 266,082 people were infected, 11,153 died from the Coronavirus disease).

 

Disclaimers:

This newsletter has been prepared or used for the purpose of introducing or updating customers about issues and/or the development of legal positions in Vietnam. The information presented in this newsletter does not constitute advice of any kind and are subject to change without notice.

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