Vietnam – Force Majeure Event And 4 Notes When Drafting This Clause In A Contract.

14 September 2021

 

A force majeure clause is a clause aiming to eliminate the liability of a party in case that party breaches the agreed obligations due to a force majeure event. However, not everyone understands the concept of force majeure events, the purpose of specifically agree on this clause in the contract so that protect their rights and avoid disputes during contract performance. Through this article, BLawyers Vietnam will introduce an overview about this matter.

 

1. Rules of force majeure events pursuant to the laws of Vietnam

 

Civil Code of 2015 regulate force majeure events as follows:

 

“A force majeure event is an event that occurs objectively, which cannot be foreseen and cannot be remedied even though all necessary and permissible measures have been taken.”

 

According, an event can be as a force majeure event if satisfying all three of the following factors:

 

• The event occurred objectively (not subject to wishes of any parties);

 

• This event cannot be foreseen (the parties are hard to estimate when happening the event);

 

• The event cannot be remedied despite all necessary and permissible measures (the breaching party must prove how it applied the remedy measures).

 

Also pursuant to Civil Code of 2015, when the obligor fails to properly perform their obligation due to a force majeure event, they are not liable to civil liability, unless otherwise agreed or provided by law. Thus, when encountering a force majeure event leading to the inability to perform the obligations committed in the contract, the parties must base on the above 3 factors to prove the exemption from liability.

 

2. Notes for drafting the force majeure event clause in the contract

 

In reality, based on the three factors mentioned above, it is difficult to prove that an event is force majeure so that the breaching party can be exempted from liability. The reason for this is when one party’s obligations are not fulfillable, the rights of the other party are not achievable, leading to a dispute when a force majeure event occurs. To mitigate dispute related to the determination of force majeure events, the parties need to agree in advance and develop this clause in the contract with the following contents:

 

• Having clear agreement on what is a force majeure event: The parties can base on the provisions of law to develop this clause in the most general way. In addition, the parties should list as much as possible specific cases which are force majeure events, depending on the time and circumstances of the contract performance.

 

A particularly notable example is as Covid-19 epidemic, governments of all countries are implementing social distancing measures. Therefore, the parties can agree on this case in the contract as a force majeure event to enjoy exemption from obligations.

 

• Having a provision on the obligation to notify when a force majeure event occurs during the performance of the contract: When a force majeure event occurs, the breaching party needs to notify the aggrieved party. This ensures goodwill cooperation between the two parties.

 

• Pre-agreement on the plan to deal with the responsibility of the parties when encountering a force majeure event: This requires the parties' prior estimation when making a contract and will help the parties resolve the result of the event of force majeure. The parties can agree on damage sharing or terminate the contract when there is a force majeure event.

 

Thus, to avoid disputes in the determination and application of force majeure events, the parties need to understand the concept as well as have prior calculations about the risks and possibilities of the force majeure event when making this clause in the contract.