What is a Force Majeure Event?

Normally, when damage occurs in reality, the party that committed the violation must be responsible for compensation if all the following conditions are met:

- There is a violation;- There is fault on the part of the violator;- Actual damage has occurred;- There is a causal relationship between the violation and the damage.

However, there are exceptions where even if there is a violation and actual damage occurs, no obligation to compensate arises. This is the case when the violation is due to a force majeure event. In contract law, the force majeure clause is regarded as one of the critical provisions that the parties need to draft meticulously.

According to Clause 1, Article 161 of the Civil Code 2005: "A force majeure event is an objective event that cannot be foreseen and cannot be overcome despite having taken all necessary measures within the permitted capacity." From this definition, it can be simply understood that force majeure is an event that the parties cannot foresee, i.e., it is beyond their calculable capacity.

There are three common types of force majeure events:

- Natural disasters. Example: Due to weather conditions, Party A cannot proceed with the project on schedule as agreed.- War. Example: After the ISIS terror attack, Party A suffered significant property damage and therefore could not fulfill its financial obligations to Party B.- Political decisions, legal changes. Example: At the end of 2015, A and B had an agreement to trade item X. However, when B imported the goods into Vietnam, it was prohibited because the Vietnamese government had issued a decision to ban the import of item X.

In some contracts, besides agreeing on force majeure events, there are also agreements on notification in case these events occur and the consequences of failing to notify. For instance, losing the right to be exempt from liability or extending the contract performance period. Therefore, to protect their rights, the party affected by the force majeure event should:

- Send a notification to the other party about the force majeure event within the agreed time frame or within a reasonable period;- Have documents or papers with value proving the occurrence of the force majeure event, confirmed by competent authorities, typically handled by the Chamber of Commerce and Industry.

Hence, it is not always the case that when actual damage occurs, the party causing the damage must compensate. In situations where the violation is due to a force majeure event, the affected party, if correctly and fully fulfills the notification obligations or other agreements with the other party, will be exempted from the responsibility to compensate for the damage.

Related documents:

Civil Code 2015

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