Recently, the issue of self-reducing rent and then unilaterally liquidating the lease agreement with the landlords of Mobile World has received much public attention about correctness in both emotional and logical aspects. So does the law of Vietnam allow a party to voluntarily terminate the contract signed with a partner?
Article table of contents
Do people have the right to arbitrarily change or terminate the signed contract?
Negotiate an agreement when you want to change or terminate the Contract
Article 401 of the 2015 Civil Code of Vietnam stipulates that from the time the contract is concluded, the parties must perform their rights and obligations towards each other as committed. The contract can only be modified or cancelled by agreement of the parties or according to the provisions of the law of Vietnam.
According to the above provisions, it means that one party to the Contract can only arbitrarily modify and terminate the Contract if the Contract contains provisions allowing the parties to voluntarily make the modification or termination within the Contract in certain cases. Moreover, If the above clause does not exist in the Contract, the parties may only amend or terminate the signed Contract when there is a separate agreement on such modification or termination or one of the parties is proven to have a serious breach of the basic obligations of the Contract.
In addition, according to Article 420 of the Civil Code 2015 of Vietnam, if one party cannot agree on the modification or termination of the signed contract with the other party, the provisions on the circumstances of changing the basis of the contract with the other party may apply to request the Court to amend or terminate the contract.
Therefore, if one party to the Contract wants to amend or terminate the signed Contract, it must perform the agreement and get the consent of the other party on this (it can be agreed upon inside or outside the signed Contract), or must prove that the other party has breached a fundamental provision of the Contract; or must prove that its party is performing the Contract in "substantial changing circumstances" in order to request the Court to amend or terminate the signed Contract. In addition to these cases, the fact that one party in the Contract arbitrarily changes the content, or arbitrarily terminates the Contract shall be responsible for the breach of its obligations to the other party.
“Fundamental change of circumstances” in the context of Covid-19: An “excuse” to be able to adjust the Contract in Vietnam
Current civil law allows one party when adversely affected by " fundamental changes in circumstances", may request the Court to amend or terminate the Contract signed with the other party.
According to Article 420 of the 2015 Civil Code, a situation is considered as a fundamental change when all the conditions are present, including:
(i) The circumstances change due to objective reasons occurred after the conclusion of the contract;
(ii) At the time of concluding the contract, the parties could not foresee a change in circumstances;
(iii) 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;
(iv) The continuation of the contract without the change in the contract would cause serious damage to one party;
(v) 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 the effect.
According to this provision, when proving that it is performing the Contract in the context of a fundamental change, the disadvantaged party must clarify that such "situation" occurred that the parties could not foresee or predict in advance at the conclusion of the contract and must occur after the conclusion of the contract. How has “fundamentally changed circumstances” by an objective cause (directing and operating documents of state agencies) have affected that party. The disadvantaged party in the contract also needs to determine that at the time of entering into the contract, that party could not have foreseen the arising damages that it encountered.
The affected party needs to clearly state and prove the damage caused by the business being unable to achieve the desired results when signing and performing the contract with the other party such as the significant decrease in revenue, inability to pay space rent, salary payment for workers…
In addition, the disadvantaged party in the changing circumstances needs to prove and point out to the other party that "Continuing to perform the contract without changing the contract content will cause serious damage" to the business and even if the disadvantaged party has "taken all necessary measures within its capacity", such as downsizing business operations, reducing the number of employees or changing business methods, restructuring business but still cannot have revenue corresponding to the cost to maintain operations under the signed contract.
The COVID-19 epidemic is an objective event that has a great impact on economic activities and contractual relationships between entities. The epidemic has partly affected the consumer demand of people, the demand and the production capacity of enterprises. Besides, the Prime Minister has issued directive documents, the People's Committees of some provinces also have Strong documents and measures to prevent COVID-19 from spreading locally have caused restrictions on trade between localities or between countries. This practice has severely affected economic activity in general and may lead to a change of circumstances that the parties did not anticipate when signing the contract before the COVID-19 epidemic occurred.
In each specific context and case, the Covid-19 epidemic and the guiding documents from the central and local governments in epidemic prevention and control can be considered as "fundamental changing circumstances" to the parties sat down to discuss the adjustment of some contents in the Contract.
In case no agreement is reached, the Court is the competent subject to amend and terminate the signed Contract at the request of the disadvantaged party, but the parties cannot arbitrarily change the content agreed in the Contract.
Bao Ngoc
