Company A has signed a goods and equipment purchase contract with Company B. Due to the ongoing Covid-19 pandemic, Company A is unable to pay the full amount as agreed in the contract. Can Company A cancel the contract? Is Company A's situation considered a force majeure event?
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Is Covid-19 considered a force majeure event in sales contracts? (Illustrative photo)
Regarding this matter, the editorial board of THU KY LUAT provides the following explanation:
1. Legal provisions on force majeure events
Based on Clause 1, Article 156 of the Civil Code 2015:
A force majeure event is an event that occurs objectively, which cannot be foreseen and cannot be remedied, despite all necessary measures and capabilities being applied.
According to the above regulation, an event can be considered force majeure if it meets three conditions:
- The event occurs objectively: This event can be a natural event such as natural disasters (floods, droughts, tsunamis, etc.), wars, epidemics, or man-made events such as strikes, coups, embargoes, policy changes of the Government of Vietnam, etc.;- The event cannot be foreseen: The event must occur completely independently, without the will of the parties, and must be an event that could not be thought of occurring at the time of contract conclusion or during contract performance until a contract breach occurs;- The event cannot be remedied: The consequences of the event that occurred cannot be remedied despite all necessary measures and capabilities being applied.
Additionally, according to Decision 447/QD-TTg issued on April 1, 2020, the Prime Minister declared Covid-19 a Group A infectious disease with the potential of becoming a global pandemic.
Based on Clause 1, Article 3 of the Law on Prevention and Control of Infectious Diseases 2007, Group A includes particularly dangerous infectious diseases that spread very quickly, widely, and have a high mortality rate or unknown causative agents.
Thus, under these regulations, Covid-19 is an event that occurs objectively and cannot be foreseen. However, to be considered a force majeure event, it must also meet the condition of being irremediable despite all necessary measures and capabilities being applied. Therefore, for Company A to justify it as a force majeure event, Company A needs to demonstrate that all necessary measures and capabilities have been applied to remedy the Covid-19 consequences but failed to do so.
2. Cancelling contracts in the event of force majeure - Is compensation required?
Based on Clause 2, Article 584 of the Civil Code 2015, the person causing the damage is not liable for compensation if the damage arises from a force majeure event.
At the same time, Article 294 of the Commercial Law 2005 stipulates the instances in which liability for a breach is exempt, as follows:
- Circumstances of exemption agreed upon by the parties occur;- A force majeure event occurs;- The breach of one party is entirely due to the fault of the other party;- The breach of one party results from the execution of a decision by a competent state authority that the parties could not have known at the time of contract conclusion.- The breaching party is obligated to prove instances of liability exemption.
Thus, based on the above grounds, Company A can be exempted from liability for contract breach and is not required to compensate. However, Company A must notify Company B in writing about the force majeure event that affects contract performance, and Company A has the obligation to prove that all necessary measures to remedy the situation have been taken but failed to eliminate the consequences.
Ty Na
