“Since many localities are enforcing social distancing measures to reduce the spread of Covid-19 in the community, especially in Ho Chi Minh City, which is under the enforcement of ‘Directive 16/CT-TTg’ according to ‘Dispatch 2279/UBND-VX’ dated 08 July 2021 (“Dispatch 2279“), the business of companies operating in these localities, more or less, will be impacted. Accordingly, contractual performances in this situation may face many difficulties and it is hard to avoid delays in performance of contracts. Thus, this article shall discuss on the exemption from liability for delay in performing contractual commitment due to the enforcement of Directive 16/CT-TTg, specifically for companies in Ho Chi Minh City.”
With the application of Directive 16/CT-TTg, delay in contractual performance is seen as an objective factor which is not due to the fault of the parties. So, this article shall limit the analysis to only cases of exemption from liability and focus on the two following cases:
Article 156.1 of the Civil Code provides:
“An event of force majeure is an event which occurs in an objective manner which could not be foreseen, and which could not be remedied by all possible necessary and admissible measures being taken.”
Thus, to be considered a Majeure event requires the following factors:
Factor (i) is a prerequisite before considering. According to Sections 1 and 4 of Dispatch 2279, all non-essential business services will be suspended. Only production establishments, construction sites, traffic and construction works, establishments providing services and essential goods (such as food, foodstuffs, pharmaceuticals, gasoline, oil, electricity, water, fuel etc.), banks, treasuries, service providers directly related to banking activities and supporting businesses (such as notaries, lawyers, registry, registered security transactions, etc.), certificates securities, postal services, telecommunications, transportation support services, goods import and export, medical examination and treatment, funerals, etc. may continue to operate but must ensure epidemic prevention and control measures.
Thus, Dispatch 2279 has limited the operational ability of companies operating in many fields. The epidemic prevention and control measures have halted the operations of many businesses, either partially or fully. The set limits have restricted the ability of companies to do business on a large scale.
In factor (ii), it is clear that the issuance of ‘Dispatch 2279’ is an objective event and difficult for the parties to anticipate. Therefore, the article will not go into the details of this factor.
Factor (iii) is probably the most important and difficult factor to determine. With the limitation from ‘Dispatch 2279’, depending on the business field, each company will face its own difficulties. For example:
In this case, to be considered exempt from liability, the following factors must be satisfied:
Here, the application of Directive 16 has a certain impact on the above case. Therefore, it can be considered as a force majeure event.
With the application of Directive 16 under Dispatch 2279, companies in Ho Chi Minh City are currently facing many difficulties. Therefore, it is important to understand the cases where exemption from liability applies even after breaching the contract. This helps in avoiding risks and preserving the relationship between companies during this period. Although a force majeure event causes unpredictable problems, it is not without a solution. The parties can still include detailed stipulations in the disclaimer. Further, companies can predict the bad possibilities that may occur (based on experience during the recent epidemic period) to bring effective solutions such as contract suspension, contract termination, reduction of performance obligations, etc.
Writing time: 14 July 2021
The article is based on the current laws at the time of drafting as noted above and may no longer be appropriate at the time the reader accesses this article due to changes in applicable law and specific cases that the reader wants to apply. Thus, the article is for informational reference only.