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Exemption From Liability For Delay In Performing Contractual Commitment Under Directive 16/Ct-Ttg

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: 

Exemption from liability due to Force Majeure events

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:

  • This event affects the performance of the contract by one or more parties to the contract.
  • This event occurs objectively, without the anticipation of the parties.
  • The parties cannot remedy with any necessary measures or do not have the ability to do so.

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:

  • For companies operating in non-essential services, the suspension of special activities such as food and drink business, which requires on-site consumption and direct contact, will make the companies unable to provide any remedies because their industry requires direct customer service. In this case, element (iii) has been satisfied to consider this as a force majeure event.
  • There are also several types of service which, although not essential, can still operate. For example, consulting and design companies work mainly through the internet (work from home). These companies are still capable of normal business operations if they meet the conditions on infrastructure. In this case, factor (iii) needs to be determined more carefully for many reasons such as: Does the company have enough infrastructure to work from home or does the company provide laptops for employees to work from home? Does working from home limit the company’s ability to access data (because many companies work online with customers, but the database is located at the office, requiring employees to be in the office)?
  • For companies providing essential services, at first glance it seems that Dispatch 2279 does not apply too strict requirements as it only requires the implementation of epidemic prevention measures. However, epidemic prevention measures are causing a lot of trouble for companies. In particular, the implementation of these measures may cause the following difficulties: (1) Companies implement distancing in the working space, reducing the number of employees working, leading to reduced productivity, (2) employees must stay at the company premises 24 hours a day to conduct production activities, and rest at the same premises without returning to their homes. In this case, factor (iii) also needs to be carefully considered before deciding whether the company has tried everything to overcome the difficulty or not.

Exemption from liability due to the implementation of a decision of a state agency that the parties did not know at the time of signing

In this case, to be considered exempt from liability, the following factors must be satisfied:

  • The violating party has committed an act of violation by implementing a decision of a state agency.
  • The parties were completely unaware of this decision at the time of entering into the contract.

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.