A force majeure clause in commercial contracts serves to define the scope of liability of the contracting parties when events beyond their control occur and directly threaten the performance of the agreement.
I. The importance of force majeure clauses in commercial contracts
The establishment of a force majeure clause in commercial contracts constitutes an essential legal risk prevention mechanism, playing a decisive role in maintaining the stability of the agreement.
As its core significance, a force majeure clause provides a clear legal basis for a party to be exempted from civil liability or granted a temporary suspension of contractual obligations when arising events beyond the parties’ control.
Without such a clause, the general principles governing contractual breach will apply, thereby subjecting the non-executing party to sanctions and compensation for damages, even when the disruption is entirely objective, such as natural disasters, pandemics, or abrupt legislative changes.
Furthermore, a force majeure clause in commercial contracts also serves as a guideline for dealing with relevant situations, minimizing disputes. The clause requires the parties to reach prior agreement on the following main matters:
- The events that shall be deemed force majeure events and recognized as effective.
- The procedure and time limit for notifying the other party.
- The legal consequences arising therefrom.
II. Legal provisions governing force majeure clauses in commercial contracts
To effectively draft and apply a force majeure clause in commercial contracts, a thorough understanding of the applicable legal framework is indispensable.
1 What is a force majeure clause in commercial contracts?
A force majeure clause in commercial contracts is a contractual mechanism that anticipates circumstances deemed to be beyond the reasonable control of the contracting parties.
Pursuant to Clause 1, Article 156 of the Civil Code 2015, a force majeure is defined as an event that occurs objectively, is unforeseeable at the time of contract formation, and cannot be remedied despite the affected party having taken all necessary and permissible measures.
Once such an event occurs, the clause will stipulate the corresponding legal consequences, such as exemption from liability, extension of performance deadlines, temporary suspension of obligations, or even termination of the contract.
In short, a force majeure clause is an essential contractual risk management mechanism. It transforms the legal definition of force majeure into concrete contractual provisions and predetermines clear legal consequences from exemption to termination to safeguard the interests of the parties in unforeseen events.
2. Which events are commonly considered force majeure in commercial contracts?
Based on the statutory definition and contractual practice, force majeure generally include situations that meet all three statutory criteria: objectivity, unforeseeability, and impossibility of remedy as provided under Clause 1, Article 156 of Civil Code 2015.
Although the law does not provide a fixed list, contracting parties typically agree to include common examples that satisfy these conditions.
- The first category consists of natural disasters, including floods, earthquakes, storms, and other large-scale natural phenomena.
- The second category concerns socio-political conflicts, such as war, riots, terrorism, and public health emergencies such as epidemics or pandemics declared by competent authorities.
- Finally, sudden government interventions such as embargoes, major policy changes, or large-scale accidents such as fires or explosions are also often deemed force majeure, provided that they directly prevent contractual performance.
It should be noted that modern contracts frequently exclude ordinary commercial risks, such as economic downturns or market crises, as these are considered foreseeable and fall within normal business risks.
3. How does Vietnamese law regulate force majeure clauses in commercial contracts?
Vietnamese law establishes a comprehensive legal framework consisting of three main components for addressing force majeure and objective circumstances affecting contracts.
First, the Civil Code 2015 lays the foundational legal definition of force majeure under Clause 1, Article 156 and sets out general principles on civil consequences.
Second, the Commercial Law 2005 provides specific provisions governing exemption from liability in commercial activities. Under Article 294 Commercial Law 2005, a party shall be exempt from liability if it proves that its breach was caused directly by force majeure. However, the burden of proof lies with the party invoking the exemption.
Additionally, Article 295 of Commercial Law 2005 mandates that the affected party must immediately notify the other party in writing of the force majeure and its possible consequences. Failure or delay in notification may result in liability for damages arising from such delay.
Third, the Law also provides a mechanism to address situations where the event does not reach the force majeure threshold but causes a fundamental imbalance in contractual interests. Article 420 of Civil Code 2015 introduces the doctrine of fundamental change of circumstances (hardship), permitting the affected party to request renegotiation. If no agreement is reached, a Court may intervene to amend or terminate the contract to ensure fairness.
Accordingly, detailed drafting, strict compliance with notification obligations, and adequate proof constitute the important elements for enterprises to preserve their lawful interests and avoid compensation when faced with unforeseen force majeure.
III. Questions regarding force majeure clauses in commercial contracts
In practice, various issues may arise during the application of force majeure clauses. Accordingly, NPLaw provides answers to the most common questions and legal concerns regarding force majeure clauses in commercial contracts, enabling enterprises to invoke the clause with confidence and legal certainty.
1. What happens if a contract does not contain a force majeure clause?
Even if a contract does not contain a specific force majeure clause, the matter will still be governed by the general provisions under Civil Code 2015 and Commercial Law 2005.
When such an event occurs, the non-executing party may still be exempt from liability under Article 294 of Civil Code 2015, provided that it proves a direct causal connection between the event and the breach. However, the notification obligation under Article 295 of Civil Code 2015 must still be complied with.
In summary, a legal mechanism still exists even in the absence of a specific force majeure clause. However, the affected party takes the burden of proving all statutory criteria and must comply with the notification requirement to be exempt from liability.
2. Can a force majeure clause fully exempt a party from liability for damages?
A force majeure clause may exempt the breaching party from liability for damages resulting from failure to execute contractual obligations. Pursuant to Article 294 of Civil Code 2015, a party will be exempt from liability if it can prove that the breach was directly caused by force majeure. However, such an exemption is not absolute. Accordingly:
- First, the affected party must prove that the event satisfies the statutory force majeure criteria.
- Second, the party may still be required to complete outstanding obligations, such as refunding payments for unexecuted work.
- Most importantly, failure to notify in accordance with Article 295 of Civil Code 2015 may result in liability for damages caused solely by the delay in notification.
Thus, Vietnamese law does allow exemption from liability for damages arising directly from force majeure, but subject to strict procedural and evidentiary requirements.
3. Must the affected party notify the other party when force majeure occurs?
Notification is a mandatory condition for exemption.
Under Article 295 of Commercial Law 2005, the affected party must immediately notify the other party in writing of the event and its possible consequences. Failure or delay in notification exposes the party to potential liability for damages caused by the lack of timely notice.
Accordingly, force majeure clauses should specify notification standards, including deadlines, accepted communication means (e.g., registered mail, verified email), designated recipients, and supporting documents.
4. If both parties are affected by force majeure, how are their rights and obligations allocated?
When both parties are affected by force majeure, their rights and obligations will be governed by the principles of exemption and contractual rebalancing.
Each party may suspend or delay contractual obligations that are directly affected by the event. Both parties are exempt from liability for breach directly caused by force majeure, under Article 294 of Commercial Law 2005.
If the event persists and defeats the purpose of the contract, the parties may agree to terminate it. If the event does not meet the force majeure threshold but creates significant imbalance, the mechanism under Article 420 of Civil Code 2015 (fundamental change of circumstances) may apply.
5. What should enterprises consider when drafting a force majeure clause to minimize legal risks?
To minimize legal risk, enterprises should ensure that the clause is detailed and comprehensive.
Main drafting requirements include:
- A definition aligned with Article 156 of Civil Code 2015, with an open-list illustration of events;
- Clear standards for invoking the clause, including proof of causation and mitigation events;
- A specific notification mechanism, including deadlines and acceptable delivery methods;
- Clearly defined legal consequences (e.g., suspension, extension, termination)
- A parallel mechanism to address fundamental changes of circumstances under Article 420 of Commercial Law 2005.
Therefore, drafting a force majeure clause requires precision far exceeding general statutory definitions. It is the only effective way to safeguard enterprises from rejection of exemption claims and costly disputes.
IV. Legal consulting services for force majeure clauses in commercial contracts
In the business market, managing risks arising from force majeure is critical. NPLaw provides specialized legal consulting services relating to force majeure clauses in commercial contracts to ensure the effectiveness and enforceability of contractual arrangements.
NPLaw’s services include:
- Drafting and review of force majeure clauses
- Advisory services on notification and procedural compliance
- Legal representation in dispute resolution and renegotiation
- Legal risk assessment
Professional legal consulting not only protects corporate assets and prevents unnecessary liability, but also helps maintain partnerships by addressing adverse situations in a professional and lawful manner.
