Coronavirus Outbreak: Force Majeure

The force majeure trillion-dollar question: Coronavirus outbreak as an act of God?

Force majeure as a reason for termination of employment contracts? See more at “Employment and labor law issues during the Coronavirus pandemic

International recognition: Force majeure is a well-recognized doctrine in civil-law systems like that of Thailand and China but is not a doctrine of common-law systems. At courts in London or Hong Kong, force majeure is respected only if the contract has a specific clause defining such legal concept as part of the contract.

Act of God in Thailand: Thailand is one of the jurisdictions with an explicit Force-majeure jurisdiction. Under its Section 8 CCC: “Force majeure denotes any event the happening or pernicious result of which could not be prevented even though a person against whom it happened or threatened to happen were to take such appropriate care as might be expected from him in his situation and in such condition”. The article “Force Majeure in Thailand: From the Bird Flu Case to the Coronavirus Outbreak” describes how Thailand’s Supreme Court interprets force majeure.

The four elements under Thai laws are (i) that the event could not be prevented at the time it occurred, (ii) that the pernicious results of the event could not be prevented at the time these results occurred, (iii) that appropriate care has been taken before the event as might be expected in the previous situation and previous condition, and (iv) that appropriate care has been taken after the event as might be expected in that later situation and under such later condition. However, under Thai legislation, there are limited consequences of an FM event: Legally determined restrictions or release from contractual obligations and extension of contractual deadlines under Section 193/19, 413, and 437 Civil & Commercial Code. This does not include general discontinuation of contractual obligations and no ineffectiveness or unenforceability of contracts.

Additional Thai jurisdiction: The debtor is not in default so long as the performance is not affected in consequence of a circumstance for which he is not responsible. He might be even relieved from his obligation to perform if the performance becomes impossible in consequence of a circumstance, for which he is not responsible, occurring after the creation of the obligation. If the debtor, after the creation of the obligation, becomes unable to perform, it is equivalent to a circumstance rendering the performance impossible. Inconvenience should not be misunderstood as an excuse under Sections 205 and 2019 CCC.

Contractual FM clauses: A contractual force majeure provision is never implied under the law, especially not under legislation which has its own FM doctrine by law. Because of its serious impact on the parties’ rights and obligations, its wording should be interpreted restrictively. Therefore, the precise terms of the given clause have to be fit for the coronavirus. There are key differences in the treatment and recognition of force majeure across different jurisdictions and professional advice under the relevant jurisdiction should be requested.

Terms and fine prints: Contractually agreed FM clauses typically deviate considerably from Thailand’s highly restrictive legal definition. They tend to reject responsibility for all circumstances that are beyond the control of the person in charge, more expensive or uneconomic. A catch-all clause might do more harm than good. They have low or no standards for the degree of unpredictability. They might have no strict evidence requirements and might refer to Force Majeure Certificates. The clause might or might not contain requirements to use reasonable endeavors to avoid, mitigate or minimize the effects of the extreme circumstance. Finally, the FM clauses might have short-term notice periods and a delayed notice might be deemed a waiver of the force majeure event.

The legal validity of such clauses requires examination in each individual case. Ineffectiveness may result from ordre public, from the point of view of consumer protection, or from lack of clarity and lack of containment. The use of apparently long-established contractual clauses is deceptive if they have never been subjected to a stress test. Increased costs or difficulty of the performance is not the same as an impossibility, but there may be circumstances in which frustration becomes relevant if supply chains collapse.

The ICC Force Majeure Clause 2003 combines the predictability of listed force majeure events with a general force majeure formula which is intended to catch circumstances that fall outside the listed events. The ICC Hardship Clause 2003 balances businesspeople’s legitimate expectations of performance with the harsh reality that circumstances do change to make the performance so hard that the contract simply must change.

Force majeure slips: China’s Council for the Promotion of International Trade is issuing force majeure certificates. The certificate can help Chinese companies to minimize the liability for failure to meet a contract due to the epidemic. The concept and significance of Force-Majeure Certificates(FMC) are described at “Force majeure certificates, the silver bullet to shield from contractual obligations or a false sense of comfort?“.

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PUGNATORIUS Ltd. is the Bangkok-based specialist provider of transactional legal and tax advice on foreign investments in Thailand’s manufacturing and service industries as well as property developments and acquisitions. The law firm sees the pandemic as a challenge to protect and enforce the legal and economic interests of international clients in a dynamic situation with high-quality and pragmatic advice and action.

CoronaAlliance: As a founding member of the CoronaAlliance, the law firm advises on the legal implications of the Coronavirus outbreak as well as on tax planning opportunities. It also provides consulting on short-term and long-term measures to avoid or mitigate the damage to companies, individuals, and institutions. It provides guidance in the transition process to the post-pandemic world to protect clients’ assets, wealth, and business. #CoronaAlliance #PostPandemicWorld

Advice on force majeure: Without specialized legal knowledge regarding Thai and foreign legislation on force majeure and an act of God, its application in practice and the professional handling of this legal issue, the involved party risks significant contractual losses. The law firm has developed a precise procedure to avoid legal problems in advance, to meet the obligations of proof and provision of evidence, and to assert the client’s interests aggressively and forcefully. All professional services linked to the effects of the outbreak of COVID-19 are explained at “Legal advice in the management of the pandemic crisis and guidance for the transition into the post-pandemic world“.

Disclaimer: A little knowledge is a dangerous thing. This low-resolution high-level outlook constitutes neither legal advice nor an attorney-client relationship. Don’t wait for the storm to pass, learn to dance in the rain.

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