In order to know if it is appropriate to terminate the contract due to the Covid-19 epidemic and whether the party requesting the termination is subject to compensation for damage or a penalty for contract breach, we need to consider in detail the following aspects.
First, is Covid-19 a force majeure event?
To solve this question, let's consider the contract signed between the parties. Accordingly, there are 2 possible cases:
Case 1: There is a force majeure provision in the contract and it says that "epidemic" is one of the "force majeure events". According to trial practice, the Court often gives priority to recognize the agreement between the parties in the contract. Thus, if there is a provision in the contract stating that the "epidemic" is one of the "force majeure events", the Court will likely recognize Covid-19 as a "force majeure event".
Case 2: There is no force majeure provision or there is no mention that "epidemic" is one of the "force majeure events" in the contract. In this case, we need to refer to the definition of "force majeure event" specified in Article 156 Civil Code 2015 as follows: “An event of force majeure is an event which occurs in an objective manner which is not able to be foreseen and which is not able to be remedied by all possible necessary and admissible measures being taken.”.
According to this definition, in order for an event to be considered as a "force majeure", it must have all three factors:
- It occurs in an objective manner. This means that the event occurs out of the will of the parties in the contract, not by the intent of the parties in the contract. For examples: natural disasters, floods, unintentional fires or changes in laws.
- It is not able to be foreseen. This means that when signing the contract, the parties cannot foresee that the event may occur. Accordingly, if one of the parties has information that the event has occurred, is occurring or is 100% certain that it will occur in the future, this event cannot be considered unforeseen.
- It is not able to be remedied by all possible necessary and admissible measures being taken.
Thus, if an event does not have all of the above three factors, it will not be considered as a "force majeure event". In which, the factor “unable to be remedied by all possible necessary and admissible measures being taken” is the most important factor and the most debated factor in judicial practice. Depending on each case, the Court will see if it is possible to remedy the consequences caused by the Covid-19. Below are 2 illustrative examples:
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