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Covid-19 Pandemic: Force majeure and legal consequences

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Ly Tayseng is the managing partner of HBS Law and HBS Notary Public. HBS LAW AND HBS NOTARY PUBLIC

Covid-19 Pandemic: Force majeure and legal consequences

Is the Covid-19 pandemic considered an event of force majeure?

The World Health Organisation declared the novel coronavirus (Covid-19) outbreak a pandemic on March 11. Following this declaration, the Ministry of Health and other ministries have taken various legal and administrative measures to prevent the rapid spread or import of Covid-19 into the Kingdom.

The government, including the ministries of Health; Education, Youth and Sports; Tourism, and Interior, have instructed public and some private schools, private businesses such as KTV, beer gardens, and other entertainment outlets to close.

Other institutions were instructed to arrange for staff to work from home, etc. The government encourages social distancing among people by urging them to stay home and only go out when it is absolutely necessary.

As a result, businesses which have been instructed to close are effectively closed. Yet, some other businesses which are not directly subject to the closing order from the government would also probably be shuttered soon for various reasons.

These include the insufficient supply of raw materials, lack of market demand for their products and services, the inability to trade due to border closures, prevention of incoming and outgoing flights, the partial or full lockdown of a country, and more.

As of now, more than 50 garment factories have been allowed to suspend operations. Some hotels and restaurants have closed too, while public and private schools are told to provide online education instead of the traditional brick and mortar sessions.

The above legal and administrative instructions from the government and the risk of Covid-19 infection could cause the non-performance or compliance of some contracts either partially or in its entirety.

As a consequence of this, there will be damages suffered by parties to the contract. This event could fall under the legal definition of force majeure and is further explained below.

What does Cambodian law say in the event of force majeure?

Generally, force majeure is defined as an event which occurs not from the will of any party and is insuperable and unpredictable by the affected party.

It could have been caused by the acts of man or nature, acts of government, or other impersonal events.

In any case, an event capable of being claimed as force majeure shall be beyond the reasonable control of the affected party, the ability of such party to continue to perform the contract has been prevented, impeded or hindered, and he has taken all reasonable steps to mitigate or avoid such event or its consequence but it is not possible to overcome such event.

Cambodian law does not provide any detailed definition of force majeure. Normally, such a definition could be stipulated in the contracts.

The event of force majeure could be a political or non-political event, an unexpected change of legal and regulatory environment or natural catastrophe which makes the performance of a contract impossible.

In case of uncertainty, the courts may interpret the meaning of force majeure by taking into account the nature and impact of an event based on Cambodian customs and trade practices.

It should also be noted that Cambodia has adopted the civil law tradition, hence, the application of force majeure as an excuse for breach of contract may not be identical with the application of this concept under English law or other common law jurisdictions.

When and how does a force majeure event apply?

Parties to a valid agreement shall perform their respective obligations according to the terms thereof. However, the obligee may not demand the obligor to perform his obligation if the performance has become impossible without the obligor’s fault. In the event of force majeure, the contractual performance could be partially or entirely impossible to fulfil.

A force majeure clause is common in contracts. It essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties occurs, such as war, strike, riot, crime, pandemic, epidemic, flood, earthquakes, an act of god, etc.

In practice, the contents of the force majeure clause could be brief or quite descriptive. Some contracts include a force majeure clause while others have none. In the latter case, the affected party could rely upon the provisions of law governing his or her contract to claim the event of force majeure.

As a matter of process, if any party believes he is affected by force majeure and wishes to rely upon such clause, he shall promptly notify the other party of that event.

In the notice, he shall provide evidence to establish the causal relationship between the event and the anticipated consequence, and envisaged duration of such event, if possible.

He shall check the contract’s clauses carefully because some may require such notice to be made in writing while at other times, verbal communication is legally sufficient.

What would be the legal consequence of force majeure claims?

As a general principle, when a party to a contract claims that there is an event of force majeure, a contract can be suspended during the occurrence of such an event or it can be terminated.

For example, in the case of employment contracts, the labour law allows parties to terminate or suspend employment contacts on the occurrence of an event of force majeure.

If the affected party is able to prove the event of force majeure as explained earlier, the affected party would be exempted from liability for any damages suffered by the other contracting party.

However, the determination of conditions for contractual breach and remedies in case of force majeure may also be stipulated in the contracts.

Contracts may state delayed performance, acceleration or mitigation circumstances, collaborative, protective or other remediable actions to be taken by the contracting parties.

It is not always the case that due to the event of force majeure, all performances of obligations become impossible or stop. For instance, in a loan contract, the borrower may not be released from paying the principal and interest during the occurrence of force majeure.

However, the borrower may not be obligated to pay damages or penalty for the delay in payment. In case of perpetual lease of immovable properties, the lessee may terminate the lease if he cannot generate any profit from the lease for a period of three years due to the occurrence of force majeure.

During the force majeure, the payment of rents could be suspended or a reduction of rents could be demanded if the profit or fruit generated from the use of leased land cannot be achieved.

What should contracting parties, in particular, the affected party, do in the event of a pandemic?

It is advisable that contacting parties consider taking the following proactive steps:

Carefully review their contracts, in particular, the definition of force majeure stipulated therein in order to have a good idea on the requirements and measures to be taken in such event;

If it is unclear, seek proper legal advice from lawyers, meaning members of the Bar Association of the Kingdom of Cambodia who are qualified to clarify, respond and advise on your questions;

Keep proper records of documents and evidence of harm and damages caused by the event of force majeure;

Engage and discuss with contracting partners, business partners and related competent authorities in order to express your concerns, to clarify the application of legal and administrative instructions, to take necessary action to protect and mitigate the risks, damages and any unintended consequences caused by the change of laws and administrative orders by competent authorities.

The above views are that of the author, and intended purely as general information only. The Post shall not be held responsible for any unintended damages suffered because of the views expressed in this article.

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