Is typhoon Yagi considered a force majeure event for companies?

The recent Typhoon No. 3 (Typhoon Yagi) has caused significant damage in the northern provinces of Vietnam, disrupting trade and business activities. In light of this damage, many businesses are asking: Does Typhoon Yagi qualify as a force majeure event under Vietnamese law? If so, can companies use it to exempt themselves from liability in commercial contracts? To answer these questions, we need to examine the issue from two perspectives: legal basis and practical application.

The factory of a business in Hanoi was destroyed after Typhoon No. 3 (Yagi). Photo: Hoang Thang (Source: Saigon Economic Journal)

Force Majeure Events under Vietnamese Law

According to Article 156 of the Civil Code 2015, a "force majeure" event is defined as an objective event that cannot be predicted or remedied even after all necessary efforts have been made. Natural disasters such as hurricanes, floods, and earthquakes are generally considered force majeure events when they occur suddenly, are beyond the control of the affected parties, and cause significant damage.

Typhoon Yagi's destructive force severely impacted infrastructure and disrupted the supply chains of many companies. Given the actual impact of Typhoon Yagi and the legal definition of a force majeure event, it appears that Yagi meets the criteria for such classification. It is a natural phenomenon beyond human control that causes unavoidable disruptions to business operations.

However, to definitively classify Typhoon Yagi as a force majeure event and apply it to specific business situations, affected parties must demonstrate that they have made every effort to mitigate the effects of the typhoon. This includes taking preventive measures and minimizing damage to the extent possible.

Not all natural disasters qualify as “force majeure”

Practical experience shows that not all natural disasters automatically qualify as force majeure events that allow companies to escape liability. Many disputes arise from differing interpretations of what constitutes a force majeure event or from conflicts regarding performance obligations during such events.

A corner of the factory and fence of LG Electronics company were knocked down by a storm in Trang Due industrial park, Hai Phong, on September 9. Photo: Anh Tu (Source: Vnexpress.net)

For example, if a company fails to take preventive measures or fails to notify its counterparties promptly of the incident (as required by the contractual agreement), its claim for exemption from liability may be rejected. Competent authorities may not accept a natural disaster as a force majeure event unless the company can prove that all the necessary conditions have been met and that there is a direct link between the disaster and the damage incurred.

In addition, the application of force majeure rules must be consistent with specific contractual terms. Many commercial contracts explicitly outline force majeure events, detailing cases such as natural disasters, epidemics and wars, along with the procedures for handling incidents when they occur.

Thus, while natural disasters, including Typhoon Yagi, can theoretically be considered force majeure events, liability exemptions depend on the contract signed and the actions of the parties involved when the event occurs. Compensation obligations depend on the company's compliance with contractual provisions and whether the necessary measures were taken.

Post-Disaster Disputes: A Complex Reality

As noted above, not all natural disasters, such as hurricanes, are automatically recognized as force majeure events. Disputes can arise when the parties have different interpretations of the force majeure clause or experience conflicts regarding the performance of obligations during the event.

A relevant example is the dispute between a logistics company (defendant) and an automobile manufacturer (plaintiff) over damages caused by Hurricane Maysack in September 2015. The hurricane severely damaged infrastructure, including flooded containers and cargo. The Claimant's insurance company sought compensation from the Respondent, which argued that the hurricane constituted a force majeure event.

However, the arbitral tribunal found that Hurricane Maysack was foreseeable and that the defendant failed to take the necessary measures to mitigate the damage, and therefore did not qualify as a force majeure event. This case illustrates that insurance companies may deny coverage when the damage is not directly attributable to the storm, but rather to the company's lack of preparedness[1].

This example illustrates that whether a typhoon or similar natural disaster qualifies as a force majeure event and therefore qualifies for an exemption from liability depends on whether the affected party took reasonable steps to mitigate the damage and promptly notified its partners of the situation as required by the contract. If a company affected by a storm fails to take steps to mitigate the damage, the likelihood of denial is substantial.

Jinka Company's factory in Do Son Industrial Park, Hai Phong was severely damaged after the storm on September 9. Photo: Le Tan (Source: Vnexpress.net)

What companies do in a force majeure situation?

To minimize legal disputes arising from force majeure events such as Typhoon Yagi, companies should prepare carefully from the contract signing stage. They need to pay attention to the force majeure provisions and ensure clarity and detail in establishing procedures for handling notices, compensation, and waivers.

When a force majeure event occurs, companies must strictly adhere to legal and contractual requirements to ensure eligibility for indemnification or insurance claims. Specifically, companies should take the following steps

Firstly, immediately notify partners and stakeholders in writing, clearly stating the situation and providing evidence of the damage. Delays may jeopardize the company's immunity.

Secondly, review the signed contract to understand your legal rights and obligations in the event of a force majeure event. This will avoid misunderstandings and ensure compliance with the terms of the contract.

Thirdly, companies need to gather or prepare sufficient evidence of the damage incurred to support their claim for indemnification in potential court or arbitration proceedings. This evidence may include damage reports, photographs, videos and documents that establish a link between the damage and the force majeure event.

Fourthly, develop a contingency plan for natural disaster risks, including emergency response, asset protection, and employee safety. This preparation not only minimizes damage, but also demonstrates that the company has made every effort to prevent losses.

Fifthly, companies should seek professional legal assistance from attorneys or legal experts in the event of disputes related to force majeure events. These professionals can help assess the situation, provide legal advice, and assist in negotiations or dispute resolution. This assistance is critical to protecting business rights and minimizing risks associated with misunderstandings of the law. Legal experts can also help companies prepare evidence, especially if the case goes to court or arbitration.

In summary, legal issues arising from natural disasters such as Typhoon Yagi or Maysack pose significant challenges for businesses. To mitigate risks and protect the interests of all parties, careful preparation and clarity in contractual terms are essential. This approach not only equips companies to manage post-disaster events, but also ensures their rights are protected in a timely and comprehensive manner.

Read more at: https://thesaigontimes.vn/bao-yagi-co-duoc-coi-la-su-kien-bat-kha-khang-doi-voi-doanh-nghiep/

Lawyer Nguyen Van Phuc

HM&P Law Firm