Force Majeure in International Business/Commercial Contracts: Understanding It Right to Protect Business Interests in Cross-Border Transactions

Overview

In international business and commercial transactions, contracts are often performed in volatile and unpredictable environments. Businesses may face events beyond their control – including geopolitical conflicts, supply chain disruptions, pandemics, sudden changes in trade policies, or transport restrictions. In this context, the force majeure clause in contracts plays a crucial role in allocating risks and safeguarding the parties’ legitimate interests.

Recent cases before arbitral tribunals show that many enterprises misunderstand or misapply the concept of force majeure, resulting in failed defences and, in some cases, additional liability for damages.

In this Update, we look at the legal framework surrounding the concept of force majeure, and provide drafting recommendations for force majeure clauses to enhance contractual certainty.

Legal Framework 

Under Vietnam’s Civil Code 2015 (“Civil Code“), the 1980 Vienna Convention on Contracts for the International Sale of Goods(“CISG”), and the International Institute for the Unification of Private Law (“UNIDROIT“) Principles of International Commercial Contracts, a party seeking exemption from liability on the grounds of force majeure must satisfy three key conditions:

1. Externality – The event must be beyond the control of the affected party;

2. Unforeseeability – The event could not reasonably have been foreseen at the time of contract formation. The assessment is made according to the standard of a professional merchant; and

3. Inevitability/Irresistibility – The party must prove that it took all reasonable measures to overcome the event, yet performance remained impossible.

Importantly, arbitral tribunals do not stop at verifying whether an event occurred; they also assess the diligence and mitigation efforts of the party invoking force majeure.

It is equally crucial to distinguish force majeure from hardship (change of circumstances):

1. Force majeure makes performance impossible, allowing exemption from liability.
2. Hardship makes performance excessively onerous but not impossible. The appropriate remedy is renegotiation or adaptation, not exemption.

Under Article 420 of the Civil Code and Articles 6.2.2–6.2.3 of the UNIDROIT Principles, a party facing hardship may request renegotiation in good faith or seek judicial or arbitral adjustment of the contract. 

Practical Implications 

Divergent Approaches Across Jurisdictions

The recognition and interpretation of force majeure vary across legal systems:

1. In France, strikes are generally not accepted as force majeure.

2. In Vietnam and Thailand, strikes and labour disruptions may be recognised depending on their nature and the extent of their impact on contractual performance.

3. In Singapore, courts adopt a strict contractual interpretation — force majeure applies only if expressly provided for in the contract and the event clearly falls within the defined scope. In the absence of such wording, the common law doctrine of frustration may apply in limited circumstances.

4. In China, lockdowns and government-imposed restrictions during COVID-19 have been widely accepted as force majeure.

5. Under Common Law systems (e.g. England and the United States), force majeure is purely contractual. Without an explicit clause, exemption is rarely granted; instead, limited doctrines such as frustration (UK) or impossibility/impracticability (US) may apply.

Accordingly, the governing law of a contract can significantly affect whether a party succeeds in invoking force majeure.

Drafting Recommendations

To enhance contractual certainty and manage risk effectively, businesses should:

1. specify clearly the events constituting force majeure (e.g. embargoes, trade restrictions, changes in import-export policies, cyberattacks, or natural disasters);
2. set out notification procedures, including deadlines, evidence, and methods of communication;
3. provide for the consequences of prolonged events, such as suspension, renegotiation, or orderly termination; and
4. include a duty to mitigate, requiring the invoking party to demonstrate that reasonable alternatives were considered or attempted.

Our Comments

Force majeure is not a magic formula to escape contractual liability. The decisive question is not whether an event occurred, but whether the affected party can prove its inability to perform its obligations despite that party acting with reasonable diligence.  

A well-drafted, detailed, and practical force majeure clause can help reduce disputes, protect business interests, and preserve commercial balance amid global uncertainty affecting international business/commercial contracts in cross-border transactions.

This article is authored by Dr. Chau Huy Quang and Dr. Le Hong Phuc (also a lecturer at Phenikaa University).