Participant's Right to Terminate or Modify the International

Commercial Contracts to Prevent Economic Damages Caused by the

Covid-19 Pandemic

Luc Thi Ly

Department of Private International Law, Law Institute, Peoples' Friendship University of Russia, Moscow, Russia

Keywords: International Law, International Trade Law, Commercial Law, Covid-19 Pandemic, Global Economy, Impact

of Covid-19 Pandemic, International Economics.

Abstract:

Rights of modification or termination contracts are one of the policies stated by national and international

legal regulations to prevent damages caused by the effects of the Covid-19 pandemic. Many authors have

considered this issue a contractual policy when essential circumstances change; some authors believe it is

"Force Majeure"... However, this article will consider this term as Participant's right when an epidemic occurs.

By analyzing and comparing legal regulations, demonstrated by actual data and explained according to the

general theory, the paper also gives a general picture on the issue of terminating or changing International

Commercial contracts due to the effects of the Covid-19 pandemic, assessing and commenting on advantages

of this right in development's global economic what was affected by Covid-19 pandemic.

1 INTRODUCTION

From late 2019 to 2020, Pandemic covid-19 has

caused a severe impact on the world. (L. 2020), which

are the countries with the highest number of

infections, such as the USA, Russia, India, Brazil...

Countries that are concerned about health and made a

lot of measures to prevent economic damage to the

countries. At the same time, countries also focus on

preventing economic damage to traders. In addition

to issuing good economic policies, they also have

predictable regulations to prevent damages caused by

diseases, natural disasters, and floods (Development

2020). The right to modify or terminate economic

contracts is a great privilege that nations grant their

traders to prevent damage caused by disease,

especially during the Covid-19 pandemic. This is

considered a special right and a properly foreseeable

regulation; in international commercial law, this right

is the best way to protect traders from the impact of

epidemics

https://orcid.org/0000-0001-8889-8123

2 MATERIALS AND METHODS

The article is based on international commercial law,

and state laws to clearly analyze the importance of

this right; at the same time, it was encouraged to apply

this right in different countries. The main linked legal

sources are the International Trade Law, United

Nations Convention on Contracts for the International

Sale of Goods 1980, UNIDROIT Principles, Laws of

several countries with specific, clear, and reasonable

provisions on this issue: Colombia and Vietnam.

The article uses analytical methods to clarify the

legal provisions, and at the same time use the proof

method to underline that this is a very important issue

for contractual participants, and for the Global

economy. At the same time, the author uses the

method of listing data and synthesizing give a general

review of the status of Global economy which was

affected by Covid-19 pandemic.

Ly, L.

Participant’s Right to Terminate or Modify the International Commercial Contracts to Prevent Economic Damages Caused by the Covid-19 Pandemic.

DOI: 10.5220/0010659800003224

In Proceedings of the 1st International Scientiﬁc Forum on Jurisprudence (WFLAW 2021), pages 23-27

ISBN: 978-989-758-598-2

3 LEGAL BACK GROUND

We find that in some countries, the recession is severe:

in Spain, UK (Lisa Montel 2020), and Tunisia, the

output of the economy in the second quarter was 20%

lower than the same period last year (Tunisia 2020).

This is 4 to multiple times bigger than some other

quarterly fall on record for these nations. Also, in Peru

the year on year fall was significantly bigger, at 30%.

In Taiwan, GDP in the second quarter of 2020 was

under 1% lower than in a similar period in 2019.

Finland, Lithuania and South Korea all observed falls

in their GDP of around 5% or lesser.... Growth in

China under the baseline is forecast to decline to 2.3

percent and under the lower case scenario to 0.1

percent by 2020, according to the World Bank Report,

compared to 6.1. % in 2019 ( Michael D. Sutherland,

Karen M. SutterRebecca M. Nelson, James K.

Jackson, Coordinator 2020). The Covid-19 pandemic

containment will be a condition for recovery, but the

risk of prolonged financial stress is still heavy, even

after 2020. According to data by the National Bureau

of Statistics announced on 03/16/2020, from January

to May 2/2020, the epidemic has affected the Chinese

economy's different indicators at different levels.

Industrial production and service manufacturing,

market consumption, and investment, the Purchasing

Management Index (PMI) are reducing. But in

general, under the influence of different policies and

measures, the resumption of production and

production of enterprises has been accelerated. Order

of production and living has been gradually restored,

the national economy has achieved an orderly

operation and a basic livelihood has been effectively

secured.

With such a heavy economic impact, traders tried

their best to enforce and fulfill contracts, but many

merchants still could not fulfill their obligations,

leading to commercial agreements breaches.

Commercial contract: is an agreement between

business entities to establish, change, and terminate

the rights and obligations of the parties in the

performance of commercial activities (Karton 2009).

A commercial contract has the following basic legal

features: the field of the contractual relationship is

commerce, including the areas of trade in goods and

trade in services; One party subject to the contract

must be the trader. In many commercial contract

relationships, both parties must be traders, such as

contracts for traders' representatives, goods sale and

purchase agency contracts; the purpose of the trader

when entering into a contractual relationship is to

serve their business; The form of the contract can be

verbal, behavioral or written. (Karton 2009): When

the conditions on the subject, purpose, and form of a

contract are satisfied, a commercial contract is of the

nature of an economic contract. For example,

contracts in commercial activities are established in

writing between traders, in which at least one party is

a legal entity to serve its business. If these conditions

are not met, a commercial contract will be considered

as a civil contract. The article is clearly scoping the

right to change content or terminate International

commercial contracts.

Compensatory harms (likewise called " actual

damages ") cover the misfortune the non-penetrating

gathering caused because of the agreement's break.

The sum granted is proposed to make great or supplant

the misfortune brought about by the break.

There are two sorts of compensatory harms that the

non-breaking gathering might be qualified for

recuperate:

General Damages: General harms cover the

misfortune straightforwardly and essentially brought

about by the break of agreement (Charlie 2006).

General damages are the most widely recognized kind

of harms granted for penetrates of agreement.

Uncommon Damages (David Pearce, Roger

Halson 2008): Exceptional harms (additionally called

" consequential damages ") cover any misfortune

acquired by the penetrate of agreement in view of

extraordinary conditions or conditions that are not

customarily unsurprising. These are real misfortunes

brought about by the penetrate, yet not immediately

and quickly. To acquire harms for this kind of

misfortune, the non-penetrating gathering must

demonstrate that the breaking party knew about the

exceptional conditions or necessities at the time the

agreement was made.

These are the profits that the aggrieved party could

gain from the business if no infringement had

occurred. The fulpayment principle is very commonly

used to determine the amount of compensation caused

by a breach of contract, which is the original as

defined in Article 74 and 79 of the convention CISG

1980 and the countries' laws.

4 RIGHT OF MODIFICATION OR

TERMINATION CONTRACT

UPON CHANGE OF BASIC

CIRCUMSTANCES

4.1 International Laws

According to Article 6.2.2. UNIDROIT Principles,

There is hardship where the occurrence of events

WFLAW 2021 - INTERNATIONAL SCIENTIFIC FORUM ON JURISPRUDENCE

fundamentally alters the equilibrium of the contract

either because the cost of a party's Performance has

increased or because the value of the Performance a

party receives has diminished, and:

Firstly, the events occur or become known to the

disadvantaged party after the contract's conclusion;

the change in circumstances to perform the contract

must be objective, that is not dependent on the will of

the contractual parties (Doudko 2000). For example,

storm, flood, fire, strike, riot, a decision of state

authority, or an objective event taking place out of the

control of a party ... This condition is similar to events

that are considered "force majeure". Simultaneously,

a change in circumstances occurs after the conclusion

of a contract, when the parties cannot foresee the

possible circumstances.

Secondly, the events could not reasonably have

been taken into account by the disadvantaged party at

the time of the contract's conclusion; In other words,

events that happened must be objective, not due to

human subjective will. If difficult circumstances arise

after the conclusion of a contract, but the

disadvantaged party knows or must know in advance

these adverse events (events that can be foreseen due

to actual manifestations: War is about to break out,

the political crisis is on the rise… ) at the time of

entering into the contract, the disadvantaged party is

still unable to invoke this Hardship term to obtain the

right to apply for a modification of the contract.

Thirdly, the events are beyond the control of the

disadvantaged party (Dietrich 1992). According to

this regulation, hardship can be considered only when

the events that caused a situation are beyond the

control of the parties. This means that the parties

cannot foresee difficulties happening, the objective

events beyond the ability to anticipate or reasonably

consider the parties in the contract.

Fourthly, The disadvantaged party did not assume

the risk of the events. However, we cannot consider

all changed circumstances beyond the party's control

as a hardship. According to this provision, if the

troubled party has explicitly accepted the risk of a

change in circumstances, there will be no "hardship",

the party will not be able to invoke the hardship

provision. These can be deduced from the contract's

nature that the party entering into a speculative deal

considers accepting a certain level of risk.

Thus, "hardship circumstance" (Maskow 1992) is

one of the conditions for the parties to modify or

terminate the contract. Also should demonstrate the

consequences of continued Performance of the

contract. The circumstances change so dramatically

that if the parties know in advance, the contract has

not been entered into or entered into but with

completely different contents; According to this

provision, the modification in contract performance

circumstances makes the parties unable to perform

the contract under the signed terms. The degree of

change in circumstances may prevent the conclusion

of a contract from taking place or taking place with

other content. The contract's continued Performance

without changing the contents of the contract will

cause serious damage to one party; If as not change

the content of the contract, will be serious damage to

a contractual party: serious damage referred to herein

means that if the damage occurs, one of the parties

fails to reach the purpose of entering into the contract.

The affected party has applied all necessary measures

to the extent possible, consistent with the nature of the

contract, and cannot prevent or minimize the impact

on benefits. This is a provision to determine the

obligations of the party affected by modification in

contract performance circumstances. If the affected

party has the right to request termination or

modification of the contract, they themselves have the

obligation to prevent and minimize the impact of the

change of circumstances on their interests. When the

affected party requests to terminate or modify the

contents of the contract, it must prove all the

conditions, especially proving that it has applied all

necessary measures and still cannot prevent,

minimize the impact to benefits from such change.

4.2 First Section

4.2.1 Colombia

In Colombia, to legitimize the utilization of the

hypothesis of unexpected occasions in the agreement,

the changing of the balance of the agreement must be

one that forces an over the top weight for the

burdened party. As the State Council demonstrated:

"It is basic that the lopsidedness in the

commitments is sure, genuine, basic, principal, major,

gigantic or critical, and no sort of unevenness, to the

point that it causes an unnecessary fleeting or

perpetual difficulty of things to come administration,

an enormous irregularity with an unbalanced

increment or detectable reduction of the

remuneration, regardless of whether a cash

misfortune, because of an abatement of the resources

or the normal benefit, because of the expansion of the

liabilities as an outcome of the ensuing unanticipated

and capricious occasion, whereby there must be an

inseparable circumstances and logical results

relationship." (Vargas 2012)

Therefore, to apply the hypothesis of unexpected

occasions in agreements and end or reevaluate a

Participant’s Right to Terminate or Modify the International Commercial Contracts to Prevent Economic Damages Caused by the Covid-19

Pandemic

business office or conveyance contract, it is basic that

the accompanying prerequisites are met: Firstly, that

the happening conditions are unexpected right now of

the agreement's execution, and in this manner, bar any

attribution to one or the other party. Secondly, that the

lopsidedness against the distraught party is sure,

genuine, fundamental, essential, significant,

tremendous, or huge.

Some have even asserted that the lopsidedness

must be conjured by the hindered party prior to

proceeding with the presentation of the agreement, so

the hypothesis of unexpected occasions in agreements

and isn't blamed so as to change the underlying terms

of the agreement.

4.2.2 Vietnam

Vietnamese Civil Code 2015 provides legal

background for Performance of contract upon the

fundamental change of circumstances. This is a new

provision added in the Civil Code of Vietnam 2015.

The addition of provisions on contract performance

when circumstances change is to protect the

legitimate interests of the parties in the contract and

accordingly international practice (Ng 2017).

According to Clause 1, Article 420 of the Vietnam

Civil Code 2015. Circumstances change basically

when the following conditions are fully met:

Circumstances change due to objective reasons

occurred after entering into a contract. Change in

circumstances must be objective, that is beyond the

control of the parties. For example, storm, flood, fire,

strike, riot, a decision of state authority, or an

objective event taking place out of the control of

parties... This condition has similarities with events

that are considered "force majeure". At the time of

entering into the contract, the parties could not

foresee a change in circumstances. That is, the change

of circumstances is beyond the will and ability of the

parties to anticipate. This provision also shows the

objectivity of modification in contract performance

circumstances. The circumstances change so

dramatically that if the parties know in advance, the

contract has not been concluded or entered into but

with completely different contents (Huong 2020);

According to this provision, the modification of

contract performance circumstances makes the

parties unable to perform the contract under the

signed terms. The degree of change in circumstances

may prevent entering into a contract or take place

with other content. Continuing to perform the

contract without changing the contract's content will

cause serious damage to one party.

Thus, through the analysis of the laws of

Colombia and Vietnam, it shows that governments

have studied and adjusted the law to limit the damage

to traders. At the same time, countries also take a

more holistic view of regulation for supporting the

injured or at-risk party. Thanks to this regulation, the

parties limit the damage caused by the Covid-19

pandemic; This is considered a prerogative of the

parties to the contract.

5 CONCLUSIONS

Thus, in addition to the force majeure event, the

provision on fundamentally changing circumstances

is also a significant provision for businesses, creating

more solutions to solve problems in certain difficult

circumstances. Stemming from the principle of civil

law is freedom, voluntary commitment, and

agreement, in addition to the provisions of force

majeure events, the parties should also respect the

provisions on contract performance when

fundamental circumstance was changed.

Accordingly, to make it easier for the parties to settle

disputes, the participants should clearly define the

circumstances of fundamental changes, list the

objective and subjective causes, and clearly define the

parties' responsibilities. The party must perform when

a fundamental change occurs, the parties' rights and

obligations in that situation. The right to modify or

terminate the contract when there is a change of basic

circumstances is a special right in the current

complicated epidemic situation. The paper outlines

the importance of this right in international economic

relations, and also analyzes the legal and practical

basis for traders to apply their rights in preventing

damages caused by Covid-19 pandemic.

ACKNOWLEDGEMENTS

If any, should be placed before the references section

without numbering.

REFERENCES

Sutherland, M. D., Sutter, K. M. Nelson, R. M., Jackson, J.

K. Coordinator. (2020). Global Economic Effects of

COVID-19. Congressional research services.

Charlie, W. (2006). Performance and Compensation: An

Analysis of Contract Damages and Contractual

Obligation. Oxford Journal of Legal Studies, pages 41-

71.

WFLAW 2021 - INTERNATIONAL SCIENTIFIC FORUM ON JURISPRUDENCE

Alderman, R., De Franceschi, A. et al. (2020). Consumer

Law and Policy Relating to Change of Circumstances

Due to the COVID-19 Pandemic. Journal of Consumer

Policy, pages 437–450.

Pearce, D., Halson, R. (2008). Damages for Breach of

Contract: Compensation, Restitution and Vindication.

Oxford Journal of Legal Studies, pages 73–98.

Development, The secretariat of the United Nations

Conference on Trade and. (2020). Trade and

development report 2020 from Global Pandemic to

prosperity for all: avoiding another lost decade. New

York: United Nations.

Maskow, D. J. (1992). Hardship and Force Majeure. The

American Journal of Comparative Law, pages 657–

669.

Doudko, A. G. (2000). Hardship in Contract: The Approach

of the UNIDROIT Principles and Legal Developments

in Russia. Uniform Law Review Volume 5 (Issue 3),

pages 483–509.

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circumstances have a fundamental change in the

contract performance process. Journal of the

Vietnamese People's Court.

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Commercial Arbitration: The Case of Suspension of

Performance. International and Comparative Law

Quarterly, pages 863-896.

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C. (2020). The Right to Health in Times of Pandemic:

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COVID-19 Outbreak? Health and Human rights

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Dietrich, M. (1992). Hardship and Force Majeure. The

American Journal of Comparative Law, 40(3): pages

657-669.

Hong Hai, Ng. (2017). Free will to enter into contract under

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pages 26.

APPENDIX

There have been many articles about the fundamental

change in contractual circumstances. Typically

"Hardship in Contract: The Approach of the

UNIDROIT Principles and Legal Developments in

Russia (Doudko 2000)"; Hardship and Force

Majeure, Dietrich Maskow, The American Journal of

Comparative Law (Maskow 1992), Vol. 40, No. 3

(Summer, 1992), pp. 657-669 (13 pages), Published

By: Oxford University Press. In two articles, the

author has analyzed changes in essential

circumstances leading to the right to modify and

terminate the contract. However, the author has an in-

depth orientation and analysis of changing

circumstances and has not carefully analyzed the

rights of the parties involved.

We can also find many articles on the effects of

the Covid-19 pandemic on the global economy and

indeed there are many scientific studies from a legal

and economic perspective. The specific article

"Consumer Law and Policy Relating to modify of

Circumstances Due to the Covid-19 Pandemic

(COVID-19- Consumer Law Research Group. 2020)"

considers the Covid-19 pandemic a cause of the

change in circumstances and if the evidence is

provided by the law to protect consumers with a

multi-country approach (Europe, UK, USA, ..) to

solve problems. However, there is no in-depth

research paper explaining that the Covid19 pandemic

is also a factor changing circumstances, and the

participants have the principal privilege to modify or

terminate the contract to reduce economic damage.

Therefore, this article, which is the inheritance

from the above articles' research results, aims to study

more profoundly and comprehensively the issue of

changing circumstances leading to modify in content

or termination of the contract. In particular, the author

approaches the issue with a new perspective:

Considering the contract's modification or

termination is a privilege protected by the law to

prevent undue damage caused by the Covid-19

pandemic.

Participant’s Right to Terminate or Modify the International Commercial Contracts to Prevent Economic Damages Caused by the Covid-19

Pandemic