Request the Court to modify the contract due to fundamental change of circumstances - From regulatio

 

REQUEST THE COURT TO MODIFY THE CONTRACT DUE TO FUNDAMENTAL CHANGE OF CIRCUMSTANCES - FROM REGULATIONS TO PRACTICE

Lawyer Trần Hậu [1]

 

Hoàng Thuý Quỳnh [2]

 

Nguyễn Thị Thanh Thanh Trà [3]

 

Trần Văn Hương [4]

 

Although the 2015 Civil Code marked a significant legislative progress by stipulating the content of fundamental changes in circumstances, including the condition to amend contracts due to such changes. It has been five years since the 2015 Civil Code came into effect, yet the implementation of this provision still faces challenges. In many cases, when considering the impact of fundamental changes in circumstances, the Court often renders a judgment to terminate the contract without determining the modification of the contract to allow the parties to continue its performance. The question arises as to whether the Court's decision to terminate the contract can truly achieve a balance of interests for the disputing parties. How can the legitimate rights of the affected party due to fundamental changes in circumstances be effectively ensured? This article analyzes the legal and practical issues in dispute resolution when a party requests the Court to amend the contract due to fundamental changes in circumstances. By examining the current legal provisions, practical application issues in Vietnam and other countries worldwide, the article proposes solutions and improvements to enhance the enforcement of the law concerning the amendment of contracts due to fundamental changes in circumstances.

 

Keywords: contract modification, fundamental change in circumstances, contract termination, continued contract performance.

 

I. Legal aspects of fundamental changes in circumstances and the legal consequences when fundamental changes occur

 

1. Legal provisions regarding fundamental changes in circumstances.

 

From 2020 until now, the terms "fundamental changes in circumstances" or "force majeure events" have been frequently mentioned in the resolution of civil and commercial disputes as the Covid-19 pandemic has impacted all aspects of life, affecting the fulfillment of commitments in civil transactions. Particularly, the content related to fundamental changes in circumstances was first recognized in the 2015 Civil Code.

 

According to Article 1195 of the French Civil Code, "If the change of circumstances unforeseen at the time of entering into a contract causes a party's cost of contract performance to increase so much that that party does not accept the risk...". According to paragraph 3 of Article 313 of the German Civil Code (BGB) 8, "If the fundamental circumstances of the contract change after the signing and if the parties do not agree or come to a different agreement when they become aware of this change, they may demand an adjustment of the contract; in all cases, in particular the allocation of risk under the contract or under statutory provisions, one of the parties could not have foreseen this fundamentally changed circumstances to maintain the contract without change…." In documents regulating international commercial contracts such as the Unidroit Principle stipulates: "In the event of a fundamental change in circumstances, the disadvantaged party is entitled to request renegotiations. This request must be made without undue delay and must be justified…". Therefore, international law almost does not provide a specific definition to explain the term "fundamental changes in circumstances," but rather highlights characteristic points for us to understand this issue, such as unpredictability and excessive increase in the cost of contract performance for one party.

 

In Vietnamese law, fundamental changes in circumstances are not clearly defined. The law only provides conditions for comparison and determination regarding fundamental changes in circumstances, which include: (i) The circumstances change due to objective reasons occurred after the conclusion of the contract; (ii) At the time of concluding the contract, the parties could not foresee a change in circumstance; (iii) The circumstances change such greatly that if the parties know in advance, the contract has not been concluded or are concluded, but with completely different content; (iv) The continuation of the contract without the change in the contract would cause serious damage to one party;(v) The party having interests adversely affected has adopted all the necessary measures in its ability, in accordance with the nature of the contract, cannot prevent or minimize the extent of effect.

 

Unlike a force majeure event, the affected party must prove that the legal consequences of a force majeure event are irreparable to serve as a basis for contract termination, and the obligated party is relieved from civil liability or compensating for damages resulting from the force majeure event, in the case of fundamental changes in circumstances, the impact may not be irreparable. The parties in the contract can negotiate together and reach an agreement on modifying the contract to balance their interests and continue its performance. It can be said that force majeure events provide a basis for terminating the contract, whereas fundamental changes in circumstances offer a foundation for adjusting and altering the contract terms with the intention of continuing its implementation.

 

1.1. Elements constituting fundamental changes in circumstances

 

An event is considered a fundamental change in circumstances when it meets the following conditions:

 

Firstly, the change in circumstances arises from objective reasons occurring after the conclusion of the contract. It is important to affirm that fundamental changes in circumstances stem from objective reasons that occur during the performance of the contract. Although the law only mentions this without clear regulations, these objective reasons are typically beyond the control of the parties and may disrupt the process of contract execution, such as disasters, natural calamities, pandemics, changes in laws, or any other events beyond the control of the parties that significantly alter the circumstances.

 

Secondly, at the time of concluding the contract, the parties could not foresee the changes in circumstances. For instance, even if the parties are aware of severe flooding and prolonged landslides in Nghệ An province through mass media for ten days, they still agree to deliver goods to this area within a specified period. However, the widespread flooding causes the seller to delay the delivery time compared to the agreed schedule, and the transported goods are damaged. In this case, despite the fact that the parties were fully aware of the potential changes in circumstances during the contract execution, it cannot be considered a fundamental change in circumstances, and the parties must fulfill the contract without negotiating amendments based on the grounds of fundamental changes. The law's clear specification of this condition aims to enhance the parties' responsibility for the commitments they have made and ensures the objective nature of circumstances beyond the contract's content.

 

Thirdly, the changes in circumstances are significant to the extent that if the parties had known in advance, the contract would not have been concluded, or if concluded, would have been entirely different in content. This condition defines the degree of change in circumstances that affect the agreed terms of the contract. Continuing from the above example, if the parties knew in advance about the complex weather situation in Nghệ An province for ten days, they might not have entered into that contract or could have agreed to deliver the goods at a different time or share the risks of goods being affected by the weather conditions. Thus, the degree of change of circumstances is acceptable when assuming that the parties know in advance, they will not enter into or enter into another content. This assumption is often not practical in practice because the parties will have different explanations for the hypothesis, or even the adjudicating authorities will have different opinions.

 

Fourthly, the continuation of contract execution without altering the contract's content would cause significant harm to one party. This is a crucial factor, a condition, to distinguish from a force majeure event where fundamentally changed circumstances prioritize the continuation of contract execution but under modified contract terms to limit harm to one party. This is also a prerequisite for us to emphasize the application of contractual modification consequences when fundamental changes in circumstances arise, as further analyzed in the subsequent section.

 

Fifthly, the party whose interests are affected has taken all necessary measures within their capability, consistent with the nature of the contract, to mitigate the impact on their interests to the extent possible, without being able to prevent or minimize the extent of the impact. Similarly to a force majeure event, the party with an obligation or an interest affected has taken necessary measures to remedy the consequences or prevent, mitigate the extent of the impact on their interests. In this case, they must demonstrate with specific evidence sufficient to establish that it did not randomly become a basis for contractual exemption.

 

1.2. Legal Consequences of Fundamental Change in Circumstances

 

The legal consequences in the event of a fundamental change in circumstances are stipulated in Articles 2 and 3 of Article 420 of the 2015 Civil Code. Specifically, the party whose interests are affected has the right to request the other party to renegotiate the contract within a reasonable period. If the parties cannot agree on contract modification, they have the right to demand that the Court terminate or modify the contract to balance the legitimate rights and interests of the parties.

 

Therefore, it can be seen that, despite changes occurring in the circumstances of contract performance, the parties still have the opportunity to continue executing the contract by upholding a spirit of voluntariness and initial agreement through renegotiation. If negotiations cannot be reached, the specific dispute resolution authority, the Court, is designated to possess the power to decree contract modification even when the parties are unable to come to an agreement or to decide on contract termination. The Court's ability to decree contract modification is restricted to cases where contract termination would result in more significant harm compared to the costs of implementing the contract if it were modified. This signifies that the Court must carefully deliberate in order to reach a final decision that is deemed the most effective in limiting damages. If both parties wish to modify the contract but propose differing alternatives that cannot be executed, the Court will have to assess each party's proposals. In the event that it is apparent that any proposed alteration to the contract would incur costs disproportionately larger than the benefits to the parties, the verdict concerning contract termination will be the preferred choice.

 

2. Regulations of Vietnamese law and some countries around the world regarding the modification of contracts due to fundamental changes in circumstances.

 

2.1. When there are fundamental changes in circumstances, the party whose interests are affected has the right to request the other party to renegotiate the contract.

 

Amending the contract within a reasonable period based on the negotiations of the parties is stipulated in Article 2 of Article 420 of the 2015 Civil Code: "In case of fundamental changes in circumstances, the party whose interests are affected has the right to request the other party to renegotiate the contract...". Accordingly, the subject entitled to request contract renegotiation is the party whose interests are affected. When there is a fundamental change in circumstances, the affected party must proactively exercise their rights.

 

According to the force majeure clause of the International Chamber of Commerce (ICC) 2003 - ICC Force Majeure Clause 2003: "This clause obliges the parties to negotiate reasonable terms to resolve disputes (issues) without resorting to litigation, as stipulated in Article 6.2.3 of the Unidroit Principles..."

 

In Article 6.2.3 of the Unidroit Principles, it is stipulated: "In case of fundamental changes in circumstances, the disadvantaged party has the right to request contract renegotiation. This request must be made promptly and must be substantiated."

 

According to Article 1195 of the French Civil Code: "If an unforeseeable change in circumstances at the time of contract formation increases the cost of contract performance for one party beyond a level that the party cannot reasonably accept the risk, they have the right to demand contract renegotiation with the other contracting party."

 

In this regard, when compared with provisions of international law, most rights to request contract modification through negotiation belong to the affected party. The issue arises when the law does not stipulate; does the unaffected party have an obligation to accept negotiations for contract modification upon the request of the affected party? Referring to the regulations of Vietnamese law, the provision only specifies the rights of the affected party without explicitly mentioning the obligation of the other party, thereby not being able to bind the obligation of the unaffected party. Consequently, when the unaffected party refuses to comply with the request of the affected party, rejection or difficulties in negotiations may occur. In the ICC 2003 provision, the obligation to negotiate the resolution of issues arising from fundamental changes in circumstances lies with both parties in the contract, meaning both the affected and unaffected parties by the fundamental changes. This provision establishes a binding requirement for all parties to engage in sincere discussions, mutual negotiations, and dialogues about contract modification options to ensure the rights of all parties.

 

Article 3 of the 2015 Civil Code stipulates, "In cases where the parties cannot agree on amending the contract within a reasonable period...". The law sets a reasonable timeframe for the affected party to request and for all parties to engage in negotiations and reach an agreement regarding the contract modification. Therefore, negotiations between the contractual parties without involving dispute resolution authorities are always prioritized.

 

2.2. In cases where the parties cannot reach an agreement on contract modification, they have the right to request the Court to modify the contract.

 

The condition for requesting Court intervention can only be fulfilled when the parties cannot come to an agreement or when one party refuses to negotiate the contract modification. In such cases, the Court may consider issuing one of the two rulings to resolve the dispute: (i) Termination of the contract at a specified time; or (ii) Modification of the contract to balance the legal rights and interests of the parties due to fundamental changes in circumstances.

 

Regarding jurisdiction for resolving disputes arising from fundamental changes in circumstances, Clause 3, Article 420 of the 2015 Civil Code states that "one of the parties may request the Court" to resolve the dispute if the parties cannot agree on continuing to perform the contract. However, according to the regulations of Vietnamese law, apart from the Court, there are other competent authorities to settle disputes. Therefore, it cannot be solely based on this provision to conclude that only the Court has the authority to resolve disputes when a fundamental change in circumstances occurs. This clause can be agreed in the contract and the selection of commercial arbitration to resolve the dispute as agreed by the parties in the contract, completely does not violate the law.

 

In Article 420 of the 2015 Civil Code, the amendment of contracts in the event of fundamental changes in circumstances is mentioned twice. The law has prioritized the good faith of the parties within the contract to establish agreements and negotiations among the parties themselves, aiming to modify contract terms to balance the interests of all parties. In cases where the parties cannot negotiate, one of the decisions that the adjudicating authority should consider is the modification of the contract to facilitate its continued execution.

 

However, concerning contract modification, an important principle to consider is that contract modification should only be decided upon when terminating the contract would result in greater harm than the costs of executing the contract if it were modified. Currently, the law does not provide clear provisions regarding the damages incurred upon contract termination and the costs of contract execution when modified. Explanations and details regarding the aspects of damages and costs of contract execution need to be clarified as well. In the event of applying these provisions, the Court can then reasonably calculate and compare the damages incurred through termination with the costs of continuing the contract based on a clear foundation.

 

II. PRACTICAL APPLICATION OF THE LAW ON CONTRACT MODIFICATION DUE TO FUNDAMENTAL CHANGES IN CIRCUMSTANCES

 

From the analyses of the aforementioned legal provisions, it can be observed that the legal consequences of fundamental changes in circumstances are the modification and termination of contracts. However, stemming from the essence of a legitimate civil transaction and the crucial distinction between fundamental changes in circumstances and force majeure events, contract modification is a logical outcome that should be prioritized. This not only minimizes the loss of the disadvantaged party's interests but also ensures the spirit of agreement and voluntary commitment among the parties.

 

During the drafting of the 2015 Civil Code in Vietnam, lawmakers recognized the importance of amending contracts due to fundamental changes in circumstances and to align with international law. Consequently, when the Civil Code came into effect, fundamental changes in circumstances were officially acknowledged for the first time, with the specificity that contracts could continue to be enforced. However, up to this day, five years since this was formally established, we have mostly relied on the common practical approach of searching for public judgments or examining court trial outcome statistics, and it's rare to find any effective court judgments modifying contracts to balance the legal interests of both parties due to fundamental changes in circumstances, most of the contracts are terminated. It remains uncertain whether the disputing parties have refrained from negotiating contract amendments or if judicial practices and legal provisions regarding this matter are still limited.

 

In a dispute case over the transfer of industrial property rights, the court of appeal of the People's Court in Da Nang invalidated the letter of guarantee. Company P entered into a lease contract for a bar business premises with Company T. Subsequently, Company P continued to enter into a contract for the lease of the bar's brand and equipment with Company V. Due to Company P's failure to make full rent payments, Company T unilaterally terminated the lease contract with Company P. This had a significant impact on the business and use of the bar's brand and equipment, leading Company P to propose multiple times to amend the contract with Company V, specifically reducing the rent amount and splitting it into two payment installments to accommodate the changed circumstances. However, Company V did not agree to these proposals. However, when initiating the dispute resolution lawsuit, Company P once again requested the court to terminate the contract for the lease of the brand and equipment of the bar. In this case, both the trial court and the court of appeal did not accept the plaintiff's request and compelled Company P to continue fulfilling its obligations with Company V. The court of appeal did not review the content of the trial court's judgment as it found that the trial court had violated jurisdiction.

 

Regarding the decision of the trial court, we believe that compelling the parties to continue performing the contract should be assessed based on the ability of each party to continue performance after the verdict. While protecting the immediate rights of the violated party is desired, if the ability to enforce the judgment is not present, future rights are not guaranteed either. In this case, Company P has repeatedly emphasized that the company is in a situation where it cannot make payments and has lost the leased premises, making it impossible to continue its business operations. The feasibility of using the brand name and bar equipment (which are closely tied to the leased premises) at the initially agreed-upon price with Company V is not practical for them. This situation raises the question of whether this qualifies as a fundamental change in circumstances or a business risk. If it is considered a fundamental change in circumstances to continue the contract, it is necessary to anticipate the ability of the parties to enforce the judgment to make appropriate amendments to the contract, ensuring that the court's decision addresses the parties' requirements. If this is viewed as a business risk that Company P must bear, the court should carefully consider Company P's capabilities in accepting the contract termination request while also determining Company P's obligations from the date of contract termination.

 

Or in another case involving a dispute over a land usage rights transfer contract and a request to annul the land usage rights certificate, between an individual, Ms. D, and Real Estate Business Company C. Company C claimed that due to a reduction in land size upon measurement compared to the initial agreement, they reduced the transfer price for Ms. D. However, Ms. D continued to intentionally violate her payment obligations, so Company C initiated a lawsuit requesting the termination of the contract. The competent court agreed with Company C's lawsuit request, considering that both parties were at fault, partly due to a fundamental change in circumstances (the value of land usage rights changed compared to when the contract was signed, but both parties did not renegotiate) as stipulated in Article 420 of the Civil Code. To balance the interests of both parties, Company C was obliged to reimburse Ms. D with the value of land usage rights corresponding to the land area Ms. D had paid for, based on the value at the time of the trial.  When considering the overall result of dispute resolution, it can be observed that the consequence of terminating the contract due to a fundamental change in circumstances is a common practice in court judgments. This may stem from the difficulties in amending contracts, which do not rely on the parties' willingness, or from proving that terminating the contract would cause significant harm compared to the cost of modifying the contract.

 

In another development, a series of disputes have arisen in Da Nang city between land project buyers and a real estate business company operating in the area. More than five years ago, this company has organized the subdivision of plots to sell the ground and signed a contract with the nature of which is a contract to transfer the project land use right in the urban area of ​​type 1 in the form of a capital contribution contract and a commitment for a term of 03 months -12 months will notarize the land use right transfer contract and hand over the red book to the customer 1 month later. However, as of February 4, 2021, the Da Nang city People's Committee issued a decision designating this company as the project's investor. Additionally, Decree 148/2020/NĐ-CP, effective from February 8, 2021, stated that for housing construction investment projects for sale or combined sale and lease in central-level type I urban wards, investors are not allowed to transfer land usage rights under the form of land lot subdivisions. This legal change occurred while the project had not been granted permission for land usage rights transfer through land lot subdivisions, leading to a fundamental change in circumstances when executing the contracts already signed by all parties. However, in this context, the investor did not present any reasonable proposals to amend the contract based on the change in circumstances, such as increasing the contract value or terminating the contract. Instead, the company initiated legal action against its own customers to request contract termination. Clearly, the real estate business company did not adhere to the negotiation and contract amendment spirit to continue contract fulfillment. Instead, they took advantage of the legal changes to compel land buyers to accept new price increases or terminate the contract to sell to other buyers. If this were to occur, even if the contract were amended to increase its value or terminated, the land buyers who had invested their money five years ago would suffer significant and substantial losses. Faced with this situation, the land buyers collectively filed complaints and requested contract amendments in favor of preserving the original land usage rights value as agreed upon. The fundamental change in circumstances was rectified by mutual agreement, incorporating the new legal requirement for land transfer along with the houses built on the land. The construction costs for the houses would be borne by the land buyers. From each party's perspective, this contract amendment option is entirely reasonable. The real estate business company can proceed with the project without violating the law, and the land buyers can safeguard their land purchasing rights.

 

Currently, it is extremely rare to find a court judgment that orders the modification of a contract due to a fundamental change in circumstances on website publishing decisions and judgments of the Supreme People's Court. The exact statistics on the rate of such judgments have not been accurately compiled. Through legal theoretical analysis and practical experience, we have identified several challenges in implementing legal provisions in practice: Firstly, the legal provision for amending contracts to balance the interests of the parties is only applied by the court when terminating the contract would result in significant harm. This provision still prioritizes contract termination when circumstances change. To order a contract modification, the court must take an additional step to prove that terminating the contract would indeed cause significantly greater harm than the cost of amending the contract. This legal provision demonstrates a preference for contract termination, which runs contrary to the criteria for establishing a fundamental change in circumstances. Additionally, requiring the court to determine the differential harm may discourage the court from ordering contract modifications. Secondly, there are difficulties in enforcing judgments. Also stemming from the aforementioned regulations, the court decides to amend a contract only when it is necessary to determine significant damages resulting from contract termination, without considering the possibility of continuing contract performance through modifications agreed upon by the non-consenting party. In order for the court's decision to be truly effective and feasible during execution, there should be provisions that assess the ability of the parties to continue the contract. If the parties are fully capable and not harmed, they must continue to perform the contract in a reasonable and fair manner. Thirdly, only the civil law code provides basic provisions regarding the essential elements and legal consequences, but there are no specific guidance documents based on current trial practice. This also greatly affects the court's approach to resolution. To ensure a safe and limited modification process due to unclear damage proofs, personal opinions may override the spirit of the law. Therefore, this content needs to be more clearly instructed in specialized legal documents.

 

Therefore, it is not always the case that disputing parties readily agree to amend a contract when fundamental circumstances change. Sometimes, the law needs to be more clearly defined, or the courts need to shift their thinking to accept a dispute resolution approach that prioritizes contract modification. This is to genuinely ensure the effectiveness of adapting to fundamental changes in circumstances while maintaining a balanced consideration of the interests of all parties involved.

 

III. IMPROVING LEGAL PROVISIONS AND SOME RECOMMENDATIONS IN PRACTICAL APPLICATION WHEN AMENDING AND CONTINUING TO EXECUTE CONTRACTS DUE TO FUNDAMENTAL CHANGES IN CIRCUMSTANCES

 

Firstly, the law needs to provide clear distinctions between the terms "unforeseeable change in circumstances" and "business risk." One of the conditions mentioned in Caluse 1 Article 420 of the 2015 Civil Code when considering a fundamental change in circumstances is "at the time of contract formation, the parties could not have foreseen the change in circumstances." With this provision, the law unintentionally recognizes the concept of "unforeseeability" in all situations if the other conditions are met, allowing the use of the "fundamental change in circumstances" basis for contract modification or termination. The law has not established clear regulations to differentiate between the two concepts of business risk and unforeseeable change in circumstances, leaving the determination of which category a specific event falls into to the subjective perspectives and intentions of the parties involved. In commercial business, the party in breach often invokes their own business risks to argue that they have encountered a fundamental change in circumstances, resulting in significant losses if they continue to perform the contract as originally agreed. Even in Article 6.2.2 of the Unidroit Principles, it mentions an interpretation that "Sometimes changes in circumstances are gradual, but the ultimate result of such gradual changes may give rise to hardship. If the changes began before the contract was concluded, hardship will not have arisen unless the pace of change was so significant that it was unforeseeable at the time of contracting."  In light of this issue, the law should establish clear provisions to distinguish between these two terms, preventing subjectivity and conflicts of perspective among the parties to the contract when applying these concepts.

 

Secondly, there should be specific guidance on assessing the level of damage caused by a fundamental change in circumstances. Point d Clause 1, Article 420 of the 2015 Civil Code provides: "Continuing to perform the contract without amending its content would cause serious damage to one party." Therefore, what constitutes serious damage and how to measure the extent of that damage becomes a significant and essential question that needs clarification when applied. Similarly, under Vietnamese law, Article 1195 of the Civil Code of France states: "A change in circumstances that makes performance of the contract excessively onerous." At point b, Clause 3 of Article 420 of the 2015 Civil Code, it is stipulated as follows: "The court shall only decide to modify the contract if terminating the contract would cause greater harm than the costs of performing the contract if modified." In practice, with such "open" provisions, it is challenging to determine what would constitute greater harm. The courts face difficulties in deciding whether to accept or reject contract modifications when a fundamental change in circumstances occurs. In contrast, the Unidroit Principles clearly stipulate that the level of damage will depend on whether the change results in increased or decreased costs of performance and reduced value of counter performance. This provision can be seen as more transparent and potentially more applicable to real-world situations. Without a specific determination of the extent of damage between contract termination and contract modification to balance the interests,  with the mindset of considering safety rather than ensuring the best interests of the parties of the judicial body, there is a high likelihood that a decision to terminate the contract will be declared, obligating the parties to perform. To establish a fair mechanism in the application of the law, it is necessary to provide more specific guidance on assessing the level of damage when modifying or terminating a contract due to a fundamental change in circumstances. From the basis of assessed damages, the Court will clearly consider the benefits or losses of the parties when making a final judgment. Some legal criteria that should be considered include: the expected benefits that the parties will receive if the contract is terminated or continued; the anticipated damages that the parties will incur if the contract is terminated or continued; damages up to the point when the court adjudicates; and the increased cost of performing the obligation and the reduced value of the counter-obligation based on the Unidroit Principles. Importantly, the parties should also be required to demonstrate the specific values of benefits and damages if they request to continue the contract through modification or termination.

 

Thirdly, in Clause 2, Article 420 of the 2015 Civil Code, it is stipulated as follows: "In cases of a fundamental change in circumstances, the party whose interests are affected has the right to request the other party to renegotiate the contract within a reasonable period." So, if the law only grants this right to the party whose interests are affected and not to the party unaffected, it appears that the law is directly limiting the parties' autonomy. This is because it is possible that, driven by goodwill, the party whose interests are affected in a situation of a fundamental change may also wish to propose contract modifications to minimize the harm suffered and balance the interests of both parties. Not only Vietnamese law, but also the French Civil Code of 2018 contains a similar provision: "If there is a change in circumstances that could not have been foreseen at the time of contract conclusion and that makes the performance of one party's obligation excessively burdensome, and that party has not agreed to bear this risk, that party may request the other party to renegotiate the contract." Furthermore, even Article 6.2.3 of the Unidroit Principles states: "In case of a fundamental change in circumstances, the disadvantaged party has the right to request renegotiation of the contract." Therefore, the law should provide for situations where the party unaffected by the change in circumstances also has the right to request contract renegotiation. 

 

In light of this limitation, the author proposes the following amendment: "In cases of a fundamental change in circumstances, both parties (the affected party and the unaffected party) have the right to request the other party to renegotiate the contract within a reasonable period."

 

Fourthly, there should be specific provisions explaining the reasonable time frame within which the parties should engage in negotiations to amend the contract when a fundamental change in circumstances occurs. Clause 2, Article 420 of the 2015 Civil Code uses the term "reasonable time frame." What exactly does this reasonable time frame mean? Some argue that it should be calculated from the moment the fundamental change in circumstances occurs, while others believe it should be measured from the time the damage caused by the change in circumstances becomes apparent. According to civil law regulations, a contract is an agreement among the parties, and what constitutes a reasonable time frame is subject to each party's perspective. This provision is similar to the provisions related to open-ended loan contracts in the 2015 Civil Code, which use the term "must notify each other within a reasonable time frame." To clarify this time frame, parties in a contract can voluntarily agree and include a provision in the contract that specifies the reasonable time frame within which the parties can engage in negotiations to amend the contract when a fundamental change in circumstances occurs. Although not specifying this explicitly provides flexibility, cases where parties cannot determine a reasonable time frame can lead to conflicts during negotiations and differing interpretations of this issue. Therefore, defining and explaining the term "reasonable time frame" is necessary.

 

The 2015 Civil Code is relatively young, being only 5 years old, and while there have been significant advancements in incorporating legal provisions aligned with practical experience, the open-ended nature of certain provisions still poses challenges in their real-world application. To truly ensure legal fairness and balance the interests of all parties when a fundamental change in circumstances occurs, especially in the context of growing commercial business activities, it is crucial to have regulations that uphold the spirit of cooperation and respect for previously agreed-upon arrangements. Therefore, it is highly recommended that a resolution or guidance document be provided by legal experts or the Supreme People's Court to clarify the details of Article 420 of the 2015 Civil Code regarding contract amendments due to fundamental changes in circumstances.

 

REFERENCE DOCUMENTS

 

I. Legal Framework Documents

 

1. The 2015 Civil Code .

 

2. The 2018 Civil Code of France.

 

3. The German Civil Code (BGB) 8.

 

4. International Chamber of Commerce (ICC) Force Majeure Clause 2003.

 

5. Unidroit Principles of International Commercial Contracts 2004.

 

II. Legal Application Documents

 

6. Judgment No. 46/2020/DS-PT dated March 12, 2020, of the People's Court of Binh Duong Province. https://congbobanan.toaan.gov.vn/.

 

7. Judgment No. 02/2018/KDTM-PT dated January 26, 2018, of the People's Court of Da Nang City. https://congbobanan.toaan.gov.vn/.

 

8. Judgment No. 143/2019/KDTM-PT of the People's Court of Hanoi City. https://congbobanan.toaan.gov.vn/..

 

9. Judgment No. 67/2021/DS-PT dated October 26, 2021, of the People's Court of Da Nang City. https://congbobanan.toaan.gov.vn/..

 

10. Judgment No. 133/2021 dated July 8, 2021, of the People's Court of Ca Mau Province. https://congbobanan.toaan.gov.vn/.

 

III. Other Reference Sources

 

11. Đàm Thị Diễm Hạnh (2020), "Thực hiện hợp đồng khi hoàn cảnh thay đổi cơ bản theo pháp luật hiện nay". https://123docz.net//document/7167982-thuc-hien-hop-dong-khi-hoan-canh-thay-doi-co-ban-theo-phap-luat-viet-nam-hien-nay.htm, accessed on October 12, 2022.

 

12. Nguyễn Thị Thùy Hường (2019), "Hậu Quả Pháp Lý Khi Hoàn Cảnh Có Sự Thay Đổi Cơ Bản Khi Thực Hiện Hợp Đồng" https://tapchitoaan.vn/hau-qua-phap-ly-khi-hoan-canh-co-su-thay-doi-co-ban-trong-qua-trinh-thuc-hien-hop-dong), accessed on October 12, 2022.

 

LIST OF CITED DOCUMENTS

 

[1]. Lawyer at FDVN Law Firm, Phone: 0906.499.446, Email: luatsutranhau@gmail.com, Address: 99 Nguyen Huu Thi, Hoa Thuan Tay Ward, Hai Chau District, Da Nang City;

 

[2]. Legal Specialist at FDVN Law Firm; Phone: 0931.77.11.27, Email: httquynh205@gmail.com, Address: 99 Nguyen Huu Thi, Hoa Thuan Tay Ward, Hai Chau District, Da Nang City;

 

[3]. Legal Specialist at FDVN Law Firm; Phone: 0978.598.432; Email thanhtra.nguyen119@gmail.com, Address: 99 Nguyen Huu Tho, Hai Chau District, Da Nang City;

 

[4]. Legal Specialist at FDVN Law Firm; Phone: 0333.075.201; Email: huongdoang2008@gmail.com, Address: 99 Nguyen Huu Thi, Hoa Thuan Tay Ward, Hai Chau District, Da Nang City;

 

[5]. Civil Law of France (translated version) in 2018, https://fdvn.vn/bo-luat-dan-su-phap-ban-dich/

 

[6]. Unidroit Principles of International Commercial Contracts 2004, http://tailieuxnk.com/upload/sanpham/thumb/Tai-lieunguyen-tac-unidroit-ve-hop-dong-thuong-mai-317191556747.pdf

 

[7]. Clause 1, Article 420 of the Civil Code 2015;

 

[8]. Clause 1, Article 420 of the Civil Code 2015;

 

[9]. ICC Hardship 2003, https://iccwbo.org/publication/icc-force-majeure-clause-2003icc-hardship-clause-2003/

 

The Clause places upon the parties the duty to negotiate alternative reasonable terms without expressly referring the matter to a court, as is done in article 6.2.3 of the Unidroit Principles…

 

[10]. Unidroit Principles of International Commercial Contracts 2004, http://tailieuxnk.com/upload/sanpham/thumb/Tai-lieunguyen-tac-unidroit-ve-hop-dong-thuong-mai-317191556747.pdf

 

[11]. Civil Law of France (translated version) in 2018, https://fdvn.vn/bo-luat-dan-su-phap-ban-dich/

 

[12]. Civil Code (2015), Article 420;

 

[13]. Judgment No. 02/2018/KDTM-PT dated January 26, 2018, of the People's Court of Da Nang City, Electronic information on judgments and decisions of the Court, https://congbobanan.toaan.gov.vn/2ta67420t1cvn/chi-tiet-ban-an, accessed on October 11, 2022;

 

[14]. Judgment No. 46/2020/DS-PT dated March 12, 2020, of the People's Court of Binh Duong Province, Electronic information on judgments and decisions of the Court, https://congbobanan.toaan.gov.vn/, accessed on October 11, 2022;

 

[15]. Unidroit Principles of International Commercial Contracts 2004, http://tailieuxnk.com/upload/sanpham/thumb/Tai-lieunguyen-tac-unidroit-ve-hop-dong-thuong-mai-317191556747.pdf

 

[16]. Article 6.2.2 of the Unidroit Principles provides as follows: "Hardship is established when events occur that fundamentally change the balance of contractual obligations, or because the cost of performing the obligations increases, or because the value of the counter-performance decreases."

 

[17]. Unidroit Principles of International Commercial Contracts 2004, http://tailieuxnk.com/upload/sanpham/thumb/Tai-lieunguyen-tac-unidroit-ve-hop-dong-thuong-mai-317191556747.pdf

 

[18]. Article 469 of the Civil Code 2015.

 

Link PDF: Request the Court to modify the contract due to fundamental change of circumstances - From regulations to practice

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