Tilleke & Gibbins, a Corporate Member of the Thai-Norwegian Chamber of Commerce has kindly shared the following legal opinion on a number of issues linked to the COVID-19 situation. In this article, Tilleke & Gibbins is providing insights into the impact of COVID-19 and other extraordinary events on contractual performance.
The dawn of the new decade brought with it familiar expectations of prosperity in global and regional commerce. This expectation has resonated throughout the ASEAN region and Thailand in particular, an historical favorite in the region for tourism and business investment. By the close of 2019 tourism numbers were at historic highs and investment in business and infrastructure were on the rebound, with parties to contracts in the region from both within and outside Thailand committing substantial resources to existing or contemplated commercial contracts.
But extraordinary events can disrupt even the most favorable of economic pictures. COVID-19 and its rapid escalation into a global pandemic has had a significant impact, not only on the global economic outlook, but also on regional operators’ business plans. The Thai government, following the lead of the WHO and other regional and global players, has employed measures to limit travel and public gatherings and in some cases has even restricted access to government functions. These measures, along with measures implemented by other countries, have caused unprecedented business disruptions affecting business operators in ways that may significantly impair their ability to meet their commercial contract obligations. But does this and similar global shocks constitute an excuse for nonperformance of commercial contracts? The answer lies largely in an analysis of the law of force majeure and impossibility.
Force Majeure and Business Disruptions
Force majeure is defined broadly as an event that could not have been reasonably anticipated and is otherwise beyond a party’s control. This is codified in Thailand’s Civil and Commercial Code. Thai statutory law does not provide a list of specific instances that constitute force majeure , but the Thai Supreme Court has found that a party may be excused from certain contractual obligations in instances of widespread fire, flooding, extreme natural disruptions, extraordinary acts of government, and in periods of significant unrest. What is certain, however, is that the Thai Supreme Court has historically taken a conservative stance and has ruled that a party is excused from performance obligations in only a minority of force majeure disputes. For this reason, parties wishing to avoid the uncertainty of the courts’ interpretation of force majeure should consider including specific force majeure clauses in their contracts.