Guest Column: Effects of the COVID-19 Outbreak on Creditors and Debtors

Effects of the COVID-19 Outbreak on Creditors’ Exercise of their Rights and Debtors’ Payment of Debts, and Legal Measures for the Prevention and Control of the Spread of the Pandemic

Due to the outbreak of COVID-19, government agencies have set out and implemented necessary measures to prevent and control the spread of the virus. The severity of the situation and these legal measures could affect creditors’ exercise of their rights and debtors’ performance of their obligations. My observations about the status of the rights and obligations of creditors and debtors during the ongoing outbreak of the COVID-19 are as follows:

Although no one knows how long this pandemic will last, it is certain that it will eventually end. It is therefore certain that the relationships between creditors and debtors continue to exist, unless it is agreed otherwise. Debtors are still obliged to pay their debts, while creditors are still entitled to demand payments. In most cases, debtors cannot use a disease outbreak as an excuse to refuse a debt payment. This is because a disease outbreak is temporary and therefore when the situation returns to normal, debtors will have to resume their performance of obligations, obligations which continued to exist throughout and despite the existence of the outbreak.

However, while creditors’ rights and debtors’ obligations remain intact, the public health crisis has resulted in the implementation of legal measures that restrict movement and business activities, prohibiting many people in Bangkok and other large cities from living normal lives. Such legal measures, such as government-mandated closures or a general societal lockdown, affect debtors’ performance of their obligations and exercise of their rights. If an illness or quarantine resulting from the pandemic or a legal measure implemented by the government does not allow a debtor to perform its obligation as scheduled, it is possible that such debtor may not yet be in default. This is because the current situation could be considered a temporary circumstance, of no fault of the debtor, which prevents performance of an obligation, according to Section 205 of the Civil and Commercial Code. Hence, the debtor may not be liable to the creditor for damages incurred from the late performance of the obligation. For example, if a debtor agrees to produce goods for a creditor but said production can only be performed at the debtor’s factory which is located in a lockdown zone, and it is impossible for the debtor to move production from the factory to another location, then if the debtor is late in the delivery of goods, the debtor is not legally liable for the delay and the creditor is obligated to accept the late delivery.

In the case of debts, generally the law considers that a debtor can always pay a debt, even during a disaster or economic crisis, because money is always available in an economic system. In other words, a disaster or economic crisis does not make it impossible to pay a debt. According to Supreme Court Judgments, a debtor’s inability to pay a debt due to not having enough money in itself is not an event that temporarily prevents the performance of an obligation under Section 205. However, if the debtor’s business is closed because of a law or a government order, making the debtor unable to pay the debt as scheduled, this could be considered an event that temporarily prevents the performance of the obligation, which may be raised by a debtor as an excuse for default. (See Supreme Court Judgment No. 16469/2557.) In short, a debtor’s inability to pay a debt caused by a temporary event such as the current COVID-19 outbreak, might exempt the debtor from being in default for payment of either the principal amount or interest. Hence, the debtor may not be liable for default interest or damages. However, for how long a debtor can be exempted under Section 205 depends on the overall outbreak situation and the debtor’s financial status.

Closure of several private places, such as department stores and markets, is a necessary measure to contain the spread of COVID-19. However, the closures cause business operators to lose income and makes them unable to pay rentals. In this case, the lessees will not be legally obligated to pay rentals to the lessors, because the situation had rendered it impossible for the lessors to perform their duty of enabling the lessees to use the leased space pursuant to their lease agreements. Because the lessors are unable to perform their duty, the lessees are, in turn, not obligated to pay rentals in exchange. This is based on the principle of bilateral agreements under Section 369 of the Civil and Commercial Code. This applies even though it is agreed in the lease agreement that the lessee is obligated to pay rentals although the lessee cannot use the leased space, because this contractual clause may become unenforceable or enforceable only to the extent that it is fair, pursuant to Section 4 of the Unfair Contract Terms Act. In cases where it is considered that a lease agreement is made between a business operator and a consumer, or is a standard agreement, which is not governed by the Unfair Contract Terms Act, it is my opinion that this clause should become void because it is contrary to public order and morality, under Section 150 of the Civil and Commercial Code. Once the situation returns to normal and the lessees are able to use the leased space, the lessees will be obligated to make full rental payments according to their lease agreements. (Rental payments are exempted only during the time when the lessees are unable to use the leased space.)

Regarding agreements for services, such as hotel reservation, air transportation, etc., if the service providers are unable to perform their obligations under the agreements because, for example, their places of business are ordered to be closed, making it impossible to provide services normally, the customers should not be obliged to pay charges for the services that cannot be delivered, based on the principle of bilateral agreements. If service charges are paid in advance, the service charges should be returned, or the customers should be allowed to use the services later (e.g. in the case of hotel reservations). If a customer wants to cancel a hotel reservation or is unable to stay at the accommodation because he is infected with COVID-19 or because he is concerned about exposure to COVID-19, although this is the customer’s viewpoint and it is not that the place of business is ordered to be closed or the service provider is not ready to provide the service, the customer should be able to raise the change of circumstances as an excuse for non-performance of his contractual obligation. This is because at the time when the debtor and creditor enter into the agreement, both parties intended to perform their contractual obligations under normal circumstances. This current situation is not under normal circumstances, and is unprecedented and unexpected. Although the principle in this regard under Thai law is not as clear as foreign law, the principle of bona fides broadly prescribed in Section 5 and Section 368 of the Civil and Commercial Code provides sufficient legal grounds for non-performance of obligations by customers in the above situations.

Whether a debtor can successfully argue late or non-payment according to the above legal provisions will be subsequently judged by the court. One certain thing is the economy will impact creditors’ exercise of their rights and debtors’ performance of their obligations to some degree. As such, creditors and debtors may negotiate to loosen certain contractual obligations and defer payments until a future agreed time (e.g. after this crisis ends). For the reasons stated above, strict enforcement of debts at this time may be counterproductive. Debtors may become bankrupt and the creditors would be unable to gain anything from the debtors. Formal legal proceedings also require a lot of money and take years before they become final.

November 11, 2024

Vietnam’s Digital Hub Aspirations Will Open Opportunities for Investors

The Vietnamese government has demonstrated a strong commitment to building a digital government, digital economy, and digital society through its recently issued national strategy on digital infrastructure. Under Decision No. 1132/QD-TTg dated October 19, 2024, on “Digital Infrastructure Strategy to 2025 with Orientation to 2030,” the government will create supportive conditions for both domestic and international businesses to invest in digital infrastructure with cybersecurity as a priority. Recognized as vital to the economy, this digital infrastructure will consist of four main components: (i) telecommunications and internet infrastructure, (ii) data infrastructure, (iii) physical-digital infrastructure, and (iv) digital utility infrastructure, including digital technology as a service. Key goals for 2025 include universal fiber optic access for households, 100% 5G coverage across all provinces and cities, deployment of at least two new international undersea fiber optic cables, establishment of AI data centers, development of green-standard data centers, and platforms for IoT, AI, big data, blockchain, and cybersecurity. By 2030, goals include fiber access with speeds of at least 1 Gbps, 5G coverage for 99% of the population, readiness for 6G trials, six additional international undersea fiber optic cables, development of a hyperscale data center, and positioning Vietnam as a digital hub. To achieve these goals, the government has outlined some core tasks, creating significant opportunities for both foreign and domestic investors: Developing telecommunications and internet infrastructure for widespread fiber optic and 5G access, while preparing for emerging technologies like 6G, Open RAN, satellite, and IpV6. Telecommunication enterprises will jointly invest in and share the use of international fiber optic cable routes to ensure efficient capacity utilization and optimize investment capital. Attracting foreign and domestic investment to establish hyperscale data centers and cloud computing services that meet global standards. Creating physical-digital infrastructure by integrating technology across key sectors such as transportation, energy, healthcare,

October 21, 2024

Thai Court Decision Moves Design Assessment Closer to International Standards

Thailand’s Central Intellectual Property and International Trade (IP&IT) Court has delivered a favorable ruling for Sumitomo Rubber Industries, Ltd., a major player in the tire manufacturing industry, regarding the registration of its motorcycle tire design patent. In this case, Tilleke & Gibbins represented Sumitomo in successfully advocating for recognition of the unique design elements in the company’s motorcycle tire products. Case Overview The case revolved around Sumitomo’s two design patent applications for motorcycle tire designs, which were initially rejected by the Department of Intellectual Property (DIP) on the grounds that they were similar to prior art. Based on an examination of the design elements, primarily focusing on the tire tread patterns, the DIP’s Patent Board had concluded that Sumitomo’s designs were not sufficiently unique to warrant patent protection, as the tread patterns of the new designs were deemed too similar to one found in prior art for tire products. In response, Tilleke & Gibbins filed a complaint with the IP&IT Court on behalf of Sumitomo, seeking a revocation of the Patent Board’s decision and requesting that the court compel the DIP, as the defendant, to proceed with the registration of Sumitomo’s design patents. The complaint emphasized that the designs were novel and distinct, warranting patent protection under Thai law. Legal Strategy The firm’s legal argument focused on the interpretation of Thai patent law, particularly regarding the protection of a product’s external appearance, and emphasized that the determination of a design’s novelty must consider the product’s overall appearance rather than isolating individual features. This approach is consistent with international guidelines on design patents, which require the evaluation of novelty and distinctiveness based on how an informed user would perceive the design as a whole. While Sumitomo’s tire tread patterns may share some superficial similarities to existing designs, the overall impression

October 2, 2024

Enforcement of Arbitral Awards in Thailand: Procedural Notes for Practitioners

As Thailand is a contracting state of the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards, international arbitral awards can, in principle, be enforced in Thailand. However, not all awards will necessarily be enforceable. The Arbitration Act BE 2545 (2002) gives courts the discretion to deny the enforcement of an award if the court determines that enforcing it would be contrary to “public order or the good morals of the people” (often referred to as “public policy”). Similarly, the Arbitration Act allows a court to set aside a domestic award if its recognition would violate public policy. This discretionary power of the court is prescribed by the law and does not require any party to make an argument on public policy grounds to trigger such power. A recent Supreme Court judgment demonstrates that a court considering an award will review the legality of the arbitral proceedings as well as the content of the award. In this case, the Supreme Court set aside an award on the grounds that it violated public policy because it was the result of arbitration that did not proceed in accordance with the relevant law. Under Thai bankruptcy law, after the Bankruptcy Court accepts a request for rehabilitation of a debtor, all civil proceedings against that debtor, including arbitration proceedings, must be stayed until the court orders otherwise or until the rehabilitation case ceases. In this matter before the Supreme Court, however, the arbitrator continued with the arbitration and went on to render an award even after the court had accepted the request for rehabilitation. The award was later challenged to be set aside on the grounds that continuing with the arbitration was against public policy. While setting aside the award was arguably unnecessary, in this case (as the relevant bankruptcy law

October 1, 2024

Lexology Panoramic: Labor and Employment Disputes 2024 – Vietnam Chapter

Three of Tilleke & Gibbins’ labor and employment specialists in Vietnam have contributed the Vietnam chapter to the newly issued Labor and Employment Disputes 2024, a comprehensive guide from Lexology Panoramic to labor and employment dispute resolution in various jurisdictions around the world. The Vietnam chapter covers the following topics: Pre-action considerations: Key requirements, third-party funding, contingency fee arrangements Issuing a claim: Forum, territorial jurisdiction, standing, commencing claims, fees, service Defendants and legal personality: Types of claims, time limits, counterclaims Case management: Procedure, rules, amendments to claims, adding parties to proceedings, consolidating proceedings Class and collective actions: Special considerations Evidence: Witnesses, tactical considerations Interim relief: Availability, requirements Trial: Hearings conduct and typical time frames, confidentiality and public access, media reporting Elements of successful claims and burden of proof Alternative dispute resolution: Available types, requirements and expectations Enforcement: Collective employment and labor rights, enforcement of collective rights, standing Remedies and enforcement: Available remedies, assessing compensation, enforcement mechanisms Appeals: Appeal procedure and time frames, other means of challenge Update and trends: Recent cases and developments, technology developments, other issues The Vietnam chapter was authored by Truc Thi Thanh, Linh Ngoc Nguyen, and Kien Trung Trinh. Tilleke & Gibbins also contributed the Thailand chapter to Labor and Employment Disputes 2024.

You are using an outdated browser and your browsing experience will not be optimal. Please update to the latest version of Microsoft Edge, Google Chrome or Mozilla Firefox. Install Microsoft Edge

Industries

Practices

March 30, 2020