Fine for breach of contract according to Vietnamese law

Fine for breach of contract is one of the forms of sanctions when dealing with a breach of contract. So what is the fine for breach of contract and how much is the fine for breach of contract?

What is fine for breach of contract?

Fine for breach of contract is an agreement in a contract whereby the aggrieved party will have the right to require the breaching party to pay a fine for the breach of contract.

When is the fine for breach of contract according to Vietnamese law?

Fine for breach of contract are imposed if the following conditions are fully met:

– The parties have agreed in the contract on the obligations that, if one party violates that obligation, it will be fined for breach of the contract and the specific penalty for breach of the contract.

– A breach of the aforesaid contractual obligations has occurred in practice.

However, a party that breaches a contract shall be exempted from liability in the following cases:

– A case of liability exemption agreed upon by the parties occurs;

– A force majeure event occurs;

– A breach by one party is entirely attributable to the other party’s fault;

– A breach is committed by one party as a result of the execution of a decision of a competent state management agency which the party cannot know, at the time the contract is entered into

The contract-breaching party shall bear the burden of proof of cases of liability exemption.

The relationship between fine for breach of contract and compensation for damages under Vietnamese law?

Fine for breach of contract and compensation for damage are the two most common sanctions in contracts. The relationship between these two sanctions in each different dispute relationship is also different, specifically as follows:

For civil contracts

In a civil contract, the contracting parties may agree that the breaching party shall only have to pay a fine for breach without having to pay compensation, or that the breaching party must pay both fine for breach and compensation for damage.

If the parties to the contract have an agreement on the fine for breach but no agreement on both fine for breach and compensation for damage, the breaching party shall only have to pay the fine for breach but not pay compensation for damage.

In other words, in a civil contract, the parties who want to apply the compensation for damage must have an agreement in the contract.

For commercial contracts

In a commercial contract, if the contracting parties do not have an agreement on fine for breach, the aggrieved party has no right to claim a fine for breach of the contract, but only the right to claim compensation for damage.

If the contracting parties have agreed on fine for breach, the aggrieved party has the right to claim both a fine for breach and a compensation for damage.

In other words, in a commercial contract, compensation for damage is automatically applied without being agreed upon by the parties in the contract.

How much is the fine level for breach of contract in Vietnam?

Fine for breach of contract according to the Commercial Law

According to the provisions of the Commercial Law 2005, the fine level for violations of obligations in commercial contracts or the total fines for many violations shall be agreed upon by the parties, but the maximum amount is 08% of the value of obligations are breached.

In case an assessment service trader that issues an incorrect assessment certificate due to his or her own negligence, the assessment service trader must pay a fine to the client at the rate agreed upon by the two parties but the maximum is 10 times the fee for assessment service.

Fine for breach of contract according to the Civil Code

According to the provisions of the Civil Code 2015, the fine level for violations of obligations in civil contracts is completely agreed upon by the parties and unlimited.

Fine for breach of contract according to the Construction Law

According to the provisions of the Construction Law 2014, the fines level for violations of obligations in construction contracts shall be agreed upon by the parties in the contract. Particularly for construction contracts using public investment capital or state capital, the maximum fine for breach of contract is 12% of the value of the breached contract portion.