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Measures to handle violations of commercial contracts in Vietnam
Measures to handle violations of commercial contracts under Vietnamese law include: Specific performance of contracts, Fines for breaches, Forcible payment of damages, Suspension of performance of contracts, Stoppage of performance of contracts, Cancellation of contracts, Other remedies. This article aims to clarify the content and application of each of the above measures.
Specific performance of contracts
Specific performance of a contract means a remedy whereby the aggrieved party requests the breaching party to properly perform the contract or apply other measures to cause the contract to be performed and the breaching party shall have to bear any costs incurred.
Where the breaching party fails to deliver goods in full or provide services in accordance with the contract:
Where the breaching party fails to deliver goods in full or provide services in accordance with the contract, it shall have to deliver goods in full or provide services in accordance with the contract. Where the breaching party delivers goods or provides services of inferior quality, it shall have to rectify defects of the goods or shortcomings of the services or to deliver other goods as substitutes or provide services in accordance with the contract. The breaching party must not use money or goods or services of other types as substitutes unless so consented by the aggrieved party.
Where the breaching party fails to comply this provisions, the aggrieved party may purchase goods or receive services of correct type as stated in the contract from another seller or provider for substitution and the breaching party must bear the price difference and relevant expenses, if any; or may rectify defects of the goods or shortcomings of the services by itself, and the breaching party must pay actual and reasonable expenses for the rectification.
Where the breaching party is the purchaser:
Where the breaching party is the purchaser, the seller may request the purchaser to pay for and receive goods or fulfill other obligations stipulated in the contract and provided for in the Commercial Law.
Note:
In case of specific performance of a contract, the aggrieved party may extend the time limit for a reasonable period for the breaching party to perform its contractual obligations.
Unless otherwise agreed, during the period of application of specific performance of a contract, the aggrieved party may claim for damages and fines to be paid but must not apply other remedies. If the breaching party fails to carry out the remedy of specific performance of a contract within the time limit set by the aggrieved party, the aggrieved party may apply other remedies in order to protect its legitimate rights.
Fines for breaches
Fine for breach means a remedy whereby the aggrieved party requests the breaching party to pay an amount of fine for its breach of a contract, if so agreed in the contract.
The fine level for a breach of a contractual obligation or the aggregate fine level for more than one breach shall be agreed upon in the contract by the parties but must not exceed 8% of the value of the breached contractual obligation portion.
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.
Forcible payment of damages
Damages means a remedy whereby the breaching party pays compensation for the loss caused by a contract-breaching act to the aggrieved party. The value of damages covers the value of the material and direct loss suffered by the aggrieved party due to the breach of the breaching party and the direct profit which the aggrieved party would have earned if such breach had not been committed.
Liability to pay damages shall arise upon existence of all of the following elements: Breach of the contract, material loss, act of breaching the contract is the direct cause of the loss.
The party claiming damages shall bear the burden of proof of the loss, the extent of the loss caused by the act of breach, and direct profit amount which the aggrieved party would have earned if the breach had not been committed.
The party claiming damages must apply appropriate measures to mitigate the loss caused by a contract breach, including the loss of direct profit which it would have earned. If the party claiming damages fails to do so, the breaching party may request a rebate of the value of damages to the extent of the loss that would have been mitigated.
Where the parties do not agree upon fines for breaches, the aggrieved party shall only be entitled to claim damages. Where the parties agree upon fines for breaches, the aggrieved party shall be entitled to apply both remedies of fines and damages.
A party shall not lose its right to claim damages for the loss caused by a contract breach by the other party when other remedies have been applied.
Suspension of performance of contracts
Suspension of performance of a contract means a remedy whereby a party temporarily ceases the performance of its contractual obligations in one of the following cases:
– Upon commission of a breaching act which serves as a condition for the suspension of performance of the contract as agreed upon by the parties;
– Upon a substantial breach of contractual obligations by a party.
Contracts which are suspended from performance are still in full force and effective. Aggrieved parties are entitled to claim damages.
Unless otherwise agreed by the parties, the aggrieved party is not entitled to apply the suspension of performance of contract for non-basic violations.
Stoppage of performance of contracts
Stoppage of performance of a contract means a remedy whereby a party terminates the performance of its contractual obligations in one of the following cases:
– Upon commission of a breaching act which serves as a condition for stoppage of the performance of the contract as agreed upon by the parties;
– Upon a substantial breach of contractual obligations by a party.
Where a contract is stopped from performance, it shall be terminated from the date when one party receives the notice on stoppage. The parties shall not have to further perform their contractual obligations. A party that has performed its contractual obligations may request the other party to pay or perform its reciprocal obligations. The aggrieved party may claim damages.
Unless otherwise agreed by the parties, the aggrieved party is not entitled to apply the stoppage of performance of contract for non-basic violations.
Cancellation of contracts
Cancellation of a contract includes cancellation of part of a contract or cancellation of the entire contract.
– Cancellation of the entire contract means the complete annulment of the performance of all contractual obligations for the entire contract.
– Cancellation of part of a contract means the annulment of the performance of some contractual obligations while other parts of the contract are still valid.
Cancellation of contracts shall be applied in the following cases:
– Upon commission of a breaching act which serves as a condition for the cancellation of the contract as agreed upon by the parties;
– Upon a substantial breach of contractual obligations by a party.
Following the cancellation of a contract, such contract shall be invalid from the time it is entered into, and the parties shall not have to continue performing their contractual obligations, except for their agreements on their post-cancellation rights and obligations and resolution of disputes. The parties shall have the right to claim benefits brought about by their performance of their contractual obligations. Where both parties have indemnity obligations, their obligations must be performed concurrently. Where it is impossible to make the indemnity with benefits which one party has enjoyed, the obliged party must make the indemnity in cash. Aggrieved parties are entitled to claim damages according to the provisions of this Law.
Unless otherwise agreed by the parties, the aggrieved party is not entitled to apply the cancellation of performance of contract for non-basic violations.
Other remedies
Other remedies agreed upon by involved parties which are not contrary to the fundamental principles of Vietnamese law, treaties to which the Socialist Republic of Vietnam is a contracting party and international commercial practices.
Cases of exemption from liability for breaching acts under Vietnamese law
Cases of exemption from liability for breaching acts under Vietnamese law
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 party must promptly notify in writing the other party of cases of liability exemption and possible consequences thereof. When a case of liability exemption no longer exists, the contract-breaching party must promptly notify such to the other party. The breaching party must pay damages if it fails to notify or notifies the other party not in a prompt manner.
Extension of time limit for performance of contracts, or refusal to perform contracts in force majeure circumstances
In a force majeure circumstance, the parties may agree to extend the time limit for performing their respective contractual obligations. If the parties do not agree or cannot agree upon such extension, the time limit for performing contractual obligations shall be extended for a period of time equal to the time length of such force majeure circumstance plus a reasonable period of time for remedying consequences, but not exceeding:
– Five months for goods or services for which the agreed time limit for their delivery or provision does not exceed twelve months from the date the contract is entered into;
– Eight months for goods or services for which the agreed time limit for their delivery or provision exceeds twelve months from the date the contract is entered into.
– The extension of the time limit for performing contractual obligations mentioned above does not apply to contracts for purchase and sale of goods or contracts for provision of services with fixed time limit for goods delivery or service completion.
Beyond the time limits specified above, the parties may refuse to perform the contract and neither party is entitled to request the other party to pay damages.
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