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Measures for handling commercial contract breaches according to Vietnamese law include: enforcement of proper contract performance, penalties for violations, compensation for damages, suspension of contract performance, termination of contract performance, and contract cancellation. This article aims to clarify the content and application of each measure mentioned above.
Enforcement of Proper Contract Performance According to Vietnamese Law
Enforcing proper contract performance means that the party affected by the contract breach requires the breaching party to fulfill the contract correctly or use other legal measures to ensure the contract is performed, with the breaching party bearing any incurred costs.
If the Obligated Party Delivers Insufficient Goods or Provides Services Incorrectly:
If the obligated party delivers insufficient goods or provides services incorrectly, they must deliver the correct quantity of goods and services according to the contract. In cases where the goods or services are of substandard quality, the obligated party must either eliminate the defects, replace the goods, or provide the correct services as per the contract. The obligated party cannot substitute with money, different goods, or other types of services without the consent of the entitled party.If the entitled party has made such a request and the obligated party still does not perform correctly, the entitled party can purchase goods or hire services from another party to replace the original goods or services specified in the contract. The obligated party must pay any cost differences and related expenses. The entitled party can also rectify the defects themselves, and the obligated party must pay the actual and reasonable costs incurred by the entitled party.
If the Breaching Party is the Buyer:
If the breaching party is the buyer, the seller has the right to demand the buyer pay for the goods, receive the goods, or fulfill other obligations.
Note: When applying the measure of enforcing proper contract performance, the affected party may extend a reasonable period for the breaching party to fulfill their obligations. If there are no other agreements, during this period, the affected party can request compensation for damages and penalties for violations but cannot apply other sanctions. If, after the extended period, the breaching party still fails to fulfill their contractual obligations, the affected party can apply other sanctions to protect their legal rights and interests.
Penalties for Breach of Contract According to Vietnamese Law
A penalty for a breach of contract is when the affected party demands the breaching party pay a penalty for the breach according to the agreed terms in the contract.
The penalty for a breach of contract or the total penalty for multiple breaches is agreed upon by the parties but cannot exceed 8% of the value of the breached portion.
For traders providing inspection services that issue incorrect inspection certificates due to negligence, the penalty amount is agreed upon but cannot exceed ten times the inspection service fee.
Compensation for Damages According to Vietnamese Law
Compensation for damages means that the breaching party must compensate for the losses caused by their contractual breach. The compensation amount includes the actual, direct losses suffered by the affected party and the direct benefits they would have received if the breach had not occurred.
Liability for compensation arises when the following conditions are met: there is a breach of contract, actual damages have occurred, and the breach is the direct cause of the damages.
The party demanding compensation must provide evidence to substantiate their claim and must take reasonable measures to mitigate the losses.
The sanction of compensation for damages can be applied concurrently and independently with other sanctions.
Suspension of Contract Performance According to Vietnamese Law
A party has the right to suspend contract performance in the following cases:
- A breach occurs that the parties have agreed is a condition for suspension.
- The other party fundamentally breaches the agreed obligations.
When the contract is suspended, it remains effective. The affected party can demand the breaching party compensate for damages.
Unless otherwise agreed, the affected party cannot apply the suspension sanction for non-fundamental breaches.
Termination of Contract Performance According to Vietnamese Law
Termination of contract performance means ending the fulfillment of contractual obligations. A party has the right to terminate the contract in the following cases:
- A breach occurs that the parties have agreed is a condition for termination.
- The other party fundamentally breaches the agreed obligations.
When the contract is terminated, it ceases to be effective from the time the other party receives the termination notice. The parties are no longer obligated to perform the terminated contract obligations. The party that has performed their obligations can demand the other party pay or fulfill reciprocal obligations. The affected party can also demand the breaching party compensate for damages.
Unless otherwise agreed, the affected party cannot apply the termination sanction for non-fundamental breaches.
Contract Cancellation According to Vietnamese Law
Contract cancellation means the annulment of contract obligations. Contract cancellation includes partial and total cancellation. This measure is applied in the following cases:
- A breach occurs that the parties have agreed is a condition for cancellation.
- One party fundamentally breaches the agreed obligations.
After cancellation, the contract is void from the time of signing. The parties are no longer obligated to perform the contract except for agreements on post-cancellation consequences and dispute resolution. The party that has performed their obligations can demand the other party return what they received or pay an equivalent amount if return in kind is not possible. The affected party can also demand the breaching party compensate for damages.
Unless otherwise agreed, the affected party cannot apply the cancellation sanction for non-fundamental breaches.
Other Measures
The parties can agree to apply other measures to handle contractual breaches, provided these measures do not contravene the basic principles of Vietnamese law, international treaties to which Vietnam is a party, or international commercial practices.
Cases of Exemption from Liability for Contractual Breaches According to Vietnamese Law
Exemptions from liability for contractual breaches include:
- Occurrence of an agreed exemption event.
- Occurrence of a force majeure event.
- The breach is entirely due to the fault of the other party.
- The breach occurs due to the execution of a decision by a competent state authority that the parties could not have known at the time of signing the contract.
The breaching party must prove they fall into one of the exemption cases and immediately notify the other party in writing about the exemption and its consequences. Failure to notify or timely notify the other party results in liability for compensation.
Extension of Performance Deadline in Case of Force Majeure
In case of a force majeure event, the parties can agree to extend the performance deadline. If they cannot agree, the deadline is extended by the duration of the force majeure event and the time to overcome its consequences, but not exceeding the following limits:
- For contracts with a performance period of up to 12 months from signing, the extension does not exceed 5 months.
- For contracts with a performance period over 12 months from signing, the extension does not exceed 8 months.
- For fixed-term contracts for delivery or service completion, no extension is applied.
Beyond these extensions, the parties can refuse to perform the contract without liability for compensation.
