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Measures for handling violations of contractual obligations in commercial contracts according to Vietnamese law include: Enforcing contract performance, imposing fines for violations, requiring compensation for damages, temporarily suspending contract performance, terminating contract performance, and cancelling the contract. This article aims to clarify the content and the application of each of the above-mentioned measures.
Enforcing Contract Performance
Enforcing contract performance is when the aggrieved party demands that the breaching party fulfill the contract as agreed or use other legal means to ensure the contract’s execution, with the breaching party bearing the associated costs.
If the party has an obligation to deliver deficient goods or provide services not in accordance with the contract:
If the party has an obligation to deliver deficient goods or provide services not in accordance with the contract, they must deliver the goods or provide the services as stipulated in the contract. In cases where the party is obligated to deliver goods or services of subpar quality, they must rectify the defects in the goods or deficiencies in the services, or provide substitute goods or services in line with the contract. The party is not allowed to use money or different types of goods or services as replacements without the consent of the entitled party.
In the event that the entitled party has made such requests but the obligated party still fails to fulfill the contract, the entitled party has the right to purchase goods or services from another source to replace the exact type of goods or services stated in the contract. The obligated party must reimburse any price difference and related expenses. The entitled party can also rectify defects in the goods or deficiencies in the services, with the obligated party being responsible for reasonable and actual costs incurred.
If the breaching party is the buyer
If the breaching party is the buyer, the seller has the right to demand payment, delivery of the goods, or the fulfillment of other obligations by the buyer.
Note:
– When applying the measure to enforce contract performance, the breaching party may be granted a reasonable extension to meet the contractual obligations if they are financially unable to do so.
– In the absence of any other agreement, during the period when the measure to enforce contract performance is in effect, the aggrieved party has the right to seek compensation for damages and impose penalties, but other measures cannot be applied. If, after the specified time, the breaching party still fails to fulfill the contractual obligations, other measures can be applied to protect the aggrieved party’s legal rights and interests.
Imposing fines for contract violations
Imposing fines for contract violations is when the aggrieved party demands that the breaching party pay a specified penalty for the breach of contract, as agreed upon in the contract.
The penalty amount for contract violations or the total penalty for multiple contract violations is determined by the parties in the contract but cannot exceed 8% of the value of the contractual obligations that were violated.
Businesses providing certification services with incorrect results due to unintentional errors are required to pay a penalty to their customers. The penalty amount in this case is determined by the parties but should not exceed ten times the service fee for certification services.
Requiring compensation for damages
Compulsory compensation for damages requires the breaching party to compensate the actual losses resulting from their breach of the contract. The compensation amount includes the actual, direct losses incurred by the aggrieved party due to the breaching party’s actions and any direct benefits the aggrieved party would have received if the breach had not occurred.
The obligation to compensate for damages arises when certain conditions are met, including the existence of a contract violation, actual losses incurred, and a direct causal link between the contract violation and the damages.
The party requesting compensation for damages has an obligation to provide evidence and documentation to support their claim for damages and must also take reasonable measures to limit the losses.
The measure to enforce compensation for damages is applied concurrently and independently of other punitive measures.
Temporarily Suspending Contract Performance
In the following cases, one party has the right to temporarily suspend the performance of obligations within the contract:
– When a contract violation occurs, as previously agreed upon as a condition for suspending contract performance.
– The other party fundamentally breaches the obligations agreed upon in the contract.
When a contract is temporarily suspended, the contract remains in effect. The party that has been violated has the right to demand compensation from the breaching party, as specified.
Unless otherwise agreed by the parties, the violated party is not allowed to apply the measure of suspending contract performance for non-fundamental violations.
Terminating Contract Performance
Terminating Contract Performance is the termination of performing obligations within the contract. In the following cases, one party has the right to suspend the contract:
– When a contract violation occurs, as previously agreed upon as a condition for terminating the contract.
– The other party fundamentally breaches the obligations agreed upon in the contract.
When the contract is terminated, it terminates from the moment the other party receives the notice of termination, and the parties are not obliged to continue performing the obligations within the terminated contract. The party that has performed its obligations in the contract has the right to demand payment or performance of corresponding obligations from the other party. The party that has been violated has the right to demand compensation as specified by law.
Unless otherwise agreed by the parties, the party that has been violated is not allowed to apply the measure of terminating contract performance for non-fundamental violations.
Cancelling the Contract
Cancelling the Contractinvolves the abandonment of performing obligations within the contract. Contract cancellation includes both partial and full cancellation of the contract. The measure of cancelling the contract is applied in the following cases:
– When a contract violation occurs, as previously agreed upon as a condition for cancelling the contract.
– One party fundamentally breaches the obligations agreed upon in the contract.
After the contract is cancelled, it becomes invalid from the time of its conclusion, and the parties are not obligated to continue performing the obligations within the contract, except for any provisions regarding the consequences after contract cancellationg and dispute resolution. The party that has fulfilled its obligations under the contract has the right to demand a corresponding return from the other party. In cases where physical return is not possible, the return should be made in equivalent monetary value. The party that has been violated also has the right to demand compensation as specified by law.
Unless otherwise agreed by the parties, the party that has been violated is not allowed to apply the measure of contract cancellation for non-fundamental violations.
Other Measures
When signing a contract, the parties may agree to apply other measures to address violations of contractual obligations, but these measures must not contravene the fundamental principles of Vietnamese law, international conventions of which Vietnam is a member, and international trade practices.
Cases of Exemption from Liability for Violations in Vietnam
Cases of exemption from liability in commercial contracts in Vietnam when a violation occurs:
– Occurrence of exempting circumstances as agreed upon in the contract.
– The occurrence of a force majeure event.
– A party’s breach of the contract is entirely due to the fault of the other party.
– A party’s breach of the contract results from the execution of a decision by a competent state authority that the parties could not have known at the time of contract signing.
The breaching party is obligated to prove that they fall within one of the exempting circumstances and to promptly notify the other party in writing of the exempting circumstance along with the potential consequences. If the breaching party fails to notify or notifies the other party in a delayed manner, they are still liable for compensation for damages.
Extension of Deadlines, Refusal to Perform the Contract in Case of Force Majeure
In the event of a force majeure event, the parties may mutually agree to extend the deadline for performing contractual obligations. If the parties cannot reach an agreement, the deadline for performing contractual obligations is extended by the period of the force majeure event and the time required to remedy the consequences, but not exceeding the following deadlines:
– If the delivery or service provision period is agreed to be 12 months or less from the contract signing date, the extension period shall not exceed 5 months.
– If the delivery or service provision period is more than 12 months from the contract signing date, the extension period shall not exceed 8 months.
– For contracts of sale of goods or the provision of services with a fixed delivery or completion period, the extension of the obligation’s time limit does not apply.
Beyond the extension periods mentioned above, the parties have the right to refuse to perform the contract, and no party is obligated to compensate for damages.
