Vietnam contract breach remedies: damages and penalties

Vietnam contract breach remedies are set mainly by the Commercial Law of 2005 for business deals and by the Civil Code of 2015 for other contracts. If the other side breaks a business contract, you can ask for performance, a penalty, damages or an end to the deal. The law limits a penalty to 8 percent of what the broken obligation was worth. Damages must be proved.

The remedies the law lists

Article 292 of the Commercial Law lists the forms of liability for breach. They are: forcing the other side to perform, a contract penalty, damages, suspending performance, ending the contract, and cancelling it. Other measures may be agreed between the parties.

Not every remedy fits every case. Forced performance suits a seller who still has the goods. Damages suit a buyer who has already lost money. Ending the contract suits a party who no longer wants the deal. You should pick the remedy that matches your real goal and follow the notice steps in your contract.

The Commercial Law covers commercial activities, which are mainly the profit-seeking deals of traders. Other contracts fall under the Civil Code 2015, which also sets duties to perform and to pay for loss when a party fails to do so.

Sources: Law on Commerce (Commercial Law) No. 36/2005/QH11, National Assembly of Vietnam, adopted 14 June 2005, Article 292; Civil Code No. 91/2015/QH13, adopted 24 November 2015.

Penalties and the 8 percent cap

A penalty is a sum the parties agree on in advance. It only applies if the contract says so. Articles 300 and 301 of the Commercial Law set the rule. The penalty can be claimed when the contract has a penalty clause. It may not exceed 8 percent of the value of the part of the contract that was breached.

Note the base. The 8 percent is taken on the breached obligation, not always on the whole contract. If a seller delivers only half of the goods late, the base is the value of the late part. A clause that sets a higher figure is not fully enforceable above the cap.

The Civil Code 2015 lets parties agree on a penalty for other contracts, and it leaves the level to the parties unless a law sets a limit. For business deals, check the Commercial Law cap first.

Sources: Commercial Law No. 36/2005/QH11, Articles 300 and 301; Civil Code No. 91/2015/QH13, provisions on agreed penalties.

Damages: what you can claim

Article 302 of the Commercial Law says damages cover the actual loss caused by the breach and the direct profit that the injured party lost because of it. Loss that is remote or guessed is not covered.

Article 303 gives three conditions. There was a breach of the contract. There was a real loss. The breach caused the loss. If one is missing, the claim fails.

Damages and a penalty are different tools. Unless the parties agreed otherwise, the law lets the injured party ask for both. Check the wording of your clause so you do not lose one by accident.

Sources: Commercial Law No. 36/2005/QH11, Articles 302, 303 and 307.

How a claim is proved

The party that claims damages must prove the breach, the loss and the link between them. Article 304 puts that burden on the injured party. The party that breached must prove any reason it should not be liable, under Article 294.

Good proof is simple and dated. Keep the signed contract, orders, delivery notes, invoices, emails and any notice of breach. Keep bills or quotes that show the cost of a substitute supplier. Keep sales records if you claim lost profit.

Article 305 also asks the injured party to take reasonable steps to limit its loss. If you could have bought the goods elsewhere at a fair price and did not, a court or arbitrator may cut your damages.

Sources: Commercial Law No. 36/2005/QH11, Articles 294, 304 and 305.

When liability is excused, and time limits

A party is not liable in some cases. Article 294 names them. These include a case the parties agreed would excuse liability, force majeure, a breach caused by the other party, and a breach that follows a state authority order that the party could not know about when the contract was signed. The party that relies on one must prove it and give prompt notice (Article 295).

Time limits matter. For commercial disputes, Article 319 sets a limit of two years from the day the legal right was breached. After that the claim is barred. Do not wait. Send a written notice first, then start arbitration or court action in time.

Many contracts name an arbitration centre, such as the Vietnam International Arbitration Centre, or a court. Read that clause early. It decides where you file and which rules apply.

Sources: Commercial Law No. 36/2005/QH11, Articles 294, 295 and 319.

A short checklist

Read the penalty and damages clauses. Check that any penalty is at or under 8 percent of the breached part. Send a written notice of breach. Keep all proof. Record the steps you took to limit your loss. Note the two year deadline. This is general information, not legal advice. Ask a licensed Vietnamese lawyer about a real dispute.

Sources

• Law on Commerce No. 36/2005/QH11, National Assembly of Vietnam, 14 June 2005.
• Civil Code No. 91/2015/QH13, National Assembly of Vietnam, 24 November 2015.