Interest rate on delayed payment in economic judgment in Vietnam

Judgment 01/2020/KDTMPT dated January 10, 2020 on a dispute over a goods sale and purchase contract has the following contents:

“Company P and Company Quang G traded iron and steel under Contract 171/HDCP1-14N. As of March 5, 2018, Company Q still owes VND 999,99,454 to purchase goods from Company P. Company P has reminded Company Q many times about fulfilling its obligation to pay for the purchase, but Company Q has repeatedly promised and committed to repay the debt but so far has not fulfilled its debt repayment obligation.

Company P sued with the request of Quang G Company to pay the principal amount of VND 999,99,454 and the interest incurred at the rate of 1.25%/month as agreed in the contract of the parties.

The People's Court of Can Tho City decided to apply the interest rate for the judgment enforcement period according to the average overdue interest rate of three banks in the market (Bank for Foreign Trade of Vietnam, Joint Stock Commercial Bank for Industry and Trade of Vietnam, Bank for Agriculture and Rural Development of Vietnam).

Normally, when entering into a contract, the parties only agree on fines for violations and compensation for the contract, rarely mentioning interest due to delayed payment. When there is a dispute, if there is a request for interest on the delayed payment amount, the Court may apply Article 306 of the Commercial Law 2005 of Vietnam as a basis for calculating interest.

In the process of adjudicating economic judgments, there are usually 2 stages of applying late payment interest rate as follows:
Before the first-instance trial date, the Court usually applies the interest rate as agreed in the contract or takes the average interest rate of overdue debts of at least three local banks including Agribank, VietinBank, and Vietcombank to settle the case if the parties do not agree on the overdue interest rate.

Article 306. Right to claim interest on delayed payment

"Where a contract-breaching party delays making payment for goods or payment of service charges and other reasonable fees, the aggrieved party may claim an interest on such delayed payment at the average interest rate applicable to overdue debts in the market at the time of payment for the delayed period, unless otherwise agreed or provided for by law.

Therefore, the People's Court of Can Tho City decided that the interest rate of 1.25%/month was consistent with the provisions of the Commercial Law 2005, and applied this interest rate to calculate interest on delayed performance of obligations from the time when the obligation arises until the time of first-instance trial is completely reasonable.

In the period from the trial date to the completion of the judgment execution, the interest calculation must be applied according to the provisions of Article 13 of Resolution No. 01/2019/NQ-HDTP of the Judicial Council of the Supreme People's Court. According to the Resolution, the interest rate agreed upon by the parties and in accordance with the provisions of the Civil Code 2015 of Vietnam will be applied to the late payment of judgment enforcement obligations.

Article 13. Interest and interest rate specified in the Court’s judgment or decision

"1. When settling criminal cases, administrative cases, civil, marriage and family, business, commercial or labour cases and matters together with deciding the amounts which persons having asset-related obligations or liabilities must pay to the judgment creditors, the Court must make such decisions on the Court's judgments or decisions (decision part) as follows:

a) In case of late performance of liabilities defined in a contract which includes the parties’ agreement on interest payment, the Court shall decide that from the date following the date of first-instance trial to the end of the judgment enforcement, the judgment debtor is liable to pay interest on the outstanding judgment debt at the agreed interest rate which must be conformable with applicable laws; if the agreed interest rate is not available, the Court shall decide the application of the interest rate prescribed in Clause 2 Article 468 of the 2015 Civil Code.

b) ...

2. “the agreed interest rate” referred to in Clause 1 of this Article is the interest rate on overdue debts agreed upon by the parties in the signed contract or at the trial. In case the agreed interest rate is not available, the interest rate on an overdue debt shall be as much as 150% of the interest rate on an undue debt."

However, for the appellate judgment on the People's Court of Can Tho city, it was decided that the defendant must pay interest at the average overdue interest rate of the three banks in the market corresponding to the amount and time not yet executed judgment.

In the author's opinion, this Court's Decision is not consistent with current provisions of law. According to the provisions of Article 468 of the 2015 Civil Code of Vietnam, if the contract has an agreement on the interest rate, the agreed interest rate must not exceed 20%/year of the amount. Therefore, in this case, the interest rate applied to the late payment amount when the first-instance judgment is issued until the judgment is completed is the interest rate agreed by the parties, ie 1.25%/month corresponding to the amount and time not yet executed.

Although there are regulations on interest rates during the settlement of economic cases, the application of these regulations is still not tight and synchronous, affecting the rights and interests of the parties.