What are the regulations on unilateral termination of performance of contracts in Vietnam? What are the legal consequences of unilateral termination of the performance of contracts?
What are the regulations on unilateral termination of performance of contracts in Vietnam?
The contract is in principle an agreement, so when terminating the contract, the two parties should agree to settle the issues. Pursuant to Article 428 of the 2015 Civil Code, the unilateral termination of contract performance is as follows:
1. A party has the right to terminate unilaterally the performance of a contract without any compensation for damage when a party violates its obligations seriously if so agreed by the parties or so provided by law.
2. A party terminating unilaterally the performance of a contract must notify the other party immediately of its termination of the contract and must compensate if the failure to notify causes damage.
3. Where the performance of a contract is terminated unilaterally, it shall terminate from the time when the other party is notified of the termination. In such case, the parties are not required to continue to perform their obligations, except for agreement on fines for violations, compensation for damage and settlement of disputes. A party which has already performed its obligation may demand the other party to make payment for the performed obligation.
4. The aggrieved party shall receive a compensation for damage caused by the improper performance of obligation by the violating party.
5. If a contract is terminated unilaterally without any basis prescribed in Clause 1 of this Article, the party terminating unilaterally the performance of the contract shall be deemed to be the violating party and must perform civil liability as prescribed in this Code and relevant laws.
Thus, unilaterally terminating the contract must immediately notify the other party of the termination of the contract.
What are the legal consequences of unilaterally terminating the contract illegally?
Vietnam: What are the legal consequences of unilaterally terminating the contract illegally?
Unilaterally terminating the contract will cause the violating Party to face a lot of legal risks because this is considered a violation of all obligations to be performed under the contract. Then:
Pursuant to Article 351 of the 2015 Civil Code, the civil liability arising from breach of civil obligations is as follows:
1. An obligor which fails to perform or performs incorrectly an obligation has civil liability to the obligee.
Breach of obligations means that the obligor fails to perform the obligations on time, perform the obligations incompletely or incorrectly.
2. Where an obligor is not able to perform a civil obligation due to an event of force majeure, it shall not have civil liability, unless otherwise agreed or otherwise provided by law.
3. An obligor shall not have civil liability if it is able to prove that failure to perform an obligation is due entirely to the fault of the obligee.
- The breaching obligations will have to pay full compensation, in which according to the 2005 Commercial Law, the damage also includes the lost profit if there is no unilateral act of terminating the contract as follows:
Pursuant to Article 300 of the 2005 Commercial Law, the penalties for violations are as follows:
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, except for cases of liability exemption specified in Article 294 of this Law.
The provisions of Article 302 of the 2005 Commercial Law on compensation for damage are as follows:
1. Damages means a remedy whereby the breaching party pays compensation for the loss caused by a contract-breaching act to the aggrieved party.
2. 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.
According to Article 303 of the 2005 Commercial Law, the grounds for arising liability for damage compensation are as follows:
Except for cases of liability exemption specified in Article 294 of this Law, liability to pay damages shall arise upon existence of all of the following elements:
1. Breach of the contract;
2. Material loss;
3. Act of breaching the contract is the direct cause of the loss.
Thus, the unilateral termination of the contract is subject to penalties for violations and compensation for actual damage caused as agreed in the contract.
Vietnam: What are the cases of exemption from liability for breaching acts?
In Article 294 of the 2005 Commercial Law, cases of exemption from liability for breaching acts are as follows:
1. A party that breaches a contract shall be exempted from liability in the following cases:
a/ A case of liability exemption agreed upon by the parties occurs;
b/ A force majeure event occurs;
c/ A breach by one party is entirely attributable to the other party’s fault;
d/ 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.
2. The contract-breaching party shall bear the burden of proof of cases of liability exemption.
According to Article 295 of the 2005 Commercial Law, the notification and certification of cases of liability exemption are as follows:
1. The party must promptly notify in writing the other party of cases of liability exemption and possible consequences thereof.
2. 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.
3. Breaching parties are obliged to prove their cases of liability exemption to aggrieved parties.
Thus, the cases in Article 294 above will be exempt from liability for violations but must immediately notify the other party.
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