Precedent no. 09/2016/AL on commercial case concerning dispute over purchase agreement

- Situation 1: 

The purchasing agreement is violated because the Seller fails to deliver or fails to deliver adequate goods to the Buyer, leading to the fact that the Seller is obliged to refund the advance and interest on late payment. 

- Legal solution 1: 

In this case, the interest on late payment shall be calculated according to the average overdue interest on the market equivalent to the average overdue interest of at least three local banks at the payment time (first-instance trial), unless otherwise agreed or regulated by law. 

- Situation 2: 

Liability to pay fines, compensation for damage arises out of the purchasing agreement. 

- Legal solution 2: 

In this case, the party who is obliged to pay fines, compensation for damage is not required to pay the interest on such fines or compensation for damage.

According to the lawsuit petition dated July 7, 2007, the request for change in lawsuit petition dated October 10, 2007, available documents in the case file and representation of the representative of the plaintiff:

On October 3, 2006, Viet Y Steel Joint-Stock Company (hereinafter referred to as Viet Y Steel Company) conclude the Economic Agreement No. 03/2006-HDKT with Hung Yen Metal Joint-Stock Company (hereinafter referred to as Hung Yen Metal Company); represented by Mr. Nguyen Van Tinh - Deputy Director General according to the Letter of Authorization No. 621 dated September 10, 2005 of the Director General. Following this Agreement, Viet Y Steel Company (Party A) buys continuous casting billets CTS-5SP/PS, bulk cargo, in accordance with the standard GOST 380-94 of Hung Yen Metal Company (Party B) with the quantity of 3,000 tonne +/- 5%, unit price: VND 6,750,000 per tonne; delivery time: from October 25 to October 31, 2006; contract value: VND 20,250,000,000 +/-5%.

On October 4, 2006, Viet Y Steel Company transferred full VND 20,250,000,000 to Hung Yen Metal Company, as stated in the payment order at Vietcombank Hai Duong.  Hung Yen Metal Company also delivered Viet Y Steel Company 2,992.820 tonne of billets, there is still lack of 7.180 tonne equivalent to VND 48,465,000.    

On December 20, 2006, the two Parties kept concluding the Agreement No. 05/2006-HDKT, in which Mr. Le Van Manh - Deputy Director General represented Hung Yen Metal Company (according to the Letter of Authorization No. 1296/UQ/HYM of the Director General). Following this Agreement, Viet Y Steel Company bought 5,000 tonne of billets (with similar standard and quality mentioned in the Agreement No. 03), unit price: VND 7,290,000 per tonne (including VAT and freight charge). Contract value: VND 36,450,000,000 +/- 5%; delivery time from January 18, 2007 to January 31, 2007; Viet Y Steel Company would advance VND 500,000,000 to Hung Yen Metal Company as soon as practicable after concluding the Agreement; the remaining sum shall be paid in two installments after Viet Y Steel Company receives the goods.   The Agreement also stipulates that Hung Yen Metal Company shall be obliged to pay 2% of the contract value if it fails to deliver the good with predetermined type or fails to deliver the good. As stated by the representative of Viet Y Steel Company, on December 21, 2006, Viet Y Steel Company transferred Hung Yen Metal Company VND 500,000,000 of advance, but Hung Yen Metal Company failed to perform the Agreement without any reason.

On the same date, Viet Y Steel Company also concluded the Agreement no. 06/2006 with Hung Yen Metal Company (represented by Mr. Le Van Manh - Deputy Director General) to buy 3,000 tonne of billets from Hung Yen Metal Company, with the unit price of VND 7,200,000 per tonne. Total contract value is VND 21,600,000,000; delivery time: from January 5, 2007 to January 15, 2007.

On December 22, 2006, Viet Y Steel Company transferred full VND 21,600,000,000 to Hung Yen Metal Company as stated in the payment order at Techcombank Hung Yen Branch, but Hung Yen Metal Company just delivered to Viet Y Steel Company 2,989.890 tonne of billets, there was still lack of 7.640 tonne, equivalent to VND 55,008,000.

On February 1, 2007, Viet Y Steel Company also concluded the Agreement No. 01/2007 with Hung Yen Metal Company (represented by Mr. Le Van Manh - Deputy Director General) to buy 5,000 tonne of billets from Hung Yen Metal Company, with the unit price of VND 7,800,000 per tonne. Total contract value is VND 39,000,000,000 +/- 5%. During the performance of Agreement, Viet Y Steel Company transferred Hung Yen Metal Company VND 27,710,000,000 and Hung Yen Metal Company delivered to Viet Y Steel Company 3,906.390 tonne of billets, equivalent to VND 30,469,842,000. The quantity of billets which Hung Yen Metal Company has not delivered to Viet Y Steel Company is 928.255538 tonne, equivalent to VND 7,420,158,000.

Viet Y Steel Company has requested Hung Yen Metal Company to perform the Agreement many times in writing, but Hung Yen Metal Company still fails to perform it, Viet Y Steel Company has no choice but to buy billets from other manufacturers to maintain its production and business.

Because Hung Yen Metal Company violated the Agreements, Viet Y Steel Company filed a lawsuit, claiming Hung Yen Metal Company to make payment and pay compensation for damage due to breach of delivery obligation in the Agreements No. 03/2006, 05/2006, 06/2006, 01/2007 up to the lawsuit time is VND 12,874,298,683, including the price of 1,777,020 kg of billets = VND 11,181,662,503, the fine of VND 1,316,490,480, overdue interest of VND 376,145,700.

At the first instance court hearing on September 3, 2009, the representative of the plaintiff requests Hung Yen Metal Company to pay Viet Y Steel Company up to the first-instance trial date VND 28,145,956,647 and compels Hung Yen Metal Company to issue a VAT invoice to Viet Y Steel Company equivalent to the quantity of goods delivered under the Agreement No. 06/2006 of VND 21,544,992,000 and under the Agreement No. 01/2007 of VND 30,469,842,000.

Representation of the representative of the defendant in the record of deposition, record of reconciliation, record of court hearing:

When Hung Yen Metal Company concluded the said Agreements with Viet Y Steel Company, Mrs. Le Thi Ngoc Lan was still the Director General and Mr. Le Van Dung (Mrs. Lan’s husband) was still business consultant. On March 22, 2007, Mrs. Le Thi Ngoc Lan sold all of her shares at Hung Yen Metal Company to Mrs. Nguyen Thi Toan and Mrs. Toan has held the position of Acting Director General since April 2, 2007. In the agreement on division of marital property between Mr. Le Van Dung and Mrs. Le Thi Ngoc Lan and the commitment on debts of the Company, Mr. Le Van Dung acknowledged all debts of Hung Yen Metal Company incurred before April 1, 2007. As for the lawsuit of Viet Y Steel Company claiming compensation for damage in Agreements No. 03/2006, 05/2006, 06/2006, 01/2007, Hung Yen Metal Company denies them because such debt liability is taken over by Mr. Dung, Mrs. Lan and old leaders and managers of Hung Yen Metal Company. Hung Yen Metal Company has tried to work officially with Mr. Dung in order for Mr. Dung to repay the debt directly to Viet Y Steel Company or Mr. Dung will repay the debt to Hung Yen Metal Company then Hung Yen Metal Company will forward it to Viet Y Steel Company.

Hung Yen Metal Company requests the Court to re-consider the validity of the Agreements No. 03/2006, 05/2006, 06/2006, 01/2007 which were signed by Mr. Tinh, Mr. Manh on behalf of Hung Yen Metal Company in this case and consider liability of Mr. Dung, Mr. Manh, Mr. Tinh, Mrs. Lan for the debts claimed by Viet Y Steel Company. At the first session of first instance court hearing, Hung Yen Metal Company basically concurs with Viet Y Steel Company in data associated with performance of agreement, but does not agree with the financial data because the debts have not been collated; the amount of interests needs to be re-calculated, and the defendant does not agree with the Agreement No. 05 because the two Parties agreed to cancel the Agreement and transferred VND 500,000,000 which Viet Y Steel Company advanced to perform the Agreement No. 01/2007, so Hung Yen Metal Company does not violate the Agreement No. 05.

Representation of person with relevant rights and obligations Mrs. Le Thi Ngoc Lan: In 2004, she and her husband bought the shares of Mr. Nguyen Luong Tuan and Mr. Nguyen Van Thanh at Hung Yen Metal Company when the Company was being in its growth stage. Since then, Mrs. Lan became Director General cum President of the Board of Directors and Mr. Dung (Mrs. Lan’s husband) acted as business consultant of Hung Yen Metal Company. Due to marital conflicts, on September 5, 2005, Mrs. Lan and Mr. Dung made an agreement on division of marital property at Hong Ha Lawyer’s Office (member of Bar Association of Hanoi City). According to the agreement, Mrs. Lan will own the house No. 250 Ba Trieu Street, Mr. Dung will own total VND 48 billion which are their shares at Hung Yen Metal Company but Mr. Dung is also obliged to repay the debt of Hung Yen Metal Company during formation of Hung Tai Rolling Steel Factory (of Hung Yen Metal Company). Not owning shares anymore and the shares were given to Mr. Dung, Mrs. Lan granted power to Mr. Tinh, and then Mr. Manh to run the Company. Mrs. L still be General Director despite not having shares any longer, but in fact the real authority has been exercised by Mr. Dung (Mrs. Lan’s husband), Mr. Tinh and Mr. Manh . Mrs. Lan did not transfer the debt and hand over the Director General position to Mrs. Toan until July 2007. Mrs. Lan also certifies that Mr. Manh and Mr. Tinh (they were both Deputy Director of Hung Yen Metal Company) concluded economic agreements with Viet Y Steel Company with regular authorization of Mrs. Lan. But only Mr. Dung transferred rights and obligations to Mrs. Toan, Mrs. Lan asserts that she does not have debt liability to Viet Y Steel Company.

Representation of person with relevant rights and obligations - Mr. Le Van Dung: Although she and her husband divided marital property and Mr. Dung has the right own the shares of Hung Yen Metal Company but he only acts as a business consultant without having power to conclude any economic agreement or sign any statement, so he does not take over any liability. Mr. Dung does not concur with Hung Yen Metal Company that he is liable to repay the debt which is inherently incurred by Hung Yen Metal Company and Mrs. Toan. Mr. Dung certifies that he signed a commitment with Mrs. Nguyen Thi Toan on April 1, 2007. This commitment indicates the total debt for two parties to settle and has personal meaning between Mr. Dung and Mrs. Toan as the basis for the debt settlement, transfer, but there are no share purchase between him and Mrs. Toan. Two parties have not concluded any agreement on share purchase, and he does not know the share transfer between Mrs. Lan and Mrs. Toan. With respect to the Viet Y Steel Company’s lawsuit against Hung Yen Metal Company claiming the repayment of debt under the agreement, Mr. Dung claims that Hung Yen Metal Company, from the legal aspect, has to take on liability with juridical person status. Mr. Dung shall not take on liability to any customer or partner, he will only be held accountable to Hung Yen Metal Company. Mr. Dung applies for absence in every court hearing.

In the First Instance Civil Judgment No. 01/2007/KDTM-ST dated November 14, 2007, the People’s Court of Bac Ninh Province judged: “Compel Hung Yen Metal Company to pay Viet Y Steel Company for the Agreement No. 03 dated October 3, 2006; No. 05 dated December 20, 2006; No. 06 dated December 20, 2006 and No. 01 dated February 1, 2007, totaling: VND 24.674.428.500.” In addition, the Court of First Instance decided the court fee and announced the right to appeal of the litigants.

On November 27, 2007, Hung Yen Metal Company filed an appeal.

The Appellate Judgment No. 120/2008/KDTM-PT dated June 18, 2008, the Appellate Court of People’s Court of Ho Chi Minh City decided: “Quash the First Instance Civil Judgment No. 01/2007/KDTM-ST dated November 14, 2007 of the People’s Court of Bac Ninh Province. Refer the case file to People’s Court of Bac Ninh Province to re-try the case as per the law” with the following reason: The Court of First Instance has not taken depositions of Mrs. Lan, Mr. Dung, Mrs. Toan, Mr. Tinh, Mr. Manh and determined procedural participants, then clarify which person is liable for repaying the debt for Viet Y Steel Company; moreover, documents such acknowledgement of indebtedness, payment receipt of Mr. Dung, letter of authorization to run the company, etc. are all copies without legal authentication or comparison with originals held by the Court of First Instance.

In the First Instance Civil Judgment No. 09/2008/KDTM-ST dated October 23, 2008, the People’s Court of Bac Ninh Province judged: “Compel Hung Yen Metal Company to pay Viet Y Steel Company for the Agreement No. 03 dated October 3, 2006; No. 05 dated December 20, 2006; No. 06 dated December 20, 2006 and No. 01 dated February 1, 2007, totaling: VND 31.902.035.179,56.”

On November 5, 2008, Hung Yen Metal Company filed an appeal.

The Appellate Judgment No. 120/2008/KDTM-PT dated June 18, 2008, the Appellate Court of People’s Court of Ho Chi Minh City decided: “1. Quash the First Instance Judgment No. 09/2008/KDTM-ST dated October 23, 2008 of People’s Court of Bac Ninh Province on “dispute over purchase agreement” between Hung Yen Metal Company and Viet Y Steel Company. 2. Refer the case file to the Court of First Instance for re-trial of the case, with the following reason: Mr. Dinh Van Vi, Director General, only filed a lawsuit against Hung Yen Metal Company for claim of VND 12,874,298,683 but his authorized representative continued amending the lawsuit petition, which goes beyond the scope of lawsuit and violates Point 1 Clause 2 Article 164 of the Civil Procedure Code and Resolution No. 02/2006/NQ-HDTP dated May 12, 2006 of Council of Justices of the Supreme People’s Court.  Although all amending lawsuit petitions made by the representative are not unaccordant with the law, the Court of First Instance accepted them all. This is a serious violation of civil procedures, so the Court of Appeal shall not consider the appeal section concerning Hung Yen Metal Company.      

In the First Instance Civil Judgment No. 18/2009/KDTM-ST dated September 3, 2009, the People’s Court of Bac Ninh Province judged: “1. Compel Hung Yen Metal Company to pay Viet Y Steel Company for 4 economic agreements: No. 03/2006 dated October 3, 2006; No. 05/2006 dated December 2, 2006; No. 06/2006 dated December 20, 2006 and No. 01/2007 dated February 1, 2007, totaling VND 28,145,956,647 and issued the VAT invoice to Viet Y Steel Company for the Agreement No. 06/2006 equivalent to VND 21,544,992,000 and the Agreement No. 01/2007 equivalent to VND 30,469,842,000”. In addition, the Court of First Instance decided the court fee, judgment enforcement and announced the appeal right to litigants as per the law.

On September 23, 2009, Hung Yen Metal Company filed an appeal.

The Appellate Judgment No. 63/KDTM-PT dated April 5, 2010, the Appellate Court of Supreme People’s Court of Hanoi decided: “Quash the First Instance Civil Judgment No. 18/2009/KDTM-ST dated September 3, 2009 of the People’s Court of Bac Ninh Province. Refer the case file to People’s Court of Bac Ninh Province to re-try the case as per the law”.

On July 25, 2010, People’s Court of Bac Ninh Province sent the Dispatch No. 110/2010/CV-TA, requesting Chief Justice of the Supreme People’s Court to review the Appellate Judgment under cassation procedure.

In the Appeal No. 17/2012/KDTM-TN dated June 25, 2012, the Chief Justice of the Supreme People’s Court requested the Council of Judges of the Supreme People’s Court to review the case under cassation procedure to quash the above Appellate Judgment No. 63/KDTM-PT dated April 5, 2010 of the Court of Appeal of the Supreme People’s Court of Hanoi; refer the case to the Court of Appeal of the Supreme People’s Court of Hanoi city for re-conduct the appellate trial as per the law.

At the cassation trial court hearing, the representative of the Supreme People’s Procuracy consents to the appeal made by the Chief Justice of the Supreme People’s Court.

1. From October 2006 to February 2007, Viet Y Steel Company and Hung Yen Metal Company concluded 4 economic agreements (No. 03/2006-HDKT dated October 3, 2006, No. 05/2006-HDKT, No. 06/2006-HDKT dated December 20, 2006 and No. 01/2007-HDKT dated February 1, 2007). 

When the agreements were concluded, Mrs. Le Thi Ngoc was still the legal representative of Hung Yen Metal Company (according to the 5th amending business registration certificate dated August 12, 2005 and 6th amending business registration certificate dated July 6, 2007 of Hung Yen Metal Company and decision on change in business registration No. 140/QD-HDCD dated July 2, 2007 of Hung Yen Metal Company). In the Letter of Authorization No. 621/UQ-KKHY dated September 10, 2005, Mrs. Lan “1. Authorize the administration of Hung Yen Metal Company to Mr. Nguyen Van Tinh. 2. Mr. Nguyen Van Tinh takes responsibilities for: a/ Representing the Company in relations with banks, organizations or individuals and other relevant agencies to maintain ordinary course of business; b/ On behalf of the Company conducting civil, economic and commercial transactions within the line of business of the Company..".. On November 20, 2006, Mrs. Lan made a Letter of Authorization No. 1296/UQ/HYM to authorize administration of the Company to Mr. Le Van Manh (with content similar to the one made for Mr. Tinh). 

The Letters of Authorization made for Mr. Nguyen Van Tinh and Mr. Le Van Manh (Deputy General Director) to sign economic agreements are totally legal. Mr. Tinh and Mr. Manh signed the agreements in the name of the juridical person, not in their personal names, so they do not have relevant rights and obligations in the case.  Therefore, it could not determine that Mr. Tinh and Mr. Manh as persons with relevant rights and obligations in this case as requested by the defendant or as judged by the Court of Appeal. 

The Court of Appeal, based on the agreement on division of marital property between Mrs. Le Thi Ngoc Lan and Mr. Le Van Dung and acknowledgement of indebtedness of Company between Mr. Le Van Dung and Mrs. Nguyen Thi Toan, determines that Mr. Dung, Mrs. Lan, Mrs. Toan are persons with relevant rights and obligations. This is not a right decision. Because while the division of marital property was made between Mr. Le Van Dung and Mrs. Le Thi Ngoc Lan; the agreement on repayment of debts was made between Mrs. Nguyen Thi Toan and Mr. Le Van Dung, which the internal affair of Hung Yen Metal Company. The acknowledgement of indebtedness between Mr. Dung and Mrs. Toan does not gain the consent of the obligee Viet Y Steel Company. Clause 1 Article 315 of the Civil Code 2005 governs: “The obligor may transfer a civil obligation to a substitute obligor, if it is so consented by the obligee”. During the lawsuit settlement, Mr. Dung and Mrs. Lan have made depositions about agreement on marital property, conclusion of agreements with Viet Y Steel Company, responsibilities of Hung Yen Metal Company in fulfilling obligations under the agreement; Mr. Dung also applies for absence from the court hearing. So, it is unnecessary to take depositions from Mr. Dung and Mrs. Lan and conduct cross-examination as determined by the Court of Appeal. Therefore, the Court of Appeal was wrong when quashing First Instance Judgment No. 18/2009/KDTM-ST dated September 3, 2009 of People’s Court of Bac Ninh Province and referring the case file to People’s Court of Bac Ninh province for re-trial. 

2. With reference to the content of the case: During the performance of agreements, Viet Y Steel Company transferred money through payment order to Hung Yen Metal Company; Hung Yen Metal Company also delivered the good to Viet Y Steel Company (according to the delivery record bearing the certification of Hung Yen Metal Company). Clause 1 Article 93 of the Civil Code 2005 governs: “The juridical person must take on civil liability for performance of civil rights and obligations established by the representative on behalf of juridical person”. Therefore, in this case, Hung Yen Metal Company must take responsibility for repayment of the debts of Viet Y Steel Company. 

Since Hung Yen Metal Company has not performed obligation under the agreement (delivery of inadequate goods to Viet Y Steel Company), Viet Y Steel Company filed a lawsuit requesting the Court to compel Hung Yen Metal Company to refund the sum the was paid for the delivered good (equivalent to the quantity of good that has not been delivered), interest on late payment, fine, and compensation for damage (because of the delivery failure, Viet Y Steel Company must buy the good from other manufacturers with higher price than the price agreed with Hung Yen Metal Company). Such request is well-grounded and in accordance with Article 34, Clause 3 Article 297, Articles 300, 301, 302, 306, 307 of the Law on Commerce 2005. 

However, when deciding the amount payable by Hung Yen Metal Company to Viet Y Steel Company, the Court of First Instance made incorrect calculation, in specific: 

With regard to the paid advance for the good but the good was not delivered under 4 economic agreements, the Court of First Instance made the accurate calculation and was right when compelling Hung Yen Metal Company to refund to Viet Y Steel Company. However, when calculating the interest on late payment, the Court of First Instance was wrong when applying basic interest rate (10.5% per year) quoted by the State Bank at the first instance trial time instead of using the average overdue interest on the market at the payment time (first-instance trial) in accordance with Article 306 of the Law on Commerce 2005. In this case, the Court should have applied average overdue interest of at least three local banks (Agribank, Vietcombank, Vietinbank, etc.) to calculate the interest on late payment as per the law. 

With respect to breach of agreement: both parties agree that: Party B shall face the fine of 2% of certified order value upon Party B’s breach in any of the following cases: delivery of good with appropriate type, non-delivery. As Hung Yen Metal Company fails to deliver adequate good to Viet Y Steel Company, it must face a fine of 2% based on the breached obligation as prescribed in Article 300 and Article 301 of the Law on Commerce 2005. The Court of First Instance was well-grounded when accepting the request for the fine of Viet Y Steel Company but it was wrong when calculating the interest on the fine. 

With respect to compensation for damage: As represented by the representative of Viet Y Steel Company, Hung Yen Metal Company committed breach with inadequate delivery, Viet Y Steel Company had no choice but buying the billets of other manufacturers with higher price to maintain the business and production. The Court of First Instance only based on agreements on purchase of billets that Viet Y Steel Company signed with other manufacturers to compel Hung Yen Metal Company to pay Viet Y Steel Company the difference due to purchase with higher price without considering that the quantity of good purchased from other manufacturers matches with the shortage to maintain the business and operation as planned. As for this matter, the Court must require Viet Y Steel Company to provide evidence (such as purchase order of a third party, business plan, etc.) to prove the actual damage as the basis for Hung Yen Metal Company to pay the compensation for damage. In addition, the Court of First Instance also calculated the interest on the compensation for damage, which not in accordance with Article 302 of the Law on Commerce 2005. 

According to facts and matters, pursuant to Clause 3 Article 291, Clause 3 Article 297 and Clause 299 of the Civil Procedure Code (amended in 2011),

“With regard to the paid advance for the good but the good was not delivered under 4 economic agreements, the Court of First Instance made the accurate calculation and was right when compelling Hung Yen Metal Company to refund to Viet Y Steel Company. However, when calculating the interest on late payment, the Court of First Instance was wrong when applying basic interest rate (10.5%per year) quoted by the State Bank at the first instance trial time instead of using the average overdue interest on the market at the payment time (first-instance trial) in accordance with Article 306 of the Law on Commerce 2005. In this case, the Court should have applied average overdue interest of at least three local banks (Agribank, Vietcombank, Vietinbank, etc.) to calculate the interest on late payment as per the law”. 

“The Court of First Instance was well-grounded when accepting the request for the fine of Viet Y Steel Company but it was wrong when calculating the interest on the fine”. 

“In addition, the Court of First Instance also calculated the interest on the compensation for damage, which not in accordance with Article 302 of the Law on Commerce 2005”.

Quash the Appellate Judgment No. 63/KDTM-PT dated April 5, 2010 of the Court of Appeal of the Supreme People’s Court in Hanoi and First Instance Judgment No. 18/2009/KDTM-ST dated September 3, 2009 of People’s Court of Bac Ninh Province; refer the case file to People’s Court of Bac Ninh Province to retry as per the law.