The commercial business case regarding "Dispute over the contract for sale and purchase of goods" is published according to Decision 698/QD-CA dated October 17, 2016 by the Chief Justice of the Supreme People’s Court of Vietnam.
Article table of contents
Precedent No. 09/2016/AL
Adopted by the Council of Judges of the Supreme People’s Court of Vietnam on October 17, 2016, and published according to Decision No. 698/QD-CA on October 17, 2016, by the Chief Justice of the Supreme People’s Court of Vietnam.
Source of the Precedent:
Cassation Decision No. 07/2013/KDTM-GDT dated March 15, 2013, by the Council of Judges of the Supreme People’s Court of Vietnam regarding a commercial business case regarding "Dispute over a contract for sale and purchase of goods" in Bac Ninh province between the plaintiff, Viet Y Steel Joint Stock Company, and the defendant, Hung Yen Kim Khi Joint Stock Company; related parties are Mrs. Le Thi Ngoc Lan and Mr. Le Van Dung.
Position of the Precedent Content:
Paragraphs 4, 5, and 6 of Section 2 "Considering" of the above-mentioned cassation decision.
Summary of the Precedent:
- Precedent Situation 1:
The sale contract is breached because the seller fails to deliver or deliver enough goods to the buyer, leading to the seller's obligation to return the advance payment and pay Late Payment Interest.
- Legal Solution 1:
In this case, Late Payment Interest is calculated based on the average interest rate charged on overdue debts in the market, which is the average interest rate charged on overdue debts of at least three local banks at the time of payment (first-instance trial), unless otherwise agreed or specified by law.
- Precedent Situation 2:
The sale contract entails obligations for imposition of penalties on violations and compensation for damages.
- Legal Solution 2:
In this case, the party obligated to pay the penalty and compensation is not required to pay interest on those amounts.
Legal provisions related to the Precedent:
- Articles 34, 37, Clause 3 of Article 297, Articles 300, 301, 302, 306, and 307 of Commercial Law 2005;
- Articles 307, 422, 474, and 476 of the Civil Code 2005.
Keywords of the Precedent:
"Contract for sale and purchase of goods"; "Contract Breach"; "Return of Advance Payment"; "Late Payment Interest"; "Interest rate charged on overdue debts"; "Average interest rate charged on overdue debts on the market"; "imposition of penalties on violations"; "Compensation for Damages".
CASE DETAILS
According to the petition dated July 7, 2007, the petition for amending the lawsuit dated October 10, 2007, the documents in the case file, and the statements of the plaintiff's representative:
On October 3, 2006, Viet Y Steel Joint Stock Company (hereafter referred to as Viet Y Steel Company) signed Economic Contract No. 03/2006-HDKT with Hung Yen Kim Khi Joint Stock Company (hereafter referred to as Hung Yen Kim Khi Company); represented by Mr. Nguyen Van Tinh - Deputy General Director via Authorization Letter No. 621 dated September 10, 2005, of the Company's General Director. Under this contract, Viet Y Steel Company (party A) purchased continuously cast steel billets CTS-5SP/PS bulk, according to GOST 380-94 standards from Hung Yen Kim Khi Company (party B) with a quantity of 3,000 tons +/- 5%, at a unit price of 6,750,000 VND per ton; delivery time from October 25 to 31, 2006; the total contract value is 20,250,000,000 VND +/- 5%.
On October 4, 2006, Viet Y Steel Company transferred the entire amount of 20,250,000,000 VND to Hung Yen Kim Khi Company via bank transfer through Vietcombank Hai Duong. Hung Yen Kim Khi Company delivered 2,992.820 tons of steel billets to Viet Y Steel Company, with a shortfall of 7.180 tons corresponding to the amount of 48,465,000 VND.
On December 20, 2006, both parties signed Contract No. 05/2006-HDKT. Hung Yen Kim Khi Company was represented by Mr. Le Van Manh - Deputy General Director (via Authorization Letter No. 1296/UQ/HYM from the General Director). Under this contract, Viet Y Steel Company purchased 5,000 tons of steel billets (same standards and quality as Contract No. 03) at a unit price of 7,290,000 VND per ton (including VAT and transportation costs). The total contract value is 36,450,000,000 VND +/- 5%; delivery time from January 18 to January 30, 2007; Viet Y Steel Company would advance 500,000,000 VND to Hung Yen Kim Khi Company immediately after signing the contract; the remaining amount would be paid in two installments after Viet Y Steel Company received the goods. The contract also stipulates that Hung Yen Kim Khi Company would incur a penalty of 2% of the contract value if it fails to deliver the correct type or fails to deliver the goods altogether. According to the representative of Viet Y Steel Company, on December 21, 2006, Viet Y Steel Company transferred 500,000,000 VND as advance payment to Hung Yen Kim Khi Company, but this contract was not fulfilled by Hung Yen Kim Khi Company without any reason.
On the same day, December 20, 2006, Viet Y Steel Company also signed Contract No. 06/2006 with Hung Yen Kim Khi Company (represented by Mr. Le Van Manh - Deputy General Director) to purchase 3,000 tons of steel billets from Hung Yen Kim Khi Company at a unit price of 7,200,000 VND per ton. The total contract value is 21,600,000,000 VND; delivery time from January 5, 2007, to January 15, 2007.
On December 22, 2006, Viet Y Steel Company transferred 21,600,000,000 VND to Hung Yen Kim Khi Company via bank transfer at Techcombank Hung Yen Branch, but Hung Yen Kim Khi Company delivered only 2,989.890 tons of steel billets, with a shortfall of 7.640 tons corresponding to 55,008,000 VND.
On February 1, 2007, Viet Y Steel Company signed Contract No. 01/2007 with Hung Yen Kim Khi Company (represented by Mr. Le Van Manh - Deputy General Director) to purchase 5,000 tons of steel billets at a unit price of 7,800,000 VND per ton. The total contract value is 39,000,000,000 VND +/- 5%. During the contract performance, Viet Y Steel Company transferred 37,710,000,000 VND to Hung Yen Kim Khi Company, which delivered 3,906.390 tons of steel billets valued at 30,469,842,000 VND. The undelivered steel billets amount to 928.25538 tons, equivalent to 7,240,158,000 VND.
Viet Y Steel Company repeatedly sent letters requesting Hung Yen Kim Khi Company to fulfill the contract, but Hung Yen Kim Khi Company failed to comply, forcing Viet Y Steel Company to purchase steel billets from other producers to ensure the continuity of their production and business.
Due to Hung Yen Kim Khi Company's breach of the contracts, Viet Y Steel Company filed a lawsuit demanding that Hung Yen Kim Khi Company be responsible for payment and compensation for damages arising from the breach of contracts No. 03/2006, 05/2006, 06/2006, 01/2007 at the time of the lawsuit, totaling 12,874,298,683 VND, including 11,181,662,503 VND for the undelivered steel billets, 1,316,490,480 VND for penalty, and 376,145,700 VND for overdue interest.
At the first-instance trial on September 3, 2009, the plaintiff's representative requested that Hung Yen Kim Khi Company pay Viet Y Steel Company a total of 28,145,956,647 VND up to the trial date of September 3, 2009, and issue value-added tax invoices to Viet Y Steel Company equivalent to the delivered goods under Contract No. 06/2006 for 21,544,992,000 VND and Contract No. 01/2007 for 30,469,842,000 VND.
In the minutes of evidence collection, mediation, and trial minutes, the defendant's representative presented the following statements:
At the time Hung Yen Kim Khi Company signed the above contracts with Viet Y Steel Company, Mrs. Le Thi Ngoc Lan was the General Director, and Mr. Le Van Dung (Mrs. Lan's husband) was the business advisor. On March 22, 2007, Mrs. Le Thi Ngoc Lan transferred all her shares in Hung Yen Kim Khi Company to Mrs. Nguyen Thi Toan, who assumed the position of Acting General Director from April 2, 2007. In the agreement to divide marital assets between Mr. Le Van Dung and Mrs. Le Thi Ngoc Lan, as well as the debt acknowledgment of the Company, Mr. Le Van Dung assumed responsibility for repaying all the debts incurred by Hung Yen Kim Khi Company before April 1, 2007. At present, Hung Yen Kim Khi Company does not agree with Viet Y Steel Company's demand for damages for Contracts No. 03/2006, 05/2006, 06/2006, 01/2007 because the responsibility for repayment lies with Mr. Dung, Mrs. Lan, and the former management of Hung Yen Kim Khi Company. Hung Yen Kim Khi Company is negotiating with Mr. Dung to repay Viet Y Steel Company directly or to repay Hung Yen Kim Khi Company so they can repay Viet Y Steel Company.
Hung Yen Kim Khi Company requested the court to consider and assess the legal value of Contracts No. 03/2006, 05/2006, 06/2006, 01/2007, signed by Mr. Tinh and Mr. Manh on behalf of Hung Yen Kim Khi Company with Viet Y Steel Company and to determine the responsibility of Mr. Dung, Mr. Manh, Mr. Tinh, and Mrs. Lan regarding the debts claimed by Viet Y Steel Company. In the first-instance trial, Hung Yen Kim Khi Company mainly agreed with Viet Y Steel Company's contract performance figures but did not accept the financial figures due to an uncompleted debt comparison; they also disputed the overdue interest calculations, and they disagreed with Contract No. 05, as both parties agreed to cancel it and transfer the advance payment of 500,000,000 VND to Contract No. 01/2007, meaning no breach occurred with Contract No. 05.
Related party - Mrs. Le Thi Ngoc Lan stated: In early 2004, she and her husband bought shares from Mr. Nguyen Luong Tuan and Mr. Nguyen Van Thanh in Hung Yen Kim Khi Company, which was under construction at the time. From then on, Mrs. Lan became the General Director and Chairman of the Board of Directors, while her husband, Mr. Dung, served as the business advisor of Hung Yen Kim Khi Company. Due to marital conflicts, on September 5, 2005, Mrs. Lan and Mr. Dung made an agreement on marital property division at Hong Ha Law Office (under Hanoi Bar Association). According to this agreement, Mrs. Lan retained ownership of the house at 250 Ba Trieu Street, and Mr. Dung retained all 48 billion VND in shares, becoming responsible for all debts of Hung Yen Kim Khi Company incurred during the construction of the Hung Tai steel rolling mill (a subsidiary of Hung Yen Kim Khi Company). Due to transferring her shares to Mr. Dung, Mrs. Lan indicated that her operational authority was delegated to Mr. Tinh and subsequently to Mr. Manh. Without shares but remaining General Director, Mrs. Lan stated that the actual company management was by Mr. Dung, Mr. Tinh, and Mr. Manh. By July 2007, Mrs. Lan transferred her outstanding debts and General Director position to Mrs. Toan. Mrs. Lan confirmed that contracts signed by Mr. Manh and Mr. Tinh with Viet Y Steel Company were under her continuous delegation. However, operational and financial obligations were managed by Mr. Dung and Mrs. Toan, absolving her from debt repayment obligations towards Viet Y Steel Company.
Related party - Mr. Le Van Dung stated: Despite the marital property division where he retained company shares, Mr. Dung claimed a non-participating role in signing economic contracts or project finance management, thereby denying responsibility for debts. Contesting Hung Yen Kim Khi Company's statement, Mr. Dung maintained that debt payment responsibility belonged to the Company and Mrs. Toan. Acknowledging the debt agreement with Mrs. Nguyen Thi Toan, Mr. Dung described this as a record for internal settlement without forming a formal share purchase agreement. Further, transferring Mrs. Lan’s company shares to Mrs. Toan was beyond his knowledge. Legally, Hung Yen Kim Khi Company should bear responsibility, not him as an individual, and he sought to abstain from all trial participation.
At the Commercial First-Instance Judgment No. 01/2007/KDTM-ST dated November 14, 2007, the People’s Court of Bac Ninh province ruled: “Hung Yen Kim Khi Joint Stock Company must repay Viet Y Steel Joint Stock Company a total of 24,674,428,500 VND for the 04 contracts: 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.” Additionally, the first-instance court ruled on legal costs and the parties' appeal rights.
On November 27, 2007, Hung Yen Kim Khi Joint Stock Company filed an appeal.
At the Commercial Appeal Judgment No. 120/2008/KDTM-PT dated June 18, 2008, the Appellate Court of the Supreme People’s Court of Vietnam in Hanoi decided: “To annul the Commercial First-Instance Judgment No. 01/2007/KDTM-ST dated November 14, 2007, of the People's Court of Bac Ninh province. The case is remanded to the People's Court of Bac Ninh province for re-trial according to law” due to the first-instance court not obtaining statements from Mrs. Lan, Mr. Dung, Mrs. Toan, Mr. Tinh, Mr. Manh, nor properly identifying parties to the dispute, nor verifying the debt acknowledgment and money receipt documents from Mr. Dung, enforcement powers… which were photo copies unverified by official authorities or comparison of originals by the first-instance court.
At the Commercial Retrial Judgment No. 09/2008/KDTM-ST dated October 23, 2008, the People’s Court of Bac Ninh province ruled: “Hung Yen Kim Khi Joint Stock Company must repay Viet Y Steel Joint Stock Company a total of 31,902,035,179.56 VND for contracts 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.”
On November 5, 2008, Hung Yen Kim Khi Joint Stock Company filed an appeal.In the Court of Appeal for Business and Commerce No. 32/2009/KDTM-PT dated February 19, 2009, the Appellate Court of the Supreme People’s Court in Hanoi decided: “1. Annul the first-instance commercial business judgment No. 09/2008/KDTM-ST dated October 23, 2008 of the People’s Court of Bac Ninh Province regarding the "Dispute over the goods sale contract” between Hung Yen Metal Joint Stock Company and Viet Y Steel Joint Stock Company. 2. Transfer the case files to the first-instance court for a retrial,” with the reason: General Director Dinh Van Vi only filed a lawsuit demanding Hung Yen Metal Company to pay VND 12,874,298,683, but the authorized representative continuously changed and supplemented the lawsuit requests exceeding the scope of the lawsuit, violating point 1, clause 2, Article 164 of the Civil Procedure Code and Resolution No. 02/2006/NQ-HDTPT dated May 12, 2006 of the Appellate Council of the Supreme People’s Court. All requests for change and additional lawsuits are inappropriate according to law, and the first-instance court's acceptance of these requests from the representative violated severe civil proceedings, leading to the appellate court not considering the appeal's content of Hung Yen Metal Company.
In the first-instance commercial business judgment No. 18/2009/KDTM-ST dated September 03, 2009, the People’s Court of Bac Ninh Province decided: “1. Force Hung Yen Metal Joint Stock Company to be responsible for paying Viet Y Steel Joint Stock Company the amount of four economic contracts: Contract No. 03/2006 dated October 03, 2006; Contract No. 05/2006 dated December 20, 2006; Contract No. 06/2006 dated December 20, 2006, and Contract No. 01/2007 dated February 01, 2007 with a total amount of VND 28,145,956,647 and must issue a VAT invoice to Viet Y Steel for two contracts including Contract No. 06/2006 corresponding to the goods value of VND 21,544,992,000 and Contract No. 01/2007 corresponding to the goods value of VND 30,469,842,000". Besides, the first-instance court also decided on court fees, judgment execution, and the parties' appeal rights according to law.
On September 23, 2009, Hung Yen Metal Joint Stock Company filed an appeal.
In the appellate commercial business judgment No. 63/KDTM-PT dated April 05, 2010, the Appellate Court of the Supreme People’s Court in Hanoi decided: “Annul the first-instance commercial business judgment No. 18/2009/KDTM-ST dated September 03, 2009 of the People’s Court of Bac Ninh Province. Transfer the case files to the People’s Court of Bac Ninh Province for a retrial according to the law”.
On July 25, 2010, the People’s Court of Bac Ninh Province sent Official Dispatch No. 110/2010/CV-TA requesting the Chief Justice of the Supreme People’s Court to review the appellate judgment under supervisory procedures.
In the Protest Decision No. 17/2012/KDTM-KN dated June 25, 2012, the Chief Justice of the Supreme People’s Court proposed the Judging Council of the Supreme People’s Court to try under the supervisory procedures to annul the appellate commercial business judgment No. 63/KDTM-PT dated April 05, 2010 of the Appellate Court of the Supreme People’s Court in Hanoi; transfer the case files to the Appellate Court of the Supreme People’s Court in Hanoi for a re-appellate trial according to the law.
At the supervisory trial, the representative of the Supreme People’s Procuracy agreed with the Chief Justice’s protest.
The Judging Council of the Supreme People’s Court considered:
- From October 2006 to February 2007, Viet Y Steel Joint Stock Company and Hung Yen Metal Joint Stock Company signed four economic contracts (No. 03/2006-HDKT dated October 03, 2006, No. 05/2006-HDKT, No. 06/2006-HDKT dated December 20, 2006, and No. 01/2007-HDKT dated February 01, 2007).
At the time of the contract signing, Mrs. Le Thi Ngoc Lan was still the legal representative of Hung Yen Metal Joint Stock Company (based on the amended business registration certificate dated August 12, 2005, and July 06, 2007, of Hung Yen Metal Company and Decision on changing business registration content No. 140/QD-HDCD dated July 02, 2007, of Hung Yen Metal Company). Under Authorization Paper No. 621/UQ-KKHY dated September 10, 2005, Mrs. Lan authorized Mr. Nguyen Van Tinh to manage and operate the Joint Stock Company Hung Yen Metal. Mr. Tinh, acting as a deputy director of Hung Yen Metal Company, was eligible to enter into economic contracts, hence correctly representing the company in contract-related matters.
On November 20, 2006, Mrs. Lan authorized Mr. Le Van Manh through Authorization Paper No. 1296/UQ/HYM (the contents similar to those authorized Mr. Tinh).
Thus, the authorizations given to Mr. Nguyen Van Tinh and Mr. Le Van Manh (Deputy Directors of the Company) were legitimate, qualifying them to sign the economic contracts on behalf of the company.
The appellate court relied on the marital property division agreement between Mrs. Le Thi Ngoc Lan and Mr. Le Van Dung and the debt commitment between Mr. Le Van Dung and Mrs. Nguyen Thi Toan to assert them as having relevant rights and obligations, which was incorrect. The property division between Mr. Le Van Dung and Mrs. Le Thi Ngoc Lan and the debt agreement with Mrs. Nguyen Thi Toan is internal to Hung Yen Metal Company and not agreed upon by Viet Y Steel Joint Stock Company. According to Clause 1, Article 315 of the Civil Code 2005, the debtor can transfer obligations only with the creditor's consent. Mr. Dung and Mrs. Lan had clearly stated their positions during the case's trial about their internal company disputes without obligating Mr. Dung to attend the trial.
Therefore, the appellate court's judgment to annul the first-instance Judgment No. 18/2009/KDTM-ST dated September 03, 2009, and transfer the case back was erroneous.
- Regarding the contract content, Viet Y Steel Joint Stock Company had transferred payment via authorization and received goods (evidenced by signed delivery records). Hence, under Article 93, Clause 1 of the Civil Code 2005, Hung Yen Metal Joint Stock Company must fulfill its payment obligations.
Hung Yen Metal Company’s failure to deliver goods as per contractual terms justified Viet Y Steel's lawsuit for the refund of undelivered goods amounts, late payment interest, penalty, and damage compensation due to alternative purchases at higher prices, as stipulated under Articles 34, Clause 3, and Articles 297, 300, 301, 302, 306, 307 of the Commercial Law 2005.
However, the first-instance court's calculation of the dues was inaccurate, particularly the over-dues interest calculation mislabeled by applying the State Bank's rate instead of the market average interest rate charged on overdue debts among three local banks. This calculation needed addressing for compliance with the law.
The penalty for contract breaches was rightly set at 2% of the unfulfilled contract value under Articles 300 and 301 of the Commercial Law 2005. Including this penalty into the payable amount but calculating interest on the penalty amount was incorrect.
Regarding damage compensation, the onus fell on Viet Y Steel to prove the damages incurred due to Hung Yen Metal's breach by providing evidence of third-party procurement to supplement missing goods (due to non-performance) adequately, ensuring the rightful compensation conforming to the factual and planned business continuity.
Considering all the above, under Clause 3, Article 291, Clause 3, Article 297, and Article 299 of the Civil Procedure Code (amended, supplemented in 2011),
DECISION:
Annul the appellate commercial business judgment No. 63/KDTM-PT dated April 05, 2010, of the Appellate Court of the Supreme People’s Court in Hanoi, and the first-instance commercial business judgment No. 18/2009/KDTM-ST dated September 03, 2009, of the People’s Court of Bac Ninh Province; refer the case files to the People’s Court of Bac Ninh Province for retrial according to the law.
PRECEDENT CONTENT
“For the advance payment not receiving goods of four economic contracts, the first-instance court correctly identified the receivable amounts from Hung Yen Company to Viet Y Company. However, the interest calculation on this payment per Article 306 of the Commercial Law 2005 should adhere to the market average overdue rate instead of applying the basic State Bank rate as requested by the plaintiff at 10.5%/year, necessitating a correction aligned with legal statutes.”
“The first-instance court’s acceptance of the contract breach penalty claim by Viet Y Company was justifiable but erroneous inclusion of interest on the penalty amount contradicted legal provisions.”
“The incorrect inclusion of interest on damage compensation in the first-instance decision contravened Article 302 of the Commercial Law 2005.”
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