In commercial activities, the agreement between the parties is normally recorded in the contract. The parties are obliged to comply with that contract. However, a contract breach can still occur, whether intentional or unintentional. To protect its rights, the aggrieved party may apply trade sanctions, as it remains its choice.
Trade sanctions stipulated in Article 292 of the 2005 Commercial Law include:
- Force the proper performance of the contract.
- Penalties for violations.
- Forced compensation for damages.
- Suspension of contract performance.
- Suspension of contract performance.
- Cancellation of contract.
- Other measures agreed upon by the parties shall not contravene fundamental principles of Vietnamese law, treaties to which the Socialist Republic of Vietnam is a contracting party and international commercial practices.
In this article, we will outline some common sanctions in commercial activities as follows:
1. Forced performance of the contract
This is a sanction that has the function of ensuring that the contract is performed as agreed, the aggrieved party requires the breaching party to strictly perform the contract or use other measures to execute the contract and the breaching party must bear the costs incurred; applied to any breach of contract.
How to apply:
- Request the breaching party to strictly comply with the agreements in the contract.
- In case the breaching party fails to comply with the agreements in the contract, the aggrieved party has the right to apply other measures such as: purchasing goods or receiving services from others instead; self-repair of goods defects;… The breaching party must pay the difference and the costs incurred.
This sanction may not apply concurrently with other sanctions, except for fines for violations and compensation for damages. If the breaching party fails to comply, the aggrieved party has the right to continue to apply other sanctions.
2. Penalties for violations
It is a sanction that has the function of enhancing the parties’ sense of contract compliance. The aggrieved party has the right to demand that the breaching party pay a fine due to the breach of a contract.
Recourse to these penalties requires, on the one hand, that the parties have expressly agreed to the application of these penalties and, on the other hand, that the breach in question has been expressly defined as an element triggering the right to claim payment of these penalties by the aggrieved party.
The maximum penalty for breach is 8% of the value of the breached contractual obligation, except for the following areas:
- The maximum penalty for violations in the field of construction is 12% of the value of the part of the contractual obligation violated;
- The maximum penalty for violations in the field of assessment is not exceeding 10 times the remuneration for assessment services.
3. Compensation for damages
This is a sanction that has the function of compensating material losses suffered by the aggrieved party. The breaching party is liable to compensate for the actual value of the loss and the direct profit that the aggrieved party would have enjoyed if there had been no violation.
Compensation for damage arises when there are all 3 factors:
- There is a breach of contract;
- There is actual damage;
- The breach of contract is the direct cause of the damage.
The party claiming compensation for damage must prove the loss, the extent of the loss caused by the breach, as well as the direct gain that the aggrieved party would have been entitled to had there not been a breach.
Note: The party claiming compensation for damages must take reasonable measures to limit losses, including losses for direct profits that would have been enjoyed as a result of the breach of contract; if the party claiming compensation for damages fails to apply such measures, the breaching party has the right to demand a reduction in the value of compensation for damage equal to a loss that could have been limited.
In case the breaching party delays payment of goods or delays payment of service remuneration and other reasonable expenses, the breached party shall have the right to demand interest on such late payment amount at the average overdue debt interest rate in the market at the time of payment corresponding to the late payment period, unless otherwise agreed or otherwise provided for by law. In addition, damages may be applied simultaneously with other sanctions.
