Source of the Case: Precedent No. 9 – Case No. 07/2013/KDTM-GDT

Overview:

Overdue interest rates applying to commercial contracts must be calculated by the average overdue interest rate of at least three local banks at the time of payment, unless otherwise agreed or provided for by law; however, this is not applicable to the fine for breach of contractual obligations.

Material Facts:

On October 3, 2006, Viet Y Steel Joint Stock Company (“Viet Y”) entered into a contract for the sale of goods (“Contract”) with Hung Yen Steel Joint Stock Company (“Hung Yen”) for the purchase of a large amount of steel billets. In order to conduct the transaction, Viet Y made their payments and then waited for Hung Yen’s delivery of goods. Notwithstanding Viet Y’s expectations, Hung Yen was unsuccessful in fulfilling their delivery obligations as agreed. Specifically, the contractual amount of steel billets was 5000 tons; the delivered amount by Hung Yen was just about 3906.39 tons. Thus, the remaining amount was approximately 928 tons. Hung Yen had not conducted any delivery of the remaining products, despite Viet Y’s numerous complaints and requests. Eventually, Viet Y brought suit against Hung Yen, and the Supreme Peoples’ Court of Cassation (“Court of Cassation”) awarded the case to Viet Y in its final decision, not to be appealed.

Judicial Reasoning and Legal Application:

The case was clean for the delivery obligation of Hung Yen to the contract for the sale of goods with Viet Y that was regulated by the Commercial Code 2005, as was also decided by the Trial Court at the First Instance, as the Court of Cassation acknowledged Viet Y were to recover their payment made to Hung Yen applicable to the remaining amount of steel billets. Otherwise, The Court of Cassation’s concern was about the interest rate calculation on overdue payments determined by the Trial Court.

The Commercial Code 2005 expressly regulated by Article 306 on the right to claim interest on overdue payments, of which “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”. The Court of Cassation found that the Trial Court made an incorrect interpretation to determine the interest rates. The Trial Court had applied the basic interest rates provided by the State Bank of Vietnam at the time of the First Instance Trial.

From another viewpoint of the term “interest rate applicable to overdue debts in the market”, the Court of Cassation accurately determined that interest rates on the overdue payments must be calculated by the average interest rates applicable to overdue debts in the market “equal to the average overdue interest rate of at least three local banks at the time of payment, unless otherwise agreed or provided for by law”.

In addition, there was a provision in the Contract to fine for breach of obligation of which the breaching party, Hung Yen must pay 2% of the total value of goods. The Court of Cassation acknowledged the claim of Viet Y on the fine amount. Even though the Court of Cassation rejected to apply any overdue interest on this amount as determined by the Trial Court, which would unjustly enrich Viet Y.

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