FAULT AND DAMAGE IN THE EVENT OF UNILATERAL TERMINATION OF A LEASE CONTRACT
Source of the case: Cassation Decision No. 08/2016/KDTM-DGT dated May 20, 2016 of the Judicial Council of the Supreme Court with regards to the commercial case concerning “Dispute on the asset lease contract” in Quang Ninh Province between Company D (“Company D”) Ltd, as the plaintiff and Joint-Stock Company C as defendant (“Company C”).
Overview of the case: On April 10, 2006, Company D leased Company C 02 steel hull tugboats and provided a maneuvering service for the ships into or out of Port No. 10-10 and Khe Day Quang Ninh Port under Economic Contract No. 1141/HD-CNQN, being effective until December 31, 2006. However, on August 17, 2006, Company C announced the termination of the contract on August 20, 2006 with the reason of “no further need to lease”. The period from the date that Company C sent its notice until the termination of the contract was too short, so Company D was not able to have another contract to immediately replace after such termination. In this case, the fault was attributable to Company C. Thus, Company C must be liable for Company D’s damage.
– An asset lease contract has a leasing term, but no agreement was made for termination conditions. The lessee terminated the contract prior its expiry without the lessor’s assent.
– The period from the date the lessee gave notice until the termination of contract was too short, so the lessor did not have another contract to immediately replace for the remaining period of the lease contract.
– The Court determined that in this case the lessee was at fault and must be responsible for damages caused to the lessor. The actual damages to be considered are the amount of the tugboat rental for the remaining period of the contract.
– Article 426, 428 of the Civil Code 2005 (“BLDS 2005”).
– Article 245 of the Civil Procedure Code 2004 (“BLTTDS 2004”).
– Article 269, 302, 303 of Commercial Law 2005.
Judges’ Reasoning & Legal Application:
1. The termination of the lease contract and amount of damages. Under Article 426, Clause 1 of BLDS 2005, a party shall only have the right to unilaterally terminate the performance of a contract if agreed upon by the parties or provided for by law. In this case, Company C gave notice of contract termination prior to its expiry without Company D’s consent. Therefore, the termination of the lease contract of Company C was illegal and caused damage to Company D (due to the short period of the notice). According to the Judges’ Council of the Supreme Court, the fault in this case belonged to Company C, and Company C must be liable for the damages caused to Company D with the actual damages are the amount of the tugboat rental for the contract’s remaining period.
2. Time limit for an appeal. Under Article 245, Clause 1 of BLTTDS 2004, the time limit for an appeal against the First-Instance court’s judgment is fifteen (15) days from the date of judgment; for the involved parties who were absent from the court sessions, the time limit for an appeal shall count from the date when the judgment is handed to them, or publicly posted. According to the minutes of the First-Instance hearing dated January 18, 2012, the representative of Company D was present at the hearing, so he/she must acknowledge the Court’s decision. However, on February 10, 2012, Company D submitted its appeal, which was considered a late appeal under BLTTDS 2004. The reason given by Company D was not good and sufficient pursuant to Resolution No. 05/2005/NQ-HDTP. Thus, the Appellate Court did not accept this late appeal.
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