Author: TNTP LAW

What are the issues to keep in mind when collecting debts in the field of construction?

Written by TNTP LAW on 11 September, 2024. Posted in Legal newsletter.

In the business environment, particularly in construction, the potential for incurring debts is significant. However, debt recovery in the construction industry has some unique points compared to other sectors. In this article, lawyer from TNTP will provide readers with insights on the key issues to consider when recovering debts in the construction sector.

1. Debt Recovery Parties in Construction

In the construction sector, debts typically arise among the following entities:

• Project Investors
• Main Contractors
• Subcontractors

Specifically:

(i) Project Investors

According to point a of Clause 1, Article 4 of the Bidding Law 2023, a project investor is defined as: An agency or organization that owns borrowed capital or is directly assigned to manage and use capital during the project execution; budget-using units; direct budgetary expenditure units; centralized procurement units.

Consequently, a project investor is an entity that directly invests capital and manages the use of capital during the construction project.

(ii) Main Contractor

According to Clause 26, Article 4 of the Bidding Law 2023, a main contractor is: An organization or individual, or a combination of organizations or individuals, who enter into a bidding joint venture based on a joint-venture agreement to participate in bidding and directly sign the contract if selected. The joint-venture agreement must clearly define the responsibilities of the lead member and the common and individual responsibilities of each member within the joint venture for the entire scope of the contract package.

Therefore, the main contractor is the contractor named in the bid and directly signs the procurement contract with the project investor, responsible to the investor during the contract execution.

(iii) Subcontractors

According to Clause 27, Article 4 of the Bidding Law 2023, a subcontractor is: An organization or individual who signs a contract with the main contractor to participate in performing construction, consulting, non-consulting, and related services of the goods supply or mixed contract package.

As per the regulations, a subcontractor is a contractor that signs contracts with the main contractor and carries out related works in construction, consulting, non-consulting, and related services as per the signed contract.

Accordingly, for a construction project, the project investor will directly contract with the main contractor. During the construction process, the main contractor may sign contracts with subcontractors to perform tasks within the project scope. Therefore, debts in a construction project typically arise between the project investor and the main contractor; and between the main contractor and subcontractors.

2. Construction Debt Collection

a) Debt Between Project Investor and Main Contractor

The project investor, as the party awarding the contract to the main contractor, is responsible for making payments according to the contract to the main contractor. However, if the project investor neglects the capital plan and delays payments for completed projects awaiting final settlement, or for the purpose of misappropriate capital, they did not pay as committed to the main contractor, leading to bad debts.

b) Debt Between Main Contractor and Subcontractors

Subcontractors perform part or all of the project components under a subcontract with the main contractor. Debts typically relate to the payment fees for construction components, raw materials, and maintenance costs, among others.

3. Key Considerations for Effective Debt Collection in Construction

Due to the prolonged construction period typical of the construction, numerous fluctuations can arise due to changes in legal policies, prices, and funding sources. To effectively recover debts, businesses should consider the following issues:

a) Request Periodic Debt Reconciliation

One of the conditions for effective debt collection is to accurately evaluate the amount to be collected. To reconcile debts, the parties can create a Debt Reconciliation Minute, which is a document recording the debt value arising from the contract between the parties. This document will be signed and stamped by the parties as a testament to their status. In consequence, it serves as proof of the debtor’s payment obligations should the business require the debtor to make payments. If the parties cannot negotiate and must initiate litigation to resolve the issue at the competent authority, the Debt Reconciliation Document will be an important document to prove the debtor’s payment obligations and the value of the debt that the debtor must pay to the business.

b) Check the Financial Status of the Debtor

To check whether the debtor can make payments, the business must know the debtor’s financial capacity. Checking the debtor’s financial status helps the business identify which debtors are capable of paying so it can focus its resources and finances on recovering the debt from them. This avoids wasting resources and finances on trying to recover from debtors who are no longer able to pay.

However, checking the financial status of a debtor is not straightforward since information about a company’s assets and profits is not publicly disclosed (except for listed companies). Therefore, a business may engage with other partners in its sector to learn about the activities and projects the debtor is involved in, in order to assess the debtor’s financial capabilities.

c) Compliance with Legal Regulations

Businesses need to be aware of legal regulations to carry out debt collection activities legally. There have been cases where businesses have used debt recovery services in the form of “gangster,” which are prohibited under the Investment Law 2020, leading to criminal proceedings.

Although businesses have the right to demand payment from debtors, this request must be made within the legal regulations. Accordingly, businesses can recover debts by negotiating or initiating litigation if the negotiation process is unsuccessful. When initiating litigation, businesses must study the legal regulations to make reasonable demands and choose the appropriate competent authority to resolve the dispute so that their litigation request is accepted.

If a business has never initiated litigation at the competent dispute resolution authority, they can use the services of law firms to enhance its ability to recover debts and conduct litigation procedures most effectively.

This article by TNTP’s lawyer addresses the topic: “What are the issues to keep in mind when collecting debts in the field of construction?” We hope this article provides value to our readers.

Sincerely,

Learn about provisional emergency measures in civil procedure

Written by TNTP LAW on 9 September, 2024. Posted in Giải quyết tranh chấp, Our Activities.

In civil proceedings, in order to protect the rights and interests of the involved parties as well as ensure the enforcement of judgments, the Court may apply provisional emergency measures as prescribed in the Civil Procedure Code. As society develops, life will become more and more complicated, and there will be acts infringing the rights and interests of others. Therefore, provisional emergency measures are a tool for the State to intervene through the legal corridor to promptly protect the rights and interests of the involved parties in civil proceedings. In this article, TNTP lawyers will analyze and clarify provisional emergency measures as prescribed in the Civil Procedure Code so that readers can better understand this legal issue.

1. What is a temporary emergency measure?

According to Article 111 of the 2015 Civil Procedure Code, provisional emergency measures are measures decided by the Court to apply when resolving a civil case to resolve the urgent requests of the parties, protect health, property, life, protect evidence, collect evidence, preserve the current state, avoid causing irreparable damage, ensure the execution of judgments and settlement of cases.

2. Features of Provisional Emergency Measures

Provisional emergency measures have the following two distinctive features:

• Urgency: Demonstrated through the fact that the Court will issue a decision for immediate application and this decision will be enforced immediately after that.

• Temporary: Provisional emergency measures cannot completely resolve the problems facing the parties. The measures are applied temporarily to meet the urgent requirements of the parties, protect life, health, property, collect and protect evidence, preserve the current state, avoid causing irreparable damage, ensure the execution of judgments and settlement of cases.

3. Summary of provisional emergency measures

(i) Sending minor persons, legally incapacitated persons, person with limited cognition or behavior control to individuals or organizations for nurturing, taking care of and educating;
(ii) Force to perform part of the alimony obligation in advance;
(iii) Force to perform of part of the obligation to compensate for damage to individuals whose lives and/or health have been infringed upon in advance;
(iv) Forcing the employers to provide the employees with advance wages, health insurance, social insurance, treatment cost for occupational accidents or occupational diseases or compensations, allowances for occupational accidents or occupational diseases;
(v) Suspending temporally the execution of decisions on unilateral termination of labor contract or decisions on dismissal of employees;
(vi) Distraining the disputed properties;
(vii) Prohibiting the transfer of property right over the disputed properties;
(viii) Prohibiting the change of the current conditions of disputed properties;
(ix) Permitting the harvesting, sale of subsidiary food crops or other products, commodities;
(x) Freezing accounts at banks or other credit institutions, State treasury; freezing properties at places of their deposit;
(xi) Freezing properties of the obligor;
(xii) Prohibiting involved parties from performing, or forcing them to perform certain acts;
(xiii) Prohibiting the obligors from leaving Vietnam;
(xiv) Prohibiting the contact with victims of family violence;
(xv) Suspending the bid closing and activities related to bidding;
(xvi) Arresting aircrafts or ships to ensure the lawsuit settlement;
(xvii) Other provisional emergency measures provided for by law.

4. Applying provisional emergency measures

a) When the case is being resolved:

Pursuant to Clause 1, Article 111 of the Civil Procedure Code 2015 and Article 2 of Resolution 02/2020/NQ-HDTP, the involved parties have the right to request the Court to apply provisional emergency measures during the settlement process when meeting the following cases:

• Temporarily settle the urgent request of the involved parties directly related to the case being resolved by the Court that needs to be settled immediately. If delayed, it will adversely affect the life, health, livelihood, property, honor, and dignity of the involved parties.

• Collect and protect relevant evidence of a case being handled by the Court in cases where the parties obstruct or negatively impact the collection of evidence or are destroying or are at risk of destroying evidence, making it difficult to collect it again later.

• Preserve the existing status, avoid causing irreparable damage, preserve the subjects and relationships directly related to the case being resolved by the Court.

• Ensure the basis for resolving the case and have sufficient conditions for enforcement when the Court’s judgment or decision is enforced.

b) Emergency situation:

Pursuant to Clause 2, Article 111 of the Civil Procedure Code 2015 and Article 3 of Resolution 02/2020/NQ-HDTP, individuals, agencies and organizations have the right to request the Court to issue a decision to apply emergency measures in case of an emergency requiring the protection of evidence and prevention of possible serious consequences and submit the request at the same time they file a lawsuit if there is one of the following grounds:

• Urgent situations need to be resolved immediately and cannot wait or delay.

• Evidence needs to be protected in cases where the source of evidence may be destroyed, is at risk of being destroyed, or is difficult to collect in the future.

• Prevent possible serious consequences (physical or mental).

c) The court issues a decision to apply provisional emergency measures by itself

Pursuant to Article 135 of the Civil Procedure Code 2015 and Article 5 of Resolution 02/2020/NQ-HDTP, the Court itself will issue a decision to apply provisional emergency measures if all of the following conditions are met:

• The application is directly related to the case being resolved.

• The application is really necessary to meet urgent requirements and fall into the scope of Clause 1, 2, 3, 4, 5 of Article 114 and from Article 115 to Article 119.

• The party does not make a request to apply provisional emergency measures due to objective obstacles or legitimate reasons.

Above is the article of TNTP on “Learn about provisional emergency measures in civil procedure” shared with readers. Hopefully this article will be helpful to readers.

Sincerely,

Sources of law applicable in resolving disputes over international sales of good contracts

Written by TNTP LAW on 6 September, 2024. Posted in Dispute Settlement.

In international sales of good contracts (“ISGC”), the provisions of the contract and the applicable sources of law play an important role in resolving disputes. The sources of law applied in resolving disputes related to this type of contract are very diverse. In this article, TNTP will clarify the sources of law that can be applied in resolving disputes related to ISGC.

1. Definition of International sales of goods contract and source of law

1.1. International sales of goods contract

• Vietnamese law does not directly specify the concept of ISGC. Clause 1, Article 27 of Commercial Law 2005 only lists activities treated as international sale of goods such as: export; import; temporary import for re-export; temporary export for re-import and border-gate transfer.

• According to Clause 8, Article 3 of the Commercial Law 2005, the sale and purchase of goods is defined as a commercial activity, in which the seller is obliged to deliver goods, transfer ownership of goods to the buyer and receive payment; the buyer is obliged to pay the seller, receive goods and ownership of goods according to the agreement.

• Clause 2, Article 663 of the 2015 Civil Code defines a civil relationship with foreign elements as a civil relationship if at least one of the following conditions are met: (i) At least one of the participating parties is a foreign individual or legal entity; (ii) The participating parties are all Vietnamese citizens or Vietnamese legal entities, but the establishment, change, implementation or termination of that relationship occurs abroad; (iii) The participating parties are all Vietnamese citizens or Vietnamese legal entities, but the subject of that civil relationship is abroad.

Based on the indirect approach, it could be seen that, ISGC is a contract signed between merchants whose commercial headquarters (business locations) are located in the territories of different countries, or the conclusion and performance of obligations take place in two or more countries or the subject of the contract is in another country.

1.2. Concept of source of law

Sources of law, in general theory of state and law, can be understood as elements that contain or provide legal bases for subjects to be able to perform their acts in practice. In the law applying activity, sources of law are understood as forms that containing legal norms that dispute resolution bodies can use to resolve disputes in practice.

2. Sources of law appicable in resolving disputes over international sales of goods contracts

In general, the sources of law that can be applied in resolving ISGC are quite diverse, based on both the agreement of the parties and the viewpoint of the dispute settlement bodies. Based on the practice of the dispute settlement body, they can use the following sources of law to resolve the dispute of ISGC:

• International treaties: International treaties relating to the international sale of goods to which a country is a member allow the dispute settlement body of that country to apply as a tool to clarify the rights and obligations of the parties in the international sale of goods relationship, if the conditions for applying the international treaty are met. The most typical example is the Vienna Convention on Contracts for the International Sale of Goods (known as CISG), which allows dispute settlement bodies to cite provisions if the conditions are met (disputes between two parties whose nationalities are both members of the convention; international private law rules refer to the law of a country that is a member of the convention).

• International trade practices: International trade practices and usages are habits and practices in international commercial that are widely recognized in international commercial activities in a commercial field, recognized and applied regularly by many entities participating in trade relations with explicit expression which the parties can determine their rights and obligations in international commercial transactions. In the process of dispute resolution, the dispute settlement body may rely on the trade customs that the parties agree to apply in the ISGC to resolve the dispute.

• National law: National law is a system of regulations issued or recognized by a country to regulate legal relations between legal entities arising within the territory or jurisdiction of that country. When concluding an international commercial contract, the entities can choose national law as the law applicable to the contract (which can be the national law of one of the two parties or the country where the contract is performed or it can be the law of a country unrelated to the contract) or the dispute settlement bodies chooses national law to resolve the dispute based on the provisions on choice of law and private international rules. National law includes laws, international treaties to which the country is a member, legal principles of that country, etc.

• Case law: Case law is also an important source for dispute settlement bodies in resolving disputes over international commercial contracts. Through precedents, dispute settlement bodies can explain the terms, rights and obligations of the parties to the provisions of international treaties and provisions of national law, and at the same time help resolve disputes faster when case law can be applied for cases of a similar nature to the content of that case law. Case law can be from national law, or related to international treaties, interpretations of international treaties, etc.

• Soft law: Soft law is a set of rules that are not legally binding, but have high reference value. In case the parties to a dispute choose soft law is the gorverning law in their contract, the dispute settlement bodies will still apply the principles of soft law to resolve the dispute. Soft law can be the principles of reputable trade organizations (for example, the Principles of International Commercial Contracts of the International Trade Commission of the United Nations, etc.). Besides, scholar researchs, although not containing legal norms, can be used by the dispute settlement body (usually the arbitrator) as a basis for arguments, although not commonly used.

Learning about the sources of law that can be applied in the dispute resolution process will help the parties know which sources of law the dispute settlement bodies can use in the resolution process, thereby helping the parties agree on the applicable law as well as make necessary preparations before the dispute resolution stage.

Above is the article “Sources of law applicable in resolving disputes over international sales of goods contracts“. TNTP hopes that the article is helpful to readers.

Sincerely.

What should the subcontractor do when the main contractor is late in payment?

Written by TNTP LAW on 4 September, 2024. Posted in Debt Collection, Dispute Settlement, Legal newsletter.

In the construction industry, delays in payment by the main contractor to the subcontractor are common and can have serious impacts on the subcontractor’s operation and finance. When faced such a situation, the subcontractor must take certain steps and develop strategies to protect their rights. This article provides a detailed analysis of the steps a subcontractor should take when the main contractor delays payment, along with the legal and practical measures to consider.

1. Checking the payment capability

Before taking any action, the subcontractor should verify the payment status to ensure that their claim is justified. This step includes:

Review the contract and payment records: The subcontractor should review the signed contract, invoices, and related documents to identify the payment terms, amounts, and deadlines. This will confirm the payment request is appropriate, accurate, and comply with the contract.
Identify the cause of delay: Determine the specific reasons why the main contractor has not made the payment. This could be due to the main contractor’s financial issues, delays in payment approval, or other disputes related to the contract.

2. Send a formal payment request

If the subcontractor confirms that the payment delay is unjustified, the next step is to send a formal payment request. The content of the request should include:

Specific information: Clearly state the amount due, related invoices, and the elapsed time. The request should explicitly reference the legal grounds and relevant contract terms related to the main contractor’s payment obligations.
Payment deadline: Provide a specific deadline for the main contractor to make the payment or respond with a payment plan. This deadline should be calculated reasonably, allowing the main contractor sufficient time to meet the request.
Method of delivery: The payment request should be sent through a verifiable process, such as registered mail or email with a read receipt. This ensures that the main contractor receives the request and allows for proof of delivery if necessary.

3. Engage in negotiation and mediation

In many cases, negotiation and mediation can effectively resolve payment delays. The subcontractor should:

Initiate direct contact: Proactively contact the main contractor to discuss the payment issue. Negotiations can help clarify the reasons for the delay and find a reasonable solution.
Propose a new payment plan: If the main contractor is facing financial difficulties, a new payment plan or alternative solution may be proposed to support both parties. The terms of the new payment plan should be documented and agreed upon in an amended contract.
Issue legal warnings: The subcontractor should warn the main contractor of the potential legal consequences if they continue to violate payment deadlines. This warning could include the possibility of legal action, claim for damages, or other legal measures to protect the subcontractor’s rights.

Through negotiation and mediation, the subcontractor can not only resolve the payment delay but also maintain a good working relationship with the main contractor while ensuring their rights are protected.

4. Review guarantee term

The subcontractor should review the insurance and guarantee provisions related to the contract. If the contract includes a payment guarantee or insurance for delayed payment, the subcontractor can request the guarantor to fulfill the bonding obligations. Key points include:

Determine entitlements: Review the guarantee or insurance provisions to identify entitlements and conditions for claiming the bond.
File a guarantee claim: Follow the correct procedure and regulation to file a guarantee claim to recover the necessary funds.

These measures not only help the subcontractor protect their financial rights but also ensure that the contract is performed according to the commitments of the parties involved. TNTP has also published detailed articles on this topic, providing additional useful information for subcontractors.

5. Suspend or cease work

In some cases, the subcontractor may consider suspending or ceasing work until payment is received. However, this step needs to be carefully evaluated. This action must be performed according to the contract terms to avoid legal risks. Important points to consider include:

Compliance with contract terms: Ensure that the suspension of work is carried out by the agreed terms in the contract and notify the main contractor in writing.
Anticipate and assess consequences: Evaluate the potential legal implications of suspending work, such as impacts on the project schedule and the relationship with the main contractor. In some cases, the main contractor may use the suspension as a basis to continue withholding payment and seek compensation.

6. Take legal action

If negotiation efforts fail, the subcontractor may need to resort to legal action to recover the debt.

File a lawsuit with the appropriate dispute resolution body: The subcontractor may file a lawsuit to demand payment at the court or arbitration center, depending on the prior agreement between the parties. The subcontractor should consult with legal counsel or the company’s legal team to ensure sufficient evidence and understand the necessary legal steps.
Enforcement of judgment: If a valid court judgment or arbitral award has been issued, and the main contractor does not voluntarily comply, the subcontractor may request the enforcement authority to use its powers to take enforcement measures against the main contractor or obligated party to recover the debt.

Throughout this process, the subcontractor should seek support from legal counsel to receive appropriate and practical advice for the specific situation.

The main contractor’s delay in payment can create many challenges for the subcontractor, but with proper preparation and reasonable actions, the subcontractor can effectively protect their rights. Implementing these steps not only helps resolve the payment issue but also ensures that the subcontractor’s rights are protected, and the situation is resolved fairly and reasonably.

This article, “What should the subcontractor do when the main contractor is late in payment?” is brought to you by TNTP. We hope this article proves helpful to our readers.

Respectfully,

Responsibilities of Businesses and Individuals towards Consumers in Online Transactions

Written by TNTP LAW on 2 September, 2024. Posted in Legal newsletter.

In today’s rapidly advancing information technology era, e-commerce has become indispensable to consumers’ lives. The buying and selling of goods and services have brought numerous conveniences to consumers while also opening up significant business opportunities for organizations and individuals. However, this growth also presents several challenges, particularly concerning the responsibilities of businesses and individuals towards consumers. This article will analyze the legal responsibilities businesses and individuals must adhere to when conducting online transactions.

1. Definition

Chapter 3 of the 2023 Consumer Protection Law, Decree No. 98/2020/ND-CP dated August 26, 2020, on administrative sanctions in commercial activities, production, and trade of counterfeit goods, prohibited goods, and consumer protection, along with other legal documents, outlines penalties for violations when businesses and individuals fail to fulfill their responsibilities towards consumers.

According to these regulations, the responsibility of businesses and individuals in the online sale of goods and services towards consumers refers to the obligations they must fulfill under the law. If they fail to meet these responsibilities correctly or sufficiently, they will face legal consequences.

2. Entities Engaged in Online Commerce

The 2023 Consumer Protection Law specifies the entities involved in online commerce, including:

Businesses and individuals who sell products, goods, and services through self-established information systems or digital platforms.
Organizations that establish and operate intermediary digital platforms.

3. Key Responsibilities of Businesses and Individuals towards Consumers in Online Transactions under the 2023 Consumer Protection Law

The 2023 Consumer Protection Law introduces several new provisions aimed at addressing issues arising in the context of digital transformation. Consequently, the law includes a chapter dedicated to the responsibilities of businesses and individuals in online transactions, outlining specific requirements for e-commerce activities.

a. Responsibility to Provide Accurate and Complete Information

When conducting business online, businesses and individuals must provide full and accurate information about the products and services they offer. This includes, but is not limited to, publicizing information on prices, quality, origin, warranty conditions, and return policies.

b. Responsibility to Protect Consumers’ Personal Information

With the rise of e-commerce transactions, protecting consumers’ personal information has become more crucial than ever. Businesses and individuals engaged in online commerce have a responsibility to collect, store, and process consumers’ personal information securely and confidentially, using it only for purposes agreed upon by the consumer.

c. Responsibilities Related to Standard Contracts and General Transaction Conditions

The 2023 Consumer Protection Law outlines the following responsibilities for businesses and individuals regarding contracts:

Providing accurate and complete contract content for consumers to review before engaging in transactions;
Ensuring compliance with legal requirements concerning the form and content of standard contracts and general transaction conditions;
Registering standard contracts and general transaction conditions before entering into agreements with consumers in certain sectors, as stipulated by the Prime Minister’s list of products, goods, and services requiring registration.

d. Responsibility to Address Complaints and Disputes

During e-commerce transactions, complaints and disputes between consumers and businesses or individuals may arise. Therefore, businesses and individuals have a responsibility to establish and maintain an effective, fair, and transparent complaints resolution process.

e. Responsibility to Comply with Advertising and Promotion Regulations

In e-commerce transactions, advertising and promotion are essential tools for attracting customers. However, businesses and individuals must strictly adhere to legal regulations on advertising and promotions to avoid misleading or deceiving consumers.

According to the 2012 Advertising Law, advertisements must be truthful, clear, and not misleading about the products or services being advertised. Any act of false advertising, inaccurate information, or misleading claims can result in severe penalties. Similarly, promotional programs must be conducted transparently and in accordance with the law, ensuring that they do not infringe upon consumers’ legitimate rights.

This article on “Responsibilities of Businesses and Individuals towards Consumers in Online Transactions” is provided by TNTP for readers. If you have any questions or require further discussion, please contact TNTP for timely assistance.

Sincerely,

ANNOUNCEMENT OF INDEPENDENCE DAY NATIONAL HOLIDAY 2/9

Written by TNTP LAW on 31 August, 2024. Posted in Our Activities.

Dear Clients and Partners,

TNTP & Associates International Law Company Limited would like to respectfully announce the National Day holiday schedule 2/9 as follows:

Holiday period: From August 31, 2024 (Saturday) to September 3, 2024 (Tuesday).
Return to work: Wednesday, September 4, 2024.

During the holiday, if Clients and Partners need support, please contact the phone number of the person overseeing the case for timely support.

On the occasion of Independence Day, TNTP & Associates International Law Company Limited would like to wish our Clients and Partners a peaceful and happy holiday with family and loved ones. We look forward to continuing to accompany and support our Clients and Partners in the upcoming journeys.

Sincerely,

Do guarantee of payment clauses help the main contractor collect money from the investor?

Written by TNTP LAW on 30 August, 2024. Posted in Dispute Settlement, Legal newsletter.

In construction contracts and large-scale projects, the payment guarantee clause is a crucial part of protecting the main contractor’s interests. This clause not only provides financial assurance but also affects the ability to recover funds from the investor. This article will analyze whether the payment guarantee clause truly helps the main contractor collect payments from the investor and the factors to consider to ensure its effectiveness.

1. Concept of payment guarantee and purpose

– According to Article 335 of the Civil Code 2015, a payment guarantee involves a third party (usually a bank or financial institution) committing to the main contractor to fulfill the payment obligations on behalf of the investor if the investor fails to meet the payment terms as agreed. If the guarantor is a bank, it will issue guarantee letters.

– According to Article 44 of Decree 21/2021/ND-CP, the guarantor is responsible for fulfilling the guarantee obligations when the investor breaches their duties, including cases such as failing to meet deadlines, not performing ahead of schedule, failing to fulfill commitments completely or correctly, or when the investor is unable to perform their obligations.

The parties may agree that the guarantor is only required to perform obligations on behalf of the investor if the investor cannot fulfill their obligations. In this case, if the investor fails to meet or incorrectly performs their obligations, the main contractor can request the guarantor to fulfill the guarantee obligations unless there is another agreement stating that the guarantee obligations arise only when the investor is incapability to perform their obligations.

– The guarantee helps to protect the main contractor from the risk of not receiving payment if the investor does not meet their financial obligations. The main purpose of the guarantee is to provide financial security and assurance to the main contractor, helping them mitigate risks associated with the investor’s payment, maintain cash flow, and continue to perform contract work.

2. Benefits of the payment guarantee clause

– Ensured payment: The payment guarantee clause assures that the main contractor will receive payment from the guarantor if the investor breaches the payment terms, even if the investor faces financial difficulties or delays payments. This guarantee helps minimize financial risk and provides an important layer of financial protection for the main contractor.

– Enhanced trust: A payment guarantee clause can increase trust between the main contractor and the investor. With financial assurance, both parties can focus on completing the project efficiently without worrying about payment issues. This can lead to better collaborative relationships and opportunities for future projects.

– Financial risk management: With a payment guarantee clause, the main contractor can manage financial risks more effectively. The guarantee ensures that the main contractor is not severely impacted financially by payment delays or non-payment from the investor, allowing them to maintain business operations and continue projects without interruption.

3. Risks for the contractor when using the payment guarantee method

– While the payment guarantee clause provides a protective mechanism for the main contractor, it does not eliminate all risks. If the guarantor faces financial issues or fails to fulfill their guarantee obligations, the main contractor may still encounter difficulties recovering funds from the investor. Additionally, the cost of obtaining and maintaining the guarantee needs to be considered, as it may increase the total project cost.

– Secondly, the conditions regarding the necessary documents to request the fulfillment of guarantee obligations must be met. If the documentation is incomplete or does not meet the requirements specified in the guarantee, the guarantor (usually a bank) may refuse to fulfill the obligation, resulting in the main contractor not receiving the expected payment.

– Thirdly, if the guarantee period expires and the main contractor has not requested the guarantor to fulfill the obligation in time, the right to claim the guarantee will automatically lapse, causing the main contractor to lose the opportunity to recover funds.

4. Considerations for contractors to mitigate risks associated with the payment guarantee method

– Verify the guarantor’s credibility: The reliability and reputation of the guarantor organization are crucial factors affecting the effectiveness of the guarantee clause. If the guarantor lacks strong financial capability or fails to fulfill its commitments, the guarantee may not achieve the expected results. Before accepting the payment guarantee method, the contractor should thoroughly assess the creditworthiness and financial capability of the guarantor. This helps the contractor determine whether the payment guarantee can be enforced if necessary.

– Regarding the terms and conditions of the guarantee:

+ The terms and conditions of the guarantee must be clearly defined in the contract to protect the main contractor’s interests. If the guarantee clause is not detailed, it could lead to disputes or difficulties in enforcing the guarantee.

+ Contractors should pay attention to the clause “Unconditional and Irrevocable Payment Guarantee,” as this does not necessarily mean that the bank will make an immediate payment upon request without waiting for approval from their guarantor or without considering additional conditions. Before the contractor requests the bank for payment, the contractor should take action such as sending emails or official letters to the investor to demand payment. This demonstrates to the guarantor bank that the contractor has made efforts to request payment from the investor before seeking the guarantor’s payment.

+ Requesting guarantees for each payment stage: Contractors can mitigate risks by agreeing to require guarantees for each payment stage during the contract execution rather than for the entire contract. This helps minimize risks if issues arise at any stage.

+ Assess the investor’s performance capability: The financial capability and commitment of the investor also play an important role. If the investor fails to fulfill payment obligations even with a guarantee in place, the main contractor may face legal issues and have to resolve disputes to recover funds.

– The payment guarantee clause is an important tool for protecting the main contractor’s interests and ensuring they receive payment from the investor. Although it offers benefits such as reduced financial risk and increased trust, it does not eliminate all difficulties. The effectiveness of the guarantee depends on the reputation of the guarantor, the conditions of the guarantee, and the investor’s performance capability. To maximize the benefits of the payment guarantee clause, the main contractor should select reputable guarantor organizations and ensure that the guarantee terms in the contract are clearly and comprehensively defined.

This article, “Do guarantee of payment clauses help the main contractor collect money from the investor?” is provided by TNTP. We hope this article is helpful to our readers.

Sincerely,

Disputes arising from buyer’s breach of obligations in sales contracts

Written by TNTP LAW on 28 August, 2024. Posted in Dispute Settlement, Legal newsletter.

The buyer may breach contractual obligations, leading to two primary types of disputes: the buyer’s failure to meet payment obligations and the buyer’s failure to accept the goods. Disputes related to the buyer’s failure to pay are considered the most common in sales contract disputes. These disputes often arise from the buyer’s late payment, non-payment, or incomplete payment for the goods. In this article, TNTP will discuss these two types of disputes and solutions to prevent and mitigate breaches of the buyer’s obligations.

1. Disputes Related to Payment Obligations

To minimize and limit losses and potential disputes, the seller should include the following provisions in the sales contract:

Payment Schedule

Instead of stipulating that the buyer must pay the full value of the goods after receiving them, the seller can require the buyer to pay the full value before receiving the goods.

If the buyer does not agree to prepay the full value of the goods, the seller can arrange for installment payments. Accordingly, the buyer must pay a portion of the value upfront, with the remainder due within a specified period after the seller sends the payment request documents or after parties sign the Goods Receipt. The seller should pay particular attention to the payment deadlines and clearly outline these terms in the contract.

Temporary Suspension of Delivery

The seller may stipulate the following provision in the contract: In case the buyer breaches any payment obligation, the seller has the right to temporarily suspend delivery until the buyer fulfills all payment obligations. This suspension of delivery can be seen as a measure to pressure the buyer into paying for the goods. Additionally, this clause can serve as a valid basis in situations where disputes arise between the parties, for instance, when the buyer claims the seller violated delivery deadlines while the seller argues that the buyer’s failure to pay justifies the temporary suspension of delivery.

Debt Reconciliation

For standalone sales contracts, debt reconciliation may not be necessary. However, in cases where the parties enter into a principle contract and execute multiple purchase orders, signing a Debt Reconciliation Protocol is essential.

The Debt Reconciliation Protocol serves as a basis for the buyer to fulfill their payment obligations. Furthermore, in arbitration or court disputes, the Debt Reconciliation Protocol is considered important evidence that the buyer has acknowledged their payment obligations to the seller. When executing the Debt Reconciliation Protocol, the parties should also stipulate the authority to sign the protocol.

Other Penalties

The seller may stipulate in the contract that the seller has the right to unilaterally terminate the contract, reclaim the goods, and demand the buyer compensate for damages, pay penalties for breaches, and pay late payment interest. The buyer is still obliged to pay for the goods even if they are lost or damaged after the risk has passed from the seller to the buyer under the law or the contract.

For penalty clauses, the parties should clearly agree on the penalty amount and the deadline for the buyer to pay the penalty to the seller. Regarding penalty amounts, the law allows the parties to agree on the penalty amount for regular civil contracts, while for commercial contracts, the maximum penalty is 8% of the value of the breached contractual obligation.

Regarding late payment interest, Article 306 of the 2005 Commercial Law and Resolution No. 01/2019/NQ-HDTP do not specify a maximum interest rate for late payments. However, the 2015 Civil Code allows the parties to agree on a late payment interest rate, but it cannot exceed 20% per annum. If the parties agree on a higher rate, the court may only accept an interest rate of 20% per annum or determine a new rate based on Resolution No. 01/2019/NQ-HDTP, which is the average overdue debt interest rate on the market from at least three commercial banks with branches or offices in the province or city where the court is resolving the case.

Therefore, the seller should only stipulate a maximum late payment interest rate of 20% per annum on the overdue amount owed by the buyer.

2. Disputes Related to Obligations to Accept Goods

The obligation to accept goods is stipulated in Article 56 of the 2005 Commercial Law, which states that upon receiving goods, the buyer must take reasonable steps to assist the seller in delivering the goods, including assisting with delivery procedures, providing transportation instructions, and helping with unloading the goods. If the seller delivers the goods as per the contract and the buyer fails to accept them, it constitutes a breach of contract, subjecting the buyer to penalties as agreed upon or as stipulated by law. The parties may agree in the contract that the buyer must bear any costs the seller incurs to store the goods if the buyer breaches the obligation to accept them; the seller may have the right to sell the goods to a third party, and the buyer must pay the difference if the third-party sale price is lower than the contract price; the buyer may also face penalties for failing to accept the goods, etc.

The above is the article “Disputes Arising from the Buyer’s Breach of Obligations in Sales Contracts” that TNTP sends to our readers. If you have any questions, please contact TNTP for timely assistance.

Best regards,

Debt control in business operations

Written by TNTP LAW on 26 August, 2024. Posted in Debt Collection, Legal newsletter.

In order to maintain a stable cash flow in business operations and minimize risks, businesses need to have an effective mechanism to control existing and potential future debts. In this article, TNTP lawyers will provide businesses with perspectives on the importance of debt control in business operations.

1. What is debt control?

According to the Vietnamese dictionary, “control” is the act of placing an object or phenomenon within the scope of authority of a certain subject, or to detect and prevent anything contrary to regulations within a certain scope.

From a legal perspective, control in state and government agencies is expressed in two main stages: “supervision” and “inspection”. Accordingly, “supervision” is to monitor the activities of a certain entity during its operation to ensure compliance with the law, while “inspection” is an external review of the activities of a certain entity to detect and prevent violations of the law.

From the above content, TNTP believes that debt control in business operations is a system of tasks aimed at ensuring that businesses can always monitor their debt, including debts that are arising and will arise so that appropriate plans can be made to handle debts, and to avoid neglect or causing debts to fall into a state that is difficult to collect.

2. What to do to control debt?

To control debt, businesses need to do 03 specific things as follows:

a) Summarize and classify debt

Before being able to control debt, businesses need to know the whole picture of their debt situation. Debts need to be recorded and classified based on different factors, such as: Debt value; Time of debt occurrence; Relationship with the partner; Financial capacity of the partner, etc… to facilitate debt control.

Businesses can choose appropriate criteria to classify different debt depending on their goals. This classification is especially necessary for businesses to be able to take appropriate measures to recover the debt later to optimize their financial and human resources.

b) Develop a control plan appropriate to each debt

With any business activity, businesses need to have a plan to control their debts with their partners. Although the ultimate goal of debt control is to collect these debts, not all debts can be collected effectively with the same method.

Businesses can base on the financial capacity of the debtor to determine the limit for the value of the debt that the business can incur. This is intended to create a safety line for businesses to promptly prepare for the scenario of a financial deficit for not being able to maintain a stable cash flow due to rising debts.

After determining its tolerance limit, businesses need to set a debt collection target that is consistent with their business strategy. Normally, according to TNTP’s experience, businesses need to focus on debt collection in the following order of priority: Debt value > Time of debt occurrence > Importance of the partner > Attitude of the debtor.

After completing the debt control plan, the businesses will begin to carry out appropriate work to control and collect appropriate debt.

c) Conduct appropriate work

As mentioned above, the ultimate goal of debt control is to collect debts to ensure financial flow and protect the business’s results. The specific tasks that need to be performed include:

Negotiation: The business assigns relevant departments to discuss and contact the debtor to request payment. Since this is the first step, priority should be given to reminding the debtor about payment instead of causing unnecessary pressure.

Requesting payment: After the business has implemented debt reminders through negotiation but without results, it can proceed to request official payment through working sessions, email exchanges, or documents. At this stage, the business needs to apply appropriate pressure so that the debtor does not delay payment any further. The pressure can be the announcement that it will initiate a lawsuit if the exchange between the two parties does not bring results.

Lawsuit: This is the last resort when the above steps do not yield results. At that time, the businesses need to submit a petition and related documents to the competent authority to resolve the dispute, including the Court or the Commercial Arbitration Center in accordance with the agreement between the parties. At that time, the competent authorities will, on behalf of the state power to carry out coercive measures to force the debtor to pay the debt.

Above is an article by TNTP lawyer on the topic: Control debt in business operations. Hopefully this article will bring value to our readers.

Sincerely,

Author: TNTP LAW

Learn about provisional emergency measures in civil procedure

1. What is a temporary emergency measure?

2. Features of Provisional Emergency Measures

3. Summary of provisional emergency measures

4. Applying provisional emergency measures

Sources of law applicable in resolving disputes over international sales of good contracts

1. Definition of International sales of goods contract and source of law

1.1. International sales of goods contract

1.2. Concept of source of law

2. Sources of law appicable in resolving disputes over international sales of goods contracts

ANNOUNCEMENT OF INDEPENDENCE DAY NATIONAL HOLIDAY 2/9

TNTP & ASSOCIATES INTERNATIONAL LAW FIRM

More about TNTP