Author: TNTP LAW

Should the subcontractor sue the main contractor to recover the debt?

Written by TNTP LAW on 19 August, 2024. Posted in Dispute Settlement, Legal newsletter.

In the construction industry, the relationship between the main contractor and the subcontractor is typically established on a strict contractual basis to ensure the project’s progress and quality. However, delays in payment from the main contractor to the subcontractor are common and can cause significant financial difficulties for the subcontractor. When negotiation and internal resolution measures fail, the subcontractor faces a crucial question: Should they sue the main contractor to recover the debt? This article will analyze the legal aspects, benefits, and risks associated with the decision to sue, helping the subcontractor make an informed choice.

1. Assessing the practical situation and debt recovery potential before deciding to sue

1.1. Review the contract and payment terms

First, the subcontractor must thoroughly review the contract terms signed with the main contractor. The contract may include important clauses such as:

• Payment deadlines: Specifications regarding payment timelines after completing each phase of work or the entire project. This is a particularly critical criterion that must be identified as the basis for the subcontractor to prepare for a lawsuit.
• Penalty clauses: Identifying penalty terms in case the main contractor delays payment helps assess the subcontractor’s rights that can be claimed.
• Retention payment clause: This clause allows the main contractor to withhold a portion of the payment until the subcontractor’s work is fully accepted, usually ranging from 5-10% of the contract value, along with provisions for releasing the retained amount.

1.2. Determine the breach and debt recovery potential

If the contract specifies the payment deadlines and the main contractor breaches these terms, the subcontractor may have legal grounds to demand payment. However, before suing, the following should be evaluated:

• Payment history: If the main contractor frequently delays payments, it may signal financial risks or poor management.
• Financial capability of the main contractor: This is a crucial factor to consider before taking legal action. If the main contractor is facing financial difficulties, their ability to pay may be limited or even none. Even if the subcontractor receives a favorable judgment or decision, collecting the debt could be challenging. To assess the main contractor’s financial capability, the subcontractor should:
– Review Financial Statements of the main contractor: Examine the main contractor’s most recent financial statements to assess their financial condition, including revenue, profit, and existing debts.
– Identify Other Debts: Determine whether the main contractor owes other subcontractors or has significant outstanding debts. This can help assess the subcontractors’ priority if the main contractor’s assets are insufficient to cover all debts.
– Assets for Enforcement: Investigate the main contractor’s assets and determine whether they are mortgaged for bank loans or other third-party obligations. This will affect the ability to recover the debt.

• Total debt amount: Evaluate whether the debt is substantial enough to cover the costs associated with the lawsuit process (including court/arbitration fees, attorney fees, and other expenses for personnel during the dispute resolution process). This ensures that the amount recovered from the lawsuit exceeds the incurred costs, avoiding filing a lawsuit with no desired outcome.

2. Risks and costs of litigation

2.1. Legal and court costs

Litigation involves considerable costs, including:

• Attorney fees: These fees can vary depending on the complexity of the case and the attorney’s experience.
• Personnel costs: If the subcontractor does not hire an attorney, they may need to cover the costs for personnel to attend hearings and trials at various locations.
• Travel, printing, and document notarization costs (if any).
• Court fees/Arbitration fees: These are the costs paid to the court or arbitration center to resolve the case.
• Costs for evidence and experts: In some cases, to prove their argument in court, the subcontractor may need to hire independent experts for assessments or technical analysis. These costs can be significant and should be anticipated before deciding to sue.

2.2. Time and human resources

The litigation process can be time-consuming, especially if the case is complex or involves multiple parties. Such disputes can take several months to years to resolve. During this time, the subcontractor may struggle to maintain business operations due to a lack of funds.

2.3. Impact on business relationships

Litigation can have negative consequences for the relationship between the subcontractor and the main contractor:

• Loss of future collaboration opportunities: Suing could seriously damage the relationship between the parties, leading to the loss of future collaboration opportunities on other projects.
• Reputation and credibility: In business, a company’s reputation is extremely important. When a dispute is made public, both parties may face reputational harm.

3. Benefits of litigation

3.1. Protecting legitimate rights

Litigation is a legal measure to protect the subcontractor’s legitimate rights:
• Strong legal grounds: If the contract and evidence are clear, the subcontractor is likely to win the case and recover the owed amount.
• Enforceable judgments: Court judgments or arbitration awards are legally enforceable, and state authorities have the power to take measures to ensure that the violating party cannot avoid responsibility. This provides strong legal assurance for the subcontractor, helping them recover the debt legally and effectively.

3.2. Applying pressure and deterrence

Litigation not only helps recover the debt but also puts significant pressure on the main contractor, forcing them to comply with financial obligations:

• Setting a precedent: Successfully suing can set a precedent for similar disputes in the future, deterring the main contractor from delaying payments.
• Ensuring transparency: Litigation can be an effective way to clarify the responsibilities and obligations of the involved parties. Through the legal process, parties must present evidence and arguments, making the rights and obligations stipulated in the contract more transparent.

4. Pre-litigation solutions

In many cases, attempting negotiation or mediation measures can help the subcontractor achieve results without needing to litigate. These include:

• Direct negotiation: The subcontractor should proactively meet with the main contractor to discuss the payment issue, understand the reasons for the delay, and propose solutions such as extending payment deadlines or establishing a payment schedule.
• Mediation: If negotiation fails, the subcontractor may consider mediation as an effective way to resolve the dispute. Mediation not only helps resolve the issue quickly but also saves costs compared to litigation. This method allows the parties to retain control over the process and outcome while maintaining a cooperative relationship. TNTP has also published a detailed article on the commercial mediation process and methods for readers to refer to.

Suing the main contractor for debt recovery is not an easy decision and requires careful consideration by the subcontractor. Litigation may be the last and necessary measure to protect their rights, especially when other measures do not yield results. However, before making a decision, the subcontractor should comprehensively assess the contract situation, chances of success, costs, and the long-term impact of litigation. Legal consultation and support will be crucial in helping the subcontractor choose the most appropriate strategy.

This article, “Should the subcontractor sue the main contractor to recover the debt?”, is provided by TNTP. We hope it is helpful to our readers.

Sincerely,

How does the law regulate non-contractual damages and contractual damages?

Written by TNTP LAW on 16 August, 2024. Posted in Contract Law, Dispute Settlement, Legal newsletter.

When concluding a contract, the contract often contains sanctions provisions to bind the parties to properly and fully perform their obligations as stipulated. Specifically, if a party breaches the contract, the aggrieved party will have the right to request the breaching party to pay the agreed penalty and compensate for damages arising from the breach, this is called “compensation for contract damages”. In addition, in civil law, there is a provision for “compensation for non-contract damages”. These are two concepts that many people do not understand and clearly distinguish. Therefore, in this article, TNTP will clarify these two issues through the analysis below.

1. The concept of damage

• According to the common definition, damage can be understood as loss of life, physical or spiritual property.

• Pursuant to Article 361 of the Civil Code 2015, the concept of Damage is defined as follows:

– Damage caused by breach of obligation, namely material damage and spiritual damage.

– Material damage means those material losses that include property and can be identified, measured to have reasonable solutions to prevent and overcome the losses.

For example: A comes to B’s house to play and breaks B’s valuable decoration. In this case, it can be understood that B is suffering property loss (or general physical damage).

– Spiritual damage means spiritual loss including life, body, health, honor, dignity, reputation, and other personal benefits of an entity.

For example: A and B are driving on the road together. Because A is speeding, an accident occurs, causing B to break his leg and suffer serious injuries. In this case, it can be understood that B is suffering loss of life, body, and health (or general spiritual damage).

2. Distinguish between “compensation for contractual damages” and “compensation for non-contractual damages”

a) Similarities

Compensation for contractual damages and Compensation for non-contractual damages have the following in common:

• Are the acts of overcoming the consequences when the injured party is affected by the damaging act causing physical or spiritual loss.
• There is a causal relationship between the damaging act and the consequences of the damaging act.
• When damage occurs, the parties can agree on the level of compensation for damages.
• Only arises when actual damage occurs and the injured party is affected by the damaging act.

b) Differences

(i) Regarding the basis for compensation:

• Compensation for contractual damages: Is in the content or sanction clause stipulated in the contract. This will arise only when there is an agreement on damages in the contract and the violation of the agreement has occurred. It can be understood that damages are not a forced condition and when a violation occurs (regardless of whether there are consequences of damage or not), the liability to compensate for damages will arise.

For example: Company A is the supplier of goods to Company B according to the Purchase Orders. However, Company A fails to deliver the goods on time according to the Contract, causing Company B to import goods from a third party at a higher unit price than Company A’s unit price and not be able to produce enough products according to the Orders.

In this case, Company A’s failure to deliver goods on time as per the Contract is considered a breach of agreement, resulting in Company B suffering financial losses when having to purchase at a higher price from a third party (direct losses) and affecting its business reputation and product brand with customers (indirect losses).

• Compensation for non-contractual damages: Only arise when a civil violation occurs, often occurring in everyday life. This civil violation does not exist in any previously concluded contract between the person causing the damage and the person suffering the damage.

For example: A was driving on the road in accordance with traffic regulations. At an intersection, C drove in a drunken state, crossed the red light, and crashed into A’s car while passing through the intersection, causing serious damage to A’s car and A was injured.

In this case, A and C did not know each other before and there was no contract between the two of them before. Therefore, neither of them knew in advance that the accident would happen. In particular, C participated in traffic while drunk and not sober, violating traffic laws and C’s act violated A’s life, health, and property.

(ii) Violation acts:

• Compensation for contractual damages: This is an act of violating the agreement in a contract that is specifically stipulated in the sanctions provisions to force the parties to properly fulfil the agreed obligations. The violation may not have occurred because it is only stipulated in the form of a general convention established by the contracting parties to limit and avoid violations of such acts. It can be understood that compensation for damages in a contract only arises due to the intentional or unintentional fault of the person who does not perform or does not properly perform the contract.

For example: Party A and Party B enter into an economic contract with an agreement on compensation for damages when one party unilaterally terminates the contract without written notice to the other party.

This clause is a sanction to bind the parties not to freely terminate the contract unilaterally. In reality, it is possible that the violation of this sanction does not occur, and the sanction still exists in the form of a common convention for the parties to rely on to properly perform and limit contract violations. This clause will arise when one party, intentionally or unintentionally, terminates the contract unilaterally without prior notice to the other party. This is also the basis for compensation for damages in the contract for the violated party.

• Compensation for non-contractual damages: This is an act of violating the provisions of law issued by the state in various specialized laws leading to damages.

For example: Similar to the example in section (ii) on Compensation for non-contractual damages, the violating party participated in traffic while drunk and not sober, violated traffic laws, and this person’s act violated the life, health, and property of the damaged party.

(iii) Method of implementation:

• Compensation for contractual damages: The parties can agree on the level of compensation for damages at the time of signing the contract (reflecting the mutual agreement of the contract) or can re-agree on the level of compensation for damages after the time the breach of contract has occurred. In case there is no sanction clause in the contract, after the damage occurs, the parties can still agree on the level of damage as well as the method of compensation for damages.

• Compensation for non-contractual damages: The injured party must be compensated in full and promptly. Since the parties in a civil relationship may not know each other and do not know what will happen in advance, there cannot be any prior agreement between the parties. Therefore, the parties can agree on the level of compensation for damages at a time after the civil violation occurs and causes damage or loss.

(iv) Joint responsibility:

• Compensation for contractual damages: In case the contract has a clause agreeing that the parties are jointly responsible when damage occurs, the parties will be jointly responsible for compensation for damages according to the agreement.

For example: In the Business Cooperation Contract, there is a provision that the parties are jointly responsible when an item of work X is damaged. In case such an event occurs, the parties will base on the provision to have solutions and jointly compensate for the damage according to the agreement in the contract.

• Compensation for non-contractual damages: In case many people cause damage, those people must jointly compensate the damaged person. The compensation liability of each person causing damage is determined in proportion to the degree of fault of each person; if the degree of fault cannot be determined, they must compensate for the damage in equal shares.

For example: A was driving a motorbike on a national highway. Because A was speeding and recklessly overtaking, he crashed into the left side of C’s car which was going in the opposite lane and caused an accident that caused B’s death. Through the results of the investigation and conclusion, both A and C were at fault for the loss of B’s life, so both A and C must be responsible for compensation for the damage.

(v) Burden of proof:

• Compensation for contractual damages: The injured party has the obligation to prove the damage for the claim by providing grounds to prove that claim.

• Compensation for non-contractual damages: The injured party has the obligation to prove the damages. The person claiming compensation for damages must provide documents and evidence to prove that the request is well-founded and clearly state each actual damage that has occurred.

From the above content, it can be seen that compensation for non-contractual damages and compensation for contractual damages have basic similarities and differences. Accordingly, depending on each specific type of damage, the application of legal basis and criteria for compensation for damages will be different.

Above is an article by TNTP lawyer on the topic: “How does the law regulate non-contractual damages and contractual damages?”. Hopefully this article brings value to readers.

Sincerely,

Causes of the subcontractor being delayed in payment by the main contractor

Written by TNTP LAW on 14 August, 2024. Posted in Dispute Settlement, Legal newsletter.

In construction, especially large-scale projects, the relationship between the main contractor and the subcontractor is a critical factor in ensuring the project’s success. However, the issue of delayed payments from the main contractor to subcontractors is a common occurrence, often leading to significant negative consequences. This article will examine the causes of the subcontractor being delayed in payment by the main contractor and provide legal and practical solutions to mitigate this issue.

1. Definition of a Subcontractor

Pursuant to Clause 27, Article 4 of the Law on Bidding 2023, subcontractor means an organization or individual that is subcontracted by the contractor to perform construction tasks; provide consulting or non-consulting service; provide any part of the related services of the supply of goods package; or perform tasks of a mixed package.

Accordingly, a subcontractor is an individual or entity engaged by the main contractor to carry out a part of the work or project that the main contractor has committed to with the project owner. Subcontractors typically specialize in a specific field or a particular aspect of the work, such as electrical, plumbing, mechanical, construction, or other specialized tasks within an overall construction project. Subcontractors operate under the supervision and management of the main contractor and are obligated to complete the work in accordance with the contract signed between them and the main contractor.

2. Causes of delayed payments by main contractors

• Financial issues of the main contractor: One of the primary reasons for delayed payments to subcontractors is the main contractor’s financial difficulties. The main contractor may encounter financial problems due to delayed payments from the project owner or ineffective financial management. When financial resources are limited, the main contractor may be unable to make timely payments to subcontractors, leading to prolonged debt.

• Delayed payments by the project owner: Delayed payments from the project owner to the main contractor is an indirect cause of the main contractor’s inability to pay subcontractors on time. When the project owner fails to make payments, the main contractor may lack the financial resources to pay subcontractors. This creates a chain of delayed payments, significantly impacting the project’s progress and quality.

• Contractual Disputes: Disputes over the contract between the main contractor and subcontractor are another reason for delayed payments. These disputes may involve the work performed, the quality of the work, or payment terms in the contract. In cases of disputes, the main contractor may reserve payment until the dispute is resolved.

• Changes in design or scope of work: During project execution, changes in design or scope of work are often unavoidable. Such changes may require adjustments to the contract and payment terms. While waiting for these adjustments, the main contractor may temporarily withhold or delay payments to subcontractors to ensure the accuracy and fairness of payments.

• Inefficient project management: Poor project management is another common cause of delayed payments to subcontractors. Issues such as inadequate planning, progress monitoring, and financial management can lead to payment delays. Inefficiencies in project management often result in payments not being processed on time, affecting the entire payment process.

3. Legal solutions

• Clarify and Specify the Contract: A contract with clear and specific terms, particularly payment provisions, will play an important role in preventing disputes and payment delays. The contract should detailize payment terms, the scope of work, project quality, and conditions for contract adjustments. The parties should agree on and clearly understand the contract terms before signing.

• Establishing a Payment Monitoring System: Implementing a stringent payment monitoring system ensures that payments will be made on time. The main contractor should develop a financial plan and monitor payment progress scientifically and reasonably. This will help in the early detection of financial issues and timely resolution.

• Negotiation and Dispute Resolution: In the event of a contract dispute, the parties should engage in negotiations and mediation before resorting to litigation or arbitration. Negotiation and mediation can quickly and effectively resolve disputes, avoiding prolonged payment delays. The parties should adopt a cooperative and amicable approach to reach a mutual agreement. This not only saves time and costs but also maintains a good relationship between the parties.

• Use of Bank Guarantees: A bank guarantee is a financial instrument that ensures payment to the subcontractor. When entering into a contract, the subcontractor may require the main contractor to provide a bank guarantee to secure payment. A bank guarantee gives the subcontractor greater assurance of payment and mitigates the risk of delayed payments.

• Enhancing the role of Legal counsel and legal teams within enterprises:

– Consulting in drafting Contract: Legal counsel and legal teams play a critical role in advising and drafting contracts between the main contractor and subcontractor. They help the parties understand the contract terms, ensuring it is clearly and comprehensively drafted. This reduces the risk of disputes and delayed payments in the future. Legal counsel may also propose measures to protect the subcontractor’s rights.

– Dispute resolution: In the event of a dispute, legal counsel and the enterprise’s legal team will assist the parties in resolving the dispute. They may represent the parties in negotiations, mediation, and particularly during litigation before competent authorities. With extensive knowledge of the dispute resolution process in courts or arbitration, legal counsel will help expedite the process and facilitate the recovery of debts more quickly.

– Legal Consultation on a regular basis: Legal counsel and legal teams also provide continuous legal advice to the main contractor and subcontractor throughout the project. They help the parties understand relevant legal regulations, ensuring compliance. This not only helps avoid legal risks but also ensures that the parties fulfill their contractual obligations.

– Risk management support: Another important role of legal counsel and legal teams is to assist the main contractor and subcontractor in managing risks. They help identify potential legal risks and propose preventive measures. This includes evaluating risks related to design changes, scope of work, and payment conditions. Legal counsel’s support helps the parties better prepare and mitigate the risk of delayed payments.

Delayed payments from the main contractor to the subcontractor are a complex issue with multiple causes. To address this issue, the parties must clearly understand and comply with legal regulations, as well as implement effective financial and project management measures. Cooperation and goodwill between the parties are key factors in resolving disputes and ensuring timely payments.

This concludes the article ” Causes of the subcontractor being delayed in payment by the main contractor” by TNTP. We hope this article is helpful to our readers.

Sincerely.

Resolution of International Sales Contract Disputes through Arbitration

Written by TNTP LAW on 12 August, 2024. Posted in Dispute Settlement.

With the rapid development of the global economy and the trend of international integration, countries are continuously expanding markets, enhancing cooperation, and promoting international trade activities. Consequently, disputes in international sales contracts are on the rise and becoming increasingly complex, necessitating a swift resolution mechanism based on the perspectives and agreements of the involved parties.

In this context, arbitration as a dispute resolution method stands out with its superior advantages, aligning with the needs of businesses for effective dispute resolution. This article by TNTP will provide a detailed analysis of the fundamental aspects of resolving international sales contract disputes through arbitration, offering readers a comprehensive overview of the use of this method.

1. Definition

Disputes in international sales contracts are a type of international commercial dispute that typically arises between traders from different countries. These disputes often emerge during the execution of the contract, primarily in the following forms:

• Seller’s Breach of Contract: This includes scenarios such as failure to deliver goods, delayed delivery, or failure to provide the necessary documentation related to the goods as agreed upon.

• Buyer’s Breach of Contract: This involves situations such as delayed acceptance of goods, refusal to accept goods, or delayed payment or non-payment as committed.

• Disputes over Contract Formation: The use of communication methods such as email, fax, or other forms of electronic exchange can lead to disagreements between the parties, resulting in disputes over the validity or interpretation of the contract terms.

• Disputes over the Legal Status of the Contracting Parties: These disputes arise concerning the legal authority of the parties involved in the contract signing.

• Disputes over Contract Content: Due to differences in national laws or international regulations, conflicts may arise in the contract’s interpretation and application of one or more terms.

To prevent and minimize the risk of disputes, the parties should engage in thorough negotiations and have a firm understanding of the relevant legal regulations before signing the contract.

2. Advantages of Arbitration Compared to Other Methods

Resolving disputes in international sales contracts through arbitration offers several advantages, including:

• Ensures Maximum Freedom of Choice for the Parties: The disputing parties have the freedom to choose the arbitration venue, procedural rules, language, and arbitrators, without being restricted by the location of their headquarters. This ensures that the dispute resolution process aligns with the needs and preferences of the parties involved.

• Finality of Arbitration Awards: An arbitration award is final and cannot be appealed. This finality is particularly crucial in business, as it ensures that disputes are resolved promptly and conclusively, saving the parties time.

• High Confidentiality: The arbitration process and the arbitration award are kept confidential unless the parties agree otherwise. This confidentiality is beneficial for businesses that wish to protect sensitive information and maintain their reputations.

• Right to Choose Arbitrators: The disputing parties have the right to freely select arbitrators to handle their cases. This allows the parties to choose arbitrators with deep expertise and experience relevant to the nature of the dispute. The ability to select arbitrators not only enhances the objectivity of the process but also strengthens the parties’ confidence in the fairness and accuracy of the arbitration award. In international sales contracts, where disputes are often complex and require high expertise, the right to choose arbitrators plays a crucial role in ensuring that issues are reviewed by experts who genuinely understand the matter and can make sound decisions.

• Independence and Neutrality: Arbitrators are not government entities, and therefore, they are not subject to any interference from state agencies or any third party. This independence allows arbitrators to conduct proceedings neutrally. The neutrality ensures that arbitration is free from external pressures, leading to fair decisions based on facts and the law.

These advantages make arbitration a suitable choice for businesses needing to resolve disputes in international sales contracts, especially in the increasingly complex context of globalized business.

3. Forms of Commercial Arbitration

Currently, commercial arbitration can take two forms: ad hoc arbitration and institutional arbitration, as detailed below:

• Ad Hoc Arbitration: This form of dispute resolution is established based on the agreement between the disputing parties to resolve a specific case. Once the dispute is resolved, the ad hoc arbitration terminates. The key characteristic of ad hoc arbitration is its high flexibility and customization, as the parties are free to agree on procedural rules, arbitrators, venue, and language for the proceedings without being bound by any fixed rules. This flexibility makes ad hoc arbitration a preferred choice in many situations, particularly when the parties seek a swift, effective solution tailored to the specifics of each case.

• Institutional Arbitration: This form of dispute resolution is conducted through an organized arbitration institution with a defined structure, headquarters, a roster of arbitrators, and its own set of rules. In Vietnam, institutional arbitration operates in the form of arbitration centers, which have legal personality, seals, and separate bank accounts, ensuring independent operations and the ability to handle multiple disputes professionally and systematically. These arbitration centers have a dispute resolution mechanism with established rules and procedures, ensuring consistency and transparency in handling disputes. In the context of international trade, institutional arbitration is a popular choice for businesses due to its stability, reputation, and ability to provide high-quality arbitration services with the support of arbitrators who possess deep expertise and extensive practical experience.

These two forms of arbitration offer different dispute resolution options, catering to the diverse needs of disputing parties based on each case’s specific characteristics and circumstances. Therefore, the arbitration form choice depends on the disputing parties’ particular requirements.

4. Applicable Law

In dispute resolution, the applicable law is determined based on the parties’ freedom to agree. Accordingly, the parties have the right to choose national law or international legal provisions as the basis for resolving the dispute. In the absence of an agreement on the applicable law, the arbitration tribunal has the authority to determine the applicable law that it deems most appropriate given the nature and circumstances of the dispute.

The above article on “Resolution of International Sales Contract Disputes through Arbitration” is provided by TNTP for our readers. Should you have any issues that require further discussion, please do not hesitate to contact TNTP for timely assistance.

Sincerely,

Typical foreign debt collection dispute case of TNTP – Are geographical distance and legal differences an obstacle?

Written by TNTP LAW on 9 August, 2024. Posted in Dispute Settlement, Legal newsletter.

Branch of TNTP & Associates International Law Company Limited (“TNTP”) is a unit specializing in providing legal services on dispute resolution and debt collection in various fields such as Commerce, Construction, Labor, Intellectual Property Rights, etc. TNTP’s Lawyers and legal specialists have a lot of experience in collecting bad debts domestically and internationally and protecting Clients’ legitimate rights and interests. Accordingly, TNTP will share with readers a typical dispute in which we successfully collected a bad debt from Company J having its headquarters in New York, USA for the Client, which is Company K in Vietnam. The article will discuss the process of TNTP supporting Company K, the difficulties encountered and the solution to achieve debt collection results for a foreign debtor. We would like to invite readers to follow the article below.

1. Overview of the case

Company K is a company specializing in providing garment products with the standard of raw materials, fabrics, linings, and accessories as specified by Company J to continue producing garment products and distributing them to affiliated stores. Accordingly, Company J is obliged to pay Company K within the agreed period from the date Company J receives the goods of Company K at the warehouse or location designated in the US by Company J. Company K has completed the delivery work and other obligations under the Contract, but Company J has not properly and fully performed their payment obligations to Company K.

2. Process of supporting Company K in debt collection

Starting in 2021, TNTP has provided legal services to support Company K in debt collection in two stages: negotiation and lawsuit against Company J in New York State Court.

a) Negotiation stage

• First, during the negotiation stage, TNTP contacted Company J by email, phone call, and sent a Payment Request via international delivery to Company J. In the spirit of goodwill to settle the debt as soon as possible, for many months TNTP repeatedly proposed payment options and plans that were beneficial to both parties, but the representative of Company J always avoided, evaded payment obligations, and continuously delayed payment to Company K. This has greatly affected the operations of Company K due to the impact of Covid 19.

• To supply garment products, Company K purchased raw materials, fabrics, linings, and accessories as specified by Suppliers for production, then sold finished products to Company J. It can be understood that, to supply goods to Company J, Company K must pay for raw materials to Company K’s Suppliers. Company J’s delay in paying Company K will affect Company K’s cash flow and Company K’s timely payment of raw materials to Suppliers.

To speed up the payment of Company J, Company K proposed to Company J and the Suppliers that with the situation of all parties facing difficulties due to the impact of Covid-19, Company K would reduce the discount amount due to Covid from 17.5% (original proposal of Company J) to 7.5% for Company J on the condition that the Suppliers also agreed to give a 7.5% discount to Company K.

However, Company J ignored the goodwill proposals to the parties and continuously made unreasonable discount requests.

• To ensure its rights, Company K hired a debt collection agency in New York to directly verify the headquarters address of Company J, and at the same time, serve the Payment Request to the Owner of Company J. After receiving the Payment Request, Company J still maintained an unfriendly attitude towards Company K.

With the result of the negotiation not being satisfactory, TNTP proposed that Company K sue Company J in the New York State Court. Company K agreed to carry out this work.

b) Litigation Stage in New York State Court

• In preparation for suing Company J in New York, TNTP relied on its research relationships, consulted and recommended several reputable law firms in New York State for Company K to select a lawyer to represent them in suing Company J. Then, based on TNTP’s advice, Company K selected SH Law Firm with their representative – Lawyer D, in New York to protect their rights.

• At this stage, we not only supported Company K in compiling the necessary documents to file a lawsuit but also studied US procedural law to discuss with Lawyer D the issues that need to be clarified in this case and a reasonable legal solution. Based on the situation of the case and the desire for the collectible amount of Company K, Lawyer D agreed with TNTP on a plan to negotiate with Lawyer S of Company J to resolve the debt in the most effective method for Company K.

• At this time, through our information sources, TNTP learned that Company J was completing the application for dissolution of the enterprise, but this company intentionally did not declare the debt payable to Company K to complete the dissolution procedures quickly and avoid paying the debt.

Not missing the opportunity to put pressure on Company J and ensure the maximum possibility of debt collection, TNTP contacted and requested support from SH Law Firm and Lawyer D to search for information proving the concealment of debt information, information on the asset status of Company J and at the same time prevent Company J from dissipating assets or transferring assets to another legal entity (if any). TNTP has carried out the above tasks effectively by applying US law and reliable information from our information sources.

• Next was the mediation phase, TNTP accepted the authorized representative status of Company K to participate in the online Mediation with the participation of the New York State Court Mediator, Lawyer D, and Lawyer S of Company J. During many days of prolonged discussion, using information about Company J applying for dissolution but concealing information about Company K’s debt, TNTP, and Lawyer D applied the provisions of US law to pressure and force Company J to accept the plan to complete full payment of the debt according to the specific Payment Schedule.

At the end of the online Mediation, the parties agreed on the content of the Confidentiality Agreement and agreed to sign the Minutes of Work to send to Lawyer D for forwarding to the New York State Court Mediator.

3. Results of supporting Company K in debt collection

• After the online mediation session, the parties agreed on a debt settlement plan and signed the Confidentiality Settlement and Release of Obligations Agreement (“Agreement”). Accordingly, Company J must comply with the payment schedule to complete the debt payment process to Company K within 02 months. During this time, TNTP also continued to contact Company J to request Company J to make timely payments according to the Agreement signed with Company K.

• Performing the Agreement, Company J has ensured the correct payment schedule to Company K as committed. The entire amount under the Agreement has been paid in full and the dispute settlement work has been completed.

For many months, although geographically separated, TNTP, with its experience and efforts, has supported clients in contacting and influencing the New York State Court and Company J remotely while still ensuring work efficiency in the United States, protecting the legitimate rights and interests of Company K.

The above is one of the typical cases in which TNTP has successfully supported our Client in collecting bad debts abroad. With the legal knowledge and years of professional experience of our Lawyers and specialists, TNTP is always confident in ensuring the optimal benefits for our Client. At the same time, we constantly improve our expertise and skills in the field of debt collection to always prepare to accompany and support our Client.

Sincerely,

Common types of international sales contract disputes today. Things to note when international sales contract disputes occur

Common types of disputes in International Sales Contracts

Written by TNTP LAW on 7 August, 2024. Posted in Dispute Settlement, Legal newsletter.

Disputes in international sales contracts are disputes in socio-economic activities that have international characteristics, such as arising abroad, involving foreign assets, etc. and are conducted through the legal form of a contract. Due to the involvement of foreign elements, resolving disputes related to these contracts is often complex. Thus, identifying common types of disputes can help parties prevent risks and disputes.

1. Disputes due to seller’s breach of contract

Disputes arising from the seller’s breach of contract include main types such as failure to deliver goods; delivering goods not on the agreed time or at the agreed place; failing to deliver or delaying the delivery of documents related to the goods; delivering goods that do not meet the agreed specifications, quality, or standards; delivering incorrect, insufficient quantity, or type of goods; failing to refund the money that the buyer has paid as a deposit, advance, or payment when the seller fails to deliver the goods; failing to perform the warranty of the goods as agreed, etc.

Late delivery is a common type of dispute in international trade. The causes of this dispute vary, such as errors in production and delivery planning, delays in goods production, transportation issues, or force majeure events, etc. Parties should specify in the contract contents such as trade sanctions including compensation for damages, penalties for breach, etc.; the buyer’s right to unilaterally terminate the contract and the seller must refund the total amount paid by the buyer without receiving the goods, etc. Additionally, parties can negotiate and agree on changing the delivery time.

Disputes related to goods quality arise when the delivered goods do not meet the technical specifications or quality standards agreed upon in the contract. These disputes can arise due to differences in quality standards between countries, production process issues, transportation errors, etc. Parties should specify in the contract contents such as trade sanctions including compensation for damages, penalties for breach, etc.; refund of the money paid by the buyer corresponding to the quantity of goods that do not meet quality standards; warranty or replacement of new products, etc.

In domestic goods sales, the seller may not deliver to the buyer all the documents related to goods, depending on the agreement between the parties (unless otherwise required by law). Due to the characteristic of international sales activities where goods are transferred across different countries, to have goods cleared for import, the buyer must provide a complete set of documents as required by the law to the competent state authority in the importing country. Therefore, parties should specifically agree on the types of documents the seller needs to deliver to the buyer and the terms for delivering these documents, etc. Therefore, the buyer will have a legal basis to receive the goods and make payments, as well as to verify the origin, standards, and legality of the goods as agreed in the contract.

2. Disputes due to buyer’s breach of contract

Disputes arising from the buyer’s breach of contract include main types such as the buyer receiving the goods late or not receiving the goods; not paying or not fully paying or delaying payment for the goods to the seller, etc.

Accordingly, disputes due to the buyer’s failure to fulfil payment obligations are typical and often arise in international sales relations. The seller should require the buyer to pay in advance a part of the order value (which could be 30-50% of the order value), and for the remaining value, the payment method should be LC (Letter of Credit). Although this payment method costs more than the TT (Telegraphic Transfer) method, it is commonly used in international trade transactions because it is safer than the TT method, thus somewhat guaranteeing the rights of both the buyer and seller. In addition, the parties may agree in the contract on sanctions for the buyer’s breach of payment obligations, such as penalties for breach and interest on late payments.

3. Other disputes

Furthermore, the following disputes may arise if parties do not clearly and accurately agree on the contract, such as disputes about the applicable law, the dispute resolution body, the applicable language, etc. Since international sales contracts are often concluded between entities from different countries, the aforementioned disputes are likely to arise easily.

Therefore, clearly and accurately specifying in the contract the law applicable to dispute resolution, the law applicable to regulating the contract, the dispute resolution body, the preferred language in case of disputes, and the language used during the dispute resolution process, etc., is extremely important. This facilitates the quick and effective resolution of disputes.

Above is the article “Common types of disputes in International Sales Contract” that TNTP sends to the reader. If there are issues that need discussion, please contact TNTP for timely support.

Sincerely.

Risks of entering into future contracts

Written by TNTP LAW on 5 August, 2024. Posted in Dispute Settlement, Legal newsletter.

Future contracts are a complex financial derivative tool, and entering into these kinds of contracts could bring not only market risks but also potential legal risks to the parties. Understanding these legal risks can help investors and businesses protect their rights and comply with legal regulations. Below are the main legal risks associated with entering into future contracts.

1. Definition of Future Contract

• Future contracts are used in various fields, but in Vietnam, they are most commonly seen in the financial sector, specifically in the stock market. According to Clause 12, Article 4 of the Securities Law 2019, a future contract is a listed derivative security that confirms the commitment between parties to execute a transaction.

• Accordingly, a future contract is an agreement in which the seller commits to deliver a certain amount of goods or securities, and the buyer will pay upon receipt at a predetermined price in the future set at the time of contract signing. Typically, to avoid losses when the contract is not honored, both parties are required to make a margin deposit at the time of signing the contract.

• Common products involved in future contracts include:

– Basic commodity future contracts: Commodities here include agricultural products, metals, and energy, etc.
– Currency future contracts.
– Interest rate and bond future contracts.
– Stock index future contracts.
– Stock future contracts.

2. Legal risks of entering into future contracts

Although future contracts are considered a risk mitigation strategy for investors and businesses, in practice, entering into future contracts still entails the following legal risks:

a. Changes of Law

The laws on future contracts and financial derivatives in Vietnam are still in the process of development and completion. Legal regulations on commodity trading are frequently updated to reflect market fluctuations and economic policies, which can impact the parties involved in the contract.
• For traditional commodities, the government may adjust legal regulations such as those on import-export and product standards to protect domestic production or maintain price stability. For example, an increase in export taxes on certain traditional goods can significantly affect future contracts that have already been signed.

• However, these changes will directly affect businesses involved in this field. Signing a future contract might lead businesses to face risks related to increased costs, non-qualifying goods for import/export, resulting in the inability to fulfill commitments in previously signed contracts.

• In the stock market, legal regulations and policies on the stock market and future contracts can change, affecting the execution of contracts. These changes can include adjustments in margin requirements, trading regulations, or tax changes. Adjusting margin requirements to control risks can increase costs and capital requirements for investors.

b. Contract-performing risks

Credit risk is one of the major risks when entering into future contracts. Credit risk arises when one party in the contract cannot fulfill their obligations.

• In the traditional commodity market, producers might face significant financial difficulties due to price fluctuations, rising production costs, or poor financial management. If the supplier does not have sufficient financial resources to invest or faces difficulties in borrowing capital, they may not be able to supply goods as per the signed contract.

Future contracts can involve ownership or usage rights of an asset in the future. If the ownership or usage rights of this asset are disputed or unclear, it can lead to legal risks for the parties involved in the contract. Thoroughly checking the legal status of the underlying asset before entering into the contract is very important.

• Additionally, with future contracts, transactions are set to be performed at a specific time in the future. However, if the buyer or supplier encounters financial difficulties and declares bankruptcy during business operations, they will not be able to fulfill obligations to the other party as per the agreement. Recovering the margin deposit or profits from the future contract may become challenging, causing severe financial damage.

Entering into future contracts entails various legal risks that investors and businesses need to consider carefully. To minimize these risks, it is necessary to understand and comply with current legal regulations, ensure clear and detailed contract terms, thoroughly check the legal status of the underlying asset, and prepare effective dispute resolution measures. By doing so, the parties involved can protect their rights and minimize legal risks during the process of entering and executing future contracts.

This is the article “Risks of entering into future contracts” provided by TNTP to our readers. If you have any questions, please contact TNTP for support.

Best regards,

Basic contents regarding related rights to copyright

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

In the current context of information and communication technology development, the protection of related rights to copyright is increasingly valued by rights holders. To protect their interests, rights holders need to thoroughly understand the legal regulations concerning related rights, thereby applying appropriate measures to ensure protected rights.

1. Concept and basis for arising related rights

In terms of concept, related rights to copyright (“Related rights”) are defined in Clause 3, Article 4 of the Intellectual Property Law of 2005, as amended and supplemented in 2009 and 2022 as follows: Related rights are the rights of organizations and individuals to performances, sound recordings, video recordings, broadcast programs, and encrypted program-carrying satellite signals.

Thus, Related rights are understood as the rights of performers regarding their performances, the rights of individuals and organizations regarding their sound recordings, and the rights of broadcasting organizations regarding their broadcast programs.

Related Rights arise from the moment the performance, sound recording, video recording, broadcast program, or encrypted program-carrying satellite signal is fixed or performed without infringing on the copyright. The non-infringement of copyright means that individuals and organizations do not engage in acts that infringe on copyright rights as stipulated in the Intellectual Property Law.

2. Organizations and individuals protected by related rights

• Performers: Actors, singers, musicians, dancers, and others who present literary and artistic works. Accordingly, those who do not directly present the work but only organize, direct, or support the performance will not be protected under related rights.

• Owners of Performances: Organizations or individuals who use their time, financial investment, and technical facilities to conduct the performances, unless otherwise agreed with the related parties.

• Producers of Sound and Video Recordings: Organizations or individuals who first fix the sounds and images of performances or other sounds and images. Those who create copies of sound and video recordings are not considered protected by Related rights.

• Broadcasting Organizations: Organizations initiating and conducting broadcasts. However, these organizations’ broadcast programs must result from creative activities initiated and first performed by these organizations to be protected. This protection allows broadcasting organizations exclusive rights to permit or prohibit rebroadcasting.

3. Objects of protection by related rights

• Performances: Performances are creative presentations of literary and artistic works by one or more persons aiming to convey the works to the public.

• Sound and Video Recordings: In general, sound and video recordings are physical representations of the sounds and images of performances or other sounds and images on durable materials such as tapes, discs, or other suitable means allowing perception, enjoyment (viewing or listening), copying, or repeated transmission without limitation in number. The objects of Related rights are only protected if they are original.

• Broadcast Programs and Encrypted Program-Carrying Satellite Signals

Broadcast programs are programs transmitted through wireless or wired means for the public to receive the sounds and images of works, performances, events, and information,…

Encrypted program-carrying satellite signals are program-carrying signals transmitted via satellite in which the characteristics of sounds or images, or both, have been altered to prevent unauthorized reception.

Broadcast programs and encrypted program-carrying satellite signals are protected when they fall into one of the following cases:

– Broadcast programs and encrypted program-carrying satellite signals of broadcasting organizations with Vietnamese nationality.

– Broadcast programs and encrypted program-carrying satellite signals of broadcasting organizations are protected under international treaties of Vietnam is a member.

4. Duration of protection for related rights

Depending on the object of the Related rights, the duration is defined as follows:

• Performers’ Rights: Protected for fifty years from the year following the fixation of the performance.

• Producers of Sound and Video Recordings’ Rights: Protected for fifty years from the year following the publication or fifty years from the year following the fixation if the recording has not been published.

• Broadcasting Organizations’ Rights: Protected for fifty years from the year following the broadcast of the program.

The protection duration ends at 24:00 on December 31 of the year the protection period of Related rights expires.

5. Exceptions and limitations of related rights

The exception applies to individuals and organizations that are allowed to use published performances, sound recordings, video recordings, and broadcasts without needing permission and without having to pay royalties to the rights holder, but they must inform about the performance, recording, or broadcast. Importantly, this usage must not conflict with the normal exploitation of the performances, recordings, or broadcasts and must not cause unreasonable harm to the legitimate interests of the rights holder. These exceptions are stipulated in Article 32 of the Intellectual Property Law.

Article 33 of the Intellectual Property Law specifies instances where published sound and video recordings can be used without permission but require royalty payments and notification about the recording. This usage must not interfere with the normal exploitation of the performances, recordings, or broadcasts and must not unreasonably harm the legitimate interests of the rights holder.

This article on “Basic contents regarding related rights to copyright” is presented by TNTP to readers. Hopefully, this article will be helpful to readers.

Sincerely,

The main terms in the Share Purchase Agreement

Written by TNTP LAW on 31 July, 2024. Posted in Contract Law, Legal newsletter.

A Share Purchase Agreement is a legal agreement designed to transfer ownership of shares from an existing shareholder to another individual or entity. This is an important tool in corporate operation, guiding parties to conduct share purchase and sale transactions transparently and legally. To understand more about the main terms of the Share Purchase Agreement, we would like to invite you to have a look at TNTP’s article below.

1. What is a Share Purchase Agreement?

Share transfer is the transfer of their contributed capital by shareholders in a joint-stock company to other shareholders without changing the charter capital structure of the enterprise. The share transfer is specified in Point d, Clause 1, Article 111, Law on Enterprises 2020.

A Share Purchase Agreement is an agreement between the seller and the buyer in which the seller will transfer their contributed capital to the buyer and, therefore establishes, changes, or terminates the rights and obligations arising from such share and contributed capital. The transaction must comply with the provisions of the Law on Enterprise 2020.

2. Key Clauses in the Share Purchase Agreement and Notes to the Parties

In a Share Purchase Agreement, the main clauses usually include:

2.1 Information about the parties

• Seller: Detailed information about the seller, including name, address, identity card/citizen ID/passport number, and other relevant information (Note: for the entity is an organization, more information about tax code, organization name, address, legal representative… is required)

• Buyer: Details of the buyer of shares are similar to the seller.

2.2 Group of terms on the transaction structure, including:

• Descriptive Terms of Purchase Structure: This clause aims to provide a detailed and clear description of the transaction structure, including key factors such as the number and type of shares, the purchase price, payment method and term, and the conditions for completing the transaction, ensure transparency and protect the interests of participants. Information about transferred shares includes: (1) Number of shares: determine the number of shares to be transferred; (2) Type of share: Determine the type of share (specify ordinary shares, preference shares, etc.), and so on.

• Purchase value: The purchase value is the amount of money that the buyer must give to the seller to own the shares. In the purchase value section, the parties should always specify payment methods, which may include cash, bank transfer, or other forms of payment.

• Benefits attached to shares, contributed capital to be purchased: This clause is intended to ensure that the buyer will enjoy the benefits related to the shares/contributed capital that they receive the transfer, the following basic rights: Right to dividends, right to participate in management and administration, the right to the subsequent Purchase of shares, the right to enjoy incentives and policies, the right to request information, interests related to assets and capital and other rights as prescribed by law.

• Prerequisites for Purchase: A Share Purchase Agreement may stipulate the following prerequisites: (1) The seller undertakes that it is the legal owner of the transferred shares and that these shares are not pledged, mortgaged, or any other legally binding; there are no disputes regarding the transferred shares. (2) The buyer undertakes that it has sufficient financial capacity to make payments for the transferred shares or other conditions agreed upon by the parties themselves.

• Conditions for completing the transaction.

2.3 The group of important legal provisions

• Terms of representations and warranties: (1) The Seller’s representations and warranties include that the Seller has legal ownership of the shares, accurate information provided, and the transfer complies with law. (2) Representations and warranties of the Buyer: financial capacity, the performance of obligations, the information provided accurately, and the receipt of the transfer in compliance with the provisions of law, etc.

• In addition, the Parties should stipulate the following provisions in the Share Purchase Agreement: Rights and obligations of the parties in the Purchase Agreement; Terms of information confidentiality; Terms of penalties and compensation; Termination clause and Dispute resolution clause and governing law.

2.4 Group of add-on clauses

These add-on clause aims to stipulate issues that support and ensure favorable conditions for the performance of the agreement, protect the interests of the parties, and create a clear legal basis for situations that may arise during the execution of the Share Purchase Agreement. These terms may include force majeure; methods of notification between the parties; modification and supplementation; language used and number of copies, etc.

Above is an article on “The main terms in the Share Purchase Agreement”. TNTP hopes this article will be helpful to our readers.

Sincerely.

Author: TNTP LAW

Resolution of International Sales Contract Disputes through Arbitration

1. Definition

2. Advantages of Arbitration Compared to Other Methods

3. Forms of Commercial Arbitration

4. Applicable Law

TNTP & ASSOCIATES INTERNATIONAL LAW FIRM

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