Case law No. 09/2016/AL on the determination of the average overdue interest rate on the market and the payment of interest on penalties for breach and compensation for damages

8 December, 2025 | TNTP LAW | Legal newsletter

Case Law No. 09/2016/AL is a precedent adopted by the Council of Judges of the Supreme People’s Court of Vietnam on October 17, 2016 (“Case Law 09”). This case law focuses on determining the average overdue interest rate on the market and the payment of interest on sums representing contractual penalties or compensation for damages. It took effect on December 1, 2016 and aims to clarify how interest should be calculated in civil and commercial disputes, thereby unifying the judicial application of law concerning late payment interest among the courts.

1.Case facts

According to the statement of claim dated July 7, 2007, the application for amendment of the statement of claims dated October 10, 2007, the documents in the case and the presentation by the representative of the plaintiff – Viet Y Steel Joint Stock Company (“Viet Y Steel Company”) – the facts are as follows:

Regarding Economic Contract No. 03/2006-HĐKT:

On October 3, 2006, Viet Y Steel Company entered into Economic Contract No. 03/2006-HĐKT with Hung Yen Metal JSC (“Hung Yen Metal Company”). Under the Contract, Viet Y Steel Company (“Party A”) purchased 3,000 tons ± 5% of continuously cast steel billets CTS-5SP/PS in bulk from Hung Yen Metal Company (“Party B”) at a unit price of VND 6,750,000 per ton; delivery time from October 25 to 31, 2006; total contract value VND 20,250,000,000 ± 5%.

To perform the contract, Viet Y Steel Company transferred the entire amount of VND 20,250,000,000 to Hung Yen Metal Company; however, Hung Yen Metal Company delivered 7.180 tons less than contracted, equivalent to VND 48,465,000.

Regarding Economic Contract No. 05/2006-HĐKT:

On December 20, 2006, the two parties executed Contract No. 05/2006-HĐKT. Under this contract, Viet Y Steel Company agreed to buy 5,000 tons of steel billets (with the same specifications and quality as in Contract No. 03). The total contract value was VND 36,450,000,000 ± 5%; delivery period from January 18 to 30, 2007. Viet Y Steel Company would advance VND 500,000,000 immediately after signing and the balance would be paid in two installments upon receipt of the goods. The contract also provided that Hung Yen Metal Company would be subject to a 2% penalty on the contract value if it failed to deliver the goods or delivered goods of incorrect specifications. According to Viet Y Steel Company, on December 21, 2006, it advanced VND 500,000,000 but Hung Yen Metal Company failed to perform the contract without justification.

Regarding Economic Contract No. 06/2006:

Also on December 20, 2006, Viet Y Steel Company signed Contract No. 06/2006 with Hung Yen Metal Company to purchase 3,000 tons of steel billets. The total value was VND 21,600,000,000; delivery from January 5 to 15, 2007.

On December 22, 2006, Viet Y Steel Company transferred the full VND 21,600,000,000, but Hung Yen Metal Company delivered 7.640 tons short, equivalent to VND 55,008,000.

Regarding Economic Contract No. 01/2007:

On February 1, 2007, Viet Y Steel Company signed Contract No. 01/2007 with Hung Yen Metal Company to buy 5,000 tons of steel billets. The total value was VND 39,000,000,000 ± 5%. During performance, Viet Y Steel Company transferred VND 37,710,000,000 and Hung Yen Metal Company delivered 3,906.390 tons, worth VND 30,469,842,000. The undelivered quantity of 928.25538 tons corresponded to VND 7,240,158,000.

Viet Y Steel Company repeatedly sent official letters requesting Hung Yen Metal Company to perform the contracts, but the latter failed to do so, forcing Viet Y Steel Company to purchase billets from another supplier at a higher price to sustain its production and business.
Due to Hung Yen Metal Company’s breach of the signed contracts, Viet Y Steel Company filed suit demanding that Hung Yen Metal Company pay and compensate all losses arising from the failure to deliver under Contracts No. 03/2006, 05/2006, 06/2006 and 01/2007. At the time of filing, the total claimed amount was VND 12,874,298,683, including: the value of undelivered goods (VND 11,181,662,503), penalty for breach (VND 1,316,490,480) and overdue interest (VND 376,145,700).
The case underwent three trials at first instance and three at appellate level.
On July 25, 2010, the People’s Court of Bac Ninh Province issued Official Letter No. 110/2010/CV-TA requesting the Chief Justice of the Supreme People’s Court to review the appellate judgment under cassation procedures.
In Decision on appeal No. 17/2012/KDTM-KN dated 25 June 2012, the Chief Justice of the Supreme People’s Court requested that the Judicial Council of the Supreme People’s Court to conduct the cassation procedures to set aside Appellate Commercial Judgment No.63/KDTM-PT dated 5 April 2010 of the Appellate Court of the Supreme People’s Court of Hanoi; transfer the case to the Appellate Court of the Supreme People’s Court of Hanoi for settlement following appellate procedures in accordance with the law.

2.Certain findings of the Court

Since Hung Yen Metal Company failed to fulfill its commitments as agreed in the contracts (i.e. failure to deliver sufficient goods to Viet Y Steel Company), there is sufficient basis for Viet Y Steel Company to initiate a lawsuit against Hung Yen Metal Company to request Hung Yen Metal Company to return the received money (corresponding to the undelivered goods), the overdue interest for late payment, penalties for breach and compensation for damages (due to the non-delivery, Viet Y Steel Company had to purchase the goods from other sellers at higher price than that of Hung Yen Metal Company), which is in accordance with Article 34, Article 297.3, Articles 300, 301, 302, 306 and 307 of the Commercial Law 2005.
[1] As to the advance payments with regard to the undelivered goods in the 4 economic contracts, the first-instance court had correctly calculated the correct amount of money that Hung Yen Metal Company had to return Viet Y Steel Company. However, as to the overdue interest on the aforesaid amount, although the first-instance court applied Article 306 of the Commercial Law 2005, it did not apply the average overdue interest rate on the market of at least three local banks at the time of payment (at the first-instance hearing) to make the calculation, instead, the first-instance court was wrong in applying the basic interest of the State Bank at the time of the first-instance hearing at the plaintiff’s request to determine the overdue interest (being 10.5%/year). In this case, the Court needs to apply the average overdue interest on the market of at least three local banks (Agribank, Vietcombank and VietinBank) to calculate the overdue interest in accordance with the law.
As to penalties for breach: both parties agreed that: party B shall be subject to a penalty equivalent to 2% of the value of the approved shipments when party B commits one of the following breaches: either failure to deliver conforming goods or failure to deliver the goods. As such, Hung Yen Metal Company, since Hung Yen Metal Company failed to deliver sufficient goods, it shall pay a contractual penalty equivalent to 2% of the value of the breached contractual obligation portion to Viet Y Steel Company in accordance with Article 300 and Article 301 of the Commercial Law 2005. [2] There is a basis for the first-instance court to accept theclaim for penalties for breach of Viet Y Steel Company; however, calculating interest over the penalties for contractual breach is not correct.
As to the compensation for damages: According to Viet Y Steel Company’s submissions, it was because Hung Yen Metal Company breached the contracts for not delivering sufficient goods, Viet Y Steel Company had to purchase steel billets at higher price from other manufacturers to ensure the continuity of the production and business of the Company. The first-instance court relied on only the contracts for sale of steel billets which Viet Y Steel Company signed with other manufacturers to compel Hung Yen Metal Company to pay Viet Y Steel Company the difference in value due to the purchase of the substitute goods at higher price, but the Court failed to determine whether the purchase of substitute goods from other manufacturers would serve for the purpose of substituting the undelivered and insufficient goods from Hung Yen Metal Company to ensure the continuity of the business operation as planned. In this regard, the Court should have equested Viet Y Steel Company to submit documents, evidence (such as goods orders from third parties, production and business plan…) to prove that the actual damage had occurred and from that there would be a basis to compel Hung Yen Metal Company to compensate the damages in a proper manner. [3] Besides, the first-instance court’s calculations of interest on the damages are not compliant with Article 302 of the Commercial Law 2005.

3.Commentary on the Case Law 09

The content of the case law corresponds to items [1], [2] and [3] above. Case Law 09 establishes that when a party in a commercial transaction delays payment and there is no contrary agreement, it must pay interest at the average overdue rate of at least three commercial banks in the locality where the court hears the case. At the same time, the debtor is not required to pay interest on sums representing contractual penalties or compensation for damages.

Case Law 09 holds significant practical value in Vietnam’s commercial adjudication because:

It plays a crucial role in guiding and standardizing the determination of overdue interest rates in commercial disputes, preventing inconsistent or inappropriate applications. Using the average overdue rate of three banks better reflects market reality at the time of payment, ensuring equitable treatment for both parties.
It clarifies the principle that no interest is payable on contractual penalties and compensation, consistent with the Commercial Law 2005, thereby avoiding unjustified financial burdens on the breaching party.
The case law enhances legal predictability, helping businesses assess financial risks in cases of contractual breach.

However, practical difficulties remain:

The case law requires using the “average overdue rate of at least three local banks” but gives no guidance on which banks, loan categories or maturities to use, leading to inconsistent application among courts.
The “time of payment (first-instance trial)” is taken as the reference point, yet the case law does not clarify whether the rate should be updated if proceedings are prolonged or market rates fluctuate, causing controversy in practice.
A key difficulty in applying the “average overdue interest rate on the market” is the lack of publicly available, uniform data from commercial banks. Most credit institutions do not publish their average overdue rates or apply different calculation methods and periods, resulting in disparities that complicate the courts’ determination

Case Law 09 represents a milestone in resolving commercial disputes in Vietnam, particularly concerning late-payment interest. It affirms that: (i) Late-payment interest shall be calculated at the average overdue rate of at least three local banks; and (ii) No interest shall accrue on sums representing contractual penalties or compensation for damages. Although certain aspects remain unclear (such as data sources, timing and scope of application), Case Law 09 continues to serve as a vital legal reference, promoting uniformity and fairness in commercial dispute resolution.

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