Nowadays, due to the development of business activities, commercial disputes become common. In particular, disputes in which the buyer fails to pay enough money, service fee to the seller under the Agreement or Contract is increasing. However, when litigating, many enterprises face difficulties in claiming interest on the principal debt of the buyer because the Agreement, Contract do not specify the late payment interest as well as the applicable law to calculate late payment interest.
Under the current law, both the Civil Code 2015 and the Commercial Law 2005 specify late payment interest. So, which law must enterprises calculate interest? Which interest calculation method will the competent authority accept?
1. Provision of the laws about late payment interest
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Provision of the Civil Code:
Under Clause 4 Article 466 of the Civil Code, in case of a non-interest debt but when due, the borrower fails to repay the debt or fails to pay in full, the lender has the right to demand the interest at the interest rate specified in Clause 2 Article 468 of the Civil Code on the late payment amount corresponding to the late payment period, unless otherwise agreed or otherwise specified by law.
Under Clause 2 Article 468 of the Civil Code, in case the parties have an agreement on the interest but do not specify the interest rate and there is a dispute over the interest rate, the interest rate shall be determined at 10%/year of the debt.
Thus, in case of a non-interest debt but when due, the borrower fails to pay the debt or fails to pay in full, the lender has the right to demand the interest at the interest rate of 10%/year on the late payment amount corresponding to the late payment period.
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Provision of the Commercial Law:
Under Article 306 of the Commercial Law, in case the breaching party pays money of goods or service fee and other reasonable expenses late, the aggrieved party has the right to demand interest on late payment at the average overdue debt interest rate on the market at the time of payment corresponding to the late payment period, unless otherwise agreed or otherwise provided by law.
Under Article 11 of Resolution 01/2019/NQ-HDTP dated January 11th, 2019 providing for the determination of the average interest rate according to the provisions of Article 306 of the Commercial Law, the overdue interest rate will be applied to the average overdue interest rate of at least 03 local banks (Vietnam Bank for Agriculture and Rural Development, Joint Stock Commercial Bank for Foreign Trade of Vietnam, Vietnam Joint Stock Commercial Bank for Industry and Trade).
Therefore, it is clear that there is a difference between the Civil Code and the Commercial Law in the calculation of late payment interest. So, when an enterprise litigates the debtor, which law will the enterprise calculate interest?
2. Which law will the enterprise litigating a commercial dispute calculate late payment interest?
Comparing the regulations on calculating late payment interest in the Civil Code and the Commercial Law, it can be seen that the subject of adjustment of the Civil Code and the Commercial Law is different.
Specifically, Article 466 and Article 468 of the Civil Code govern property loan contracts. This is a civil contract in which a party hands over the property to the borrower, when it is due, the borrower must return to the lender property of the same type in the correct quantity and quality and pay interest according to the agreement or provisions of the laws.
Although that the buyer does not pay money or service fee to the seller under the Agreement or the Contract means the buyer owes the seller, the essence of the Agreement and the Contract between the parties is Goods Sale Contract, Service Supply Contract, not a property loan contract. Therefore, if the Agreement or the Contract does not specifically stipulate late payment interest or does not stipulate the applicable law to calculate, when filing a lawsuit, the Enterprise cannot apply Article 466 and Article 468 of the Civil Code to calculate late payment interest.
Besides, Article 306 of the Commercial Law directly applies to goods sale contracts and service supply contracts, so when filing a lawsuit, the enterprise has the right to apply Article 306 of the Commercial Law.
In summary, if the parties do not agree from the beginning on late payment interest or the applicable law to calculate late payment interest, the enterprise litigating a commercial dispute must calculate interest according to Article 306 of the Commercial Law.
3. Solutions for enterprises for late payment interest
In practice, when signing an Agreement or Contract, the parties often do not think about late payment interest but only pay attention to the payment of the value of goods or contract. Therefore, Agreements and Contracts often do not specify the interest rate, calculation method, or applicable law to calculate late payment interest in case the buyer does not pay money, service fee. This leads to the consequence that when filing a lawsuit, the enterprise is not allowed to choose the law or interest rate to calculate late payment interest, or the competent authority does not accept the request about late payment interest but only accepts the request about the principal debt.
According to TNTP’s working experience, if in the Agreement, Contract, enterprises specify how to calculate late payment interest or the applicable law to calculate interest in case the buyer does not pay then when litigating, the application of late payment interest corresponding to the agreement will be accepted by the competent authority because both the Civil Code and the Commercial Law give priority to the agreement of the parties. To ensure maximum benefits, enterprises should choose interest rate according to Article 466 and Article 468 of the Civil Code of 10%/year on the amount of late payment corresponding to the late payment period because the interest rate specified in Article 306 of the Commercial Law usually cannot reach 10%/year.
With the above analysis, enterprises can decide to calculate interest by clearly stipulating it in the Contract. Otherwise, enterprises will have to calculate interest according to the provisions of the Commercial Law when filing a lawsuit.
Above is the article “Commercial disputes – Which law will enterprises calculate late payment interest?” We hope this article is useful to you.
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TNTP & Associates International Law Firm
Lawyer Nguyen Thanh Ha
Email: ha.nguyen@tntplaw.com
