During the execution of commercial contracts, one or more parties may engage in actions that breach their contractual obligations. To protect the legal rights and interests of the parties, as well as to prevent and limit contract violations, parties should establish remedies that the breaching party must bear. Furthermore, specifying the remedies in detail will serve as the basis for holding the breaching party accountable and compensating for the costs and losses resulting from the breach. In this article, TNTP will present some key information about various types of remedies for contract violations in the commercial sector.
1. Definition of “Remedies for commercial contract breaches”
Remedies for commercial contract breaches refer to the measures applied to entities engaged in actions that breach commercial contracts. Under these measures, the party committing the breach of a commercial contract will bear legal consequences for their actions.
2. Basis for applying “Remedies for commercial contract breaches”
First, the act of breaching the contract.
Breaching a contract includes non-performance or improper, incomplete fulfilment of contractual obligations in accordance with the contract and legal provisions. When determining whether an action constitutes a violation of a commercial contract, the parties must refer to the contract and relevant legal regulations.
Second, the fault of the parties.
The fault of the breaching party is a mandatory basis for all remedies for the violation of commercial contracts. According to the current Vietnamese commercial law, any breach of a contract is presumed to be a fault (except in cases where the breaching party can prove that they are not at fault). Therefore, when applying remedies against the breaching party, neither the aggrieved party nor the arbitration authority is required to prove the fault of the breaching party.
Third, other bases.
• Agreement of the parties: This is a mandatory basis for imposing penalties for contract violations. Additionally, the parties can agree on cases of contract violations that would trigger remedies such as suspension, termination, or cancellation of the contract, provided that these agreements do not contradict the fundamental principles of Vietnamese law and international treaties to which Vietnam is a member.
• Actual damages occurred: This is a mandatory basis for imposing compensation for damages.
• The act of breaching the contract as the direct cause of the damages: This is a mandatory basis for imposing compensation for damages.
3. Forms of Remedies for Addressing Contract Violations in Commercial Contracts
In accordance with Article 292 of the 2005 Commercial Law (“CL”), the types of remedies for violations of commercial contracts include:
• Specific performance of contracts.
• Fines for breaches.
• Forcible payment of damages.
• Suspension of performance of contracts.
• Stoppage of performance of contracts.
• Cancellation of contracts.
• Other remedies agreed upon by involved parties which are not contrary to the fundamental principles of Vietnamese law, treaties to which the Socialist Republic of Vietnam is a contracting party and international commercial practices.
Note: Unless otherwise agreed, the breaching party cannot apply suspension of performance of contracts, stoppage of performance of contracts, or cancellation of contracts. A fundamental violation is a breach of the contract by one party that causes significant harm to the other party, to the extent that the other party cannot achieve the purpose of entering into the contract.
4. Cases of Exemption from Liability for Contractual Violations
Exemption from liability for violations of commercial contracts refers to situations in which one or more parties in the contract engage in actions that breach the contract but do not bear adverse legal consequences. According to Article 1 of Article 294 of the CL, the breaching party is exempt from liability in the following cases:
• When an exemption from liability has been agreed upon by the parties;
• When a force majeure event occurs;
• When the breach of one party results entirely from the fault of the other party;
• When the breach of one party is a result of compliance with a decision by a competent state authority that the parties could not have known at the time of contract formation.
5. Obligations Regarding Notification and Confirmation of Exemption from Liability Cases
• The breaching party must promptly notify the other party in writing of the exemption from liability case and the potential consequences.
• When the exemption from liability case ends, the breaching party must promptly inform the other party. If the breaching party fails to notify or fails to notify in a timely manner, they must compensate for the damages.
• The breaching party has an obligation to prove to the other party the circumstances of their exemption from liability.
The above is the article “Remedies for contract breaches in the commercial sector” that TNTP has sent to its readers. In case you have any issues to discuss, please feel free to contact TNTP for timely assistance.