In the course of commercial transactions and debt recovery, it is not uncommon for situations to arise where the purchaser has made payment or deposit for goods, yet the seller breaches its obligation to deliver the goods or to refund the received amount. Accordingly, when requesting the seller to refund the amount previously received, a question arises as to whether the purchaser is entitled to claim interest on such amount, calculated on the principal sum that had been paid. In other words, during the process of recovering commercial debts, the creditor may question whether it has the right to request additional interest accrued on the outstanding debt. This article entitled “Analysis of a Leading Precedent on Commercial Debt Disputes in Vietnam” examines Precedent No. 09/2016/AL, providing insights into the perspective of Vietnamese courts and how the precedent may be applied by analogy to similar situations in practice.
Commercial debts in Vietnam
In the course of business operations, the existence of debts and the settlement of such debts among parties engaged in commercial activities are entirely common. In essence, a commercial debt is understood as a payment obligation by the debtor to the creditor for a specific amount of money or assets. Debts may not only arise from ordinary lending relationships but, within the context of corporate and commercial transactions, may also originate from unpaid amounts under contracts for the sale of goods, provision of services, or employment, among others. Any payment obligation that has not yet been fully settled may constitute the enterprise’s outstanding debt.
The determination of such debts is typically based on the agreements or contracts between the parties, supported by documents and records evidencing that the creditor has duly performed its contractual obligations, thereby giving rise to the debtor’s obligation to make payment. For instance, where Company A manufactures footwear for Company B, and Company A has fulfilled its delivery obligations as per the order, a corresponding payment obligation arises on the part of Company B. If Company B fails to make payment due to contractual terms or delay in payment, the amount payable by Company B constitutes Company A’s commercial receivable.
Commercial debt disputes in Vietnam
In practice, the resolution of disputes arising from corporate debts, particularly under contracts for the sale of goods, often involves situations in which the purchaser has made advance payments or deposits to receive the goods, and the seller is subsequently obliged to refund such amounts. Disputes frequently occur when the seller fails to refund the full amount of the advance or deposit.
A recurring question concerns whether, in addition to the obligation to refund the payment or deposit, the seller is also required to pay interest on the amount refunded in cases of delayed repayment, as compared to the contractual agreement. This issue has long been a contentious matter in commercial practice.
Under Vietnamese commercial law, a party in breach of contract that delays payment of the purchase price, service remuneration, or other reasonable expenses may be required to pay interest on the overdue amount, calculated at the average overdue debt interest rate on the market[1]. However, where the purchaser has paid in advance or provided a deposit, and the seller delays the refund of such amount—funds which the purchaser could otherwise have used in its business operations—the question arises whether the seller’s delay gives rise to an obligation to pay late payment interest, despite the fact that such circumstance is not expressly regulated by law. To address this legal uncertainty, the Precedent No. 09/2016/AL of the Council of Judges of the Supreme People’s Court provides a definitive interpretation and a reasonable resolution to this long-standing question faced by many enterprises.
Precedent No. 09/2016/AL
The source of Precedent No. 09/2016/AL is Cassation Decision No. 07/2013/KDTM, dated 15 March 2013, issued by the Council of Judges of the Supreme People’s Court, concerning the case “Dispute over a Contract for the Sale of Goods” between the plaintiff, Viet Y Steel Joint Stock Company (“Viet Y Company”), and the defendant, Hung Yen Metal Joint Stock Company (“Hung Yen Company”).
Facts of the Case: Viet Y Company entered into four economic contracts with Hung Yen Company. The defendant breached its contractual obligation to deliver the goods, leading the plaintiff to initiate legal proceedings, requesting payment and compensation for damages, including interest on the overdue amount of VND 376,145,700 which had been paid in advance by Hung Yen Company. The first-instance court accepted the plaintiff’s claim in full; however, the appellate court subsequently rejected these requests. Following that, the People’s Court of Bac Ninh Province issued an official petition to the Chief Justice of the Supreme People’s Court requesting a review of the appellate judgment. In its deliberation, the Council of Judges of the Supreme People’s Court held that: although the advance payment was made but no goods were delivered, the application of Article 306 of the Commercial Law 2005 to calculate interest was correct in principle; however, it was incorrect to use the basic interest rate announced by the State Bank of Vietnam as the applicable rate. In such circumstances, the Court determined that the appropriate rate should be the average overdue debt interest rate of at least three commercial banks operating in the same locality, which would form the basis for calculating interest on late payment.
From the contents of Precedent No. 09/2016/AL and its application in similar commercial debt disputes, it can be observed that, while the precedent provides judicial guidance on how to calculate interest on late payment for advance payments or deposits, enterprises must exercise caution when applying it in practice. Given the specific scope and factual limitations of the precedent, businesses should ensure that any claims for interest on delayed refunds of advance payments or deposits under contracts for the supply of goods or services are made in conformity with both the precedent’s reasoning and the practical circumstances of each case.
Analysis and application of Precedent No. 09/2016/AL
Characteristics of late payment interest under Precedent No. 09/2016/AL
When analysing the factual background and the judicial reasoning of the Council of Judges, enterprises should take special note of the following key characteristics when applying this precedent to commercial debt disputes:
Amounts giving rise to late payment interest: These are refundable sums arising from the failure to perform the contract properly[2]. They include deposits, advance payments, and other contractual payments where the purchaser did not receive the goods or services as committed and within the agreed timeline.
Amounts not considered as giving rise to late payment interest: These include contractual penalties agreed upon by the parties[3] and compensation for damages arising from contractual breaches[4].
Applicable interest rate for the calculation of late payment interest: In the event of a dispute, the Court may apply the average[5] overdue debt interest rate of at least three local commercial banks (for example, the Vietnam Bank for Agriculture and Rural Development – Agribank; the Joint Stock Commercial Bank for Foreign Trade of Vietnam – Vietcombank; and the Vietnam Joint Stock Commercial Bank for Industry and Trade – VietinBank), as the basis for calculating late payment interest.
Timing for determining the applicable interest rate:
The precedent stipulates that the time for determining the applicable interest rate is the time of payment (at the first-instance hearing). However, the actual determination depends on the court’s decision and the prevailing legal provisions at the time of such determination.
Application of Prec edent No. 09/2016/AL
It can be observed that Precedent No. 09/2016/AL provides a definitive answer to a long-standing question under the Commercial Law 2005 concerning the application of late payment interest not only to parties obligated to pay for goods but also to those obligated to deliver goods where deposits, advance payments, or prepayments have been received. This ensures fairness between contracting parties in commercial transactions and establishes a legal basis for determining the amount of late payment interest applicable in such cases..
In the context of corporate debt recovery, Precedent No. 09/2016/AL plays a vital role in ensuring that enterprises recover debts efficiently, punctually, and with adequate compensation for any resulting loss. The precedent thus serves as an effective legal instrument, supported by the consistent judicial practice of the courts in similar disputes. Consequently, both creditors and debtors can foresee the risk of late payment interest being imposed on advance payments or deposits received in advance, even in the absence of an explicit contractual agreement on such interest. This, in turn, contributes to greater transparency and efficiency in commercial relationships between enterprises and their trading partners, while maintaining appropriate legal sanctions for any contractual breach..
In summary, although Precedent No. 09/2016/AL was derived from a dispute concerning a contract for the sale of goods, it has since been applied by various courts in a wide range of commercial and business disputes. Accordingly, in the context of corporate debt recovery, Precedent No. 09/2016/AL serves as an effective legal instrument that can be relied upon when dealing with partners, clients, or debtors, even in the absence of prior contractual agreement on late payment interest. This application enhances the efficiency of debt recovery processes, particularly when pursuing litigation before the courts or arbitration proceedings as agreed by the parties. Nevertheless, the precedent remains subject to limitations, as the consistency of its application across different courts is not yet fully established. Therefore, enterprises are advised to consider claiming late payment interest only as a last resort, when all other methods of debt recovery have been exhausted and the enterprise is compelled to initiate court or arbitral proceedings.
The above is an overview of Analysis of a Leading Precedent on Commercial Debt Disputes in Vietnam. If you have difficulties in finding a Law Firm to advise and support in the relevant legal field, please contact us. Phuoc & Partners is a professional consulting firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Danang. Phuoc & Partners is also rated as one of the leading consulting firms in Vietnam with highly specialised teams in top legal fields such as Labour and Employment, Taxation, Merger and acquisition, Litigation. We are confident in providing customers with optimal and effective service
[1] Article 306 of the 2005 Law on Commercial
[2] Article 306 of the 2005 Law on Commercial
[3] Article 418 of the 2015 Civil Code
[4] Articles 13 and 360 of the 2015 Civil Code
[5] Article 306 of the 2005 Law on Commercial
