The legal institution on penalties for violations is an important institution to protect the parties in commercial relations. In the context of such extensive economic integration, it is important to understand the provisions of the law on fines for violations of contracts. Therefore, Apolo Lawyers (Hotline: +84 903 419 479) provides our clients with legal service on penalties for breach of contract helping our clients protect their legitimate rights and interests.
There are some outstanding issues about penalties for breach of contract that clients shall focus on:
Both Civil Code and Commercial law stipulate that there are three conditions to impose the contractual penalties as follows:
While the Civil Code 2015 stipulates that “the penalty levels shall be agreed among the parties unless prescribed by relevant laws” meaning that there is no limitation on levels of penalties, the Commercial Law and Construction Law impose the limitation on contractual penalty levels. According to the Commercial Law 2005, the maximum penalty level for commercial contracts is 8% of the value of the breached contractual obligation, except for cases of incorrect assessments caused by unintentional faults. Concurrently, the penalty level shall not be over ten times the assessment service charge. The Construction Law 2014 regulates that the maximum penalty level for works using public investment funds, non – public investment state funds is 12% of the value of the breached contract.
Note: It is important to distinguish “the value of the contract” and “the value of the breached contractual obligation” to impose penalties legitimate.
Currently, there are no regulations to resolve if contracting parties agree on a penalty level exceeding the maximum prescribed by law. However, based on the practice of adjudicating commercial contracts, the Court usually settles the case by reducing the penalty level to 8% as the Commercial Law stipulates.
Therefore, although parties agree on a penalty higher than the capped amount, the penalty agreement is still valid and contracting parties are not subject to any sanctions. But when a dispute arises and parties can not agree and come to the Court will they agree to adjust the penalty to the amount prescribed by laws?
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Apolo Lawyers is proud to be a law firm with many years of experience in business consulting that will support clients with commercial contracts. In case you need advice related to commercial contracts, please contact us via email at contact@apolo.com.vn or Hotline - +84 903 419 479 for the best advice and support.
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