In the current economic context, late payment under contracts has become a common cause of civil and commercial disputes. Such a conduct not only affects the rights and interests of sellers and service providers but also disrupts cash flow, reputation, and business operations of enterprises.
In the current economic context, late payment under contracts has become a common cause of civil and commercial disputes. Such a conduct not only affects the rights and interests of sellers and service providers but also disrupts cash flow, reputation, and business operations of enterprises.
I. Impact of late payment under contracts in the current context
At present, late payment under contracts occurs quite frequently, particularly in the sectors of commerce and construction. Such conduct seriously affects cash flow, operational capacity, and business development, while also leading to prolonged disputes between parties.
Beyond economic losses, contractual breaches may damage reputation and hinder long-term cooperation. Therefore, the law provides various mechanisms to impose liability on breaching parties and to protect the legitimate interests of injured parties.
II. What constitutes late payment under a contract?
Late payment under a contract refers to a situation where a party to the contract (typically the buyer or lessee) fails to fulfill its payment obligation specified in the contract. It is considered a breach of a fundamental obligation and may result in legal consequences such as contractual sanctions, compensation for damages, contract termination, or legal proceedings before competent authorities.
III. Legal regulations on late payment under contracts
1. Regulations on contractual payment obligations
In contractual relationships, payment obligations constitute a core provision that ensures the balance of interests between the parties. Current laws provide specific regulations to ensure timely and transparent payment:
- Time and conditions for payment: Pursuant to Article 55 of the Law on Commerce 2005, unless otherwise agreed, the buyer is obliged to make payment at the time the seller delivers the goods or relevant documents. Where inspection of goods is required, payment may be delayed in accordance with Article 44.
- Sanctions for late payment: Under Article 301 of the Law on Commerce 2005, the fines for late payment must not exceed 8% of the value of the breached contractual obligation, provided such a fine is agreed upon in the contract.
- Interest on late payment: Pursuant to Article 306 of the Law on Commerce 2005, a buyer who delays payment must pay interest on the overdue amount at the average market rate at the time of payment, unless otherwise agreed.
- Remedies for breach of payment obligations: The injured party may apply remedies under Article 292 of the Law on Commerce 2005, including requiring performance of the contract, imposing penalties, claiming damages, suspending performance, terminating, or canceling the contract.
It can be seen that the law establishes a relatively strict framework to ensure that contractual payment obligations are fulfilled, while also providing a solid legal basis for dispute resolution and protection of legitimate interests.
2. Competent authorities for resolving late payment disputes
When disputes arise due to late payment, identifying the competent authority is essential. The two primary mechanisms are:
Commercial arbitration (where there is an arbitration agreement)
- Where the parties have a written arbitration agreement, disputes shall be resolved by commercial arbitration in accordance with Articles 3 and 5 of the Law on Commercial Arbitration 2010.
- The arbitral award is final and has binding effect equivalent to a court judgment.
People’s Courts (where there is no arbitration agreement)
- In the absence of a valid arbitration agreement, the injured party may initiate legal proceedings before the competent People’s Court.
- Pursuant to Article 30 of the Civil Procedure Code 2015, commercial disputes, including those arising from payment breaches, fall within the jurisdiction of Vietnamese courts.
In summary, jurisdiction depends on the agreement between the parties. If an arbitration clause exists, arbitration shall apply; otherwise, the People’s Court has jurisdiction. Proper determination of jurisdiction helps save time and costs while safeguarding the parties’ rights.
3. Consequences of unresolved late payment
Where late payment is not addressed in a timely manner, legal consequences may be significant. Under Article 292 of the Law on Commerce 2005, the breaching party may be subject to:
- Compulsory performance of the contract (full payment of outstanding amounts).
- Contractual sanctions and compensation for damages caused by delayed payment.
- Suspension, termination, or cancellation of the contract in cases of serious breach affecting the lawful interests of the other party.
- Additionally, parties may apply other lawful remedies in accordance with agreements and international trade practices.
Thus, late payment not only damages reputation and business relationships but may also result in lost business opportunities and substantial legal liabilities.
IV. Questions on late payment under contracts
1. What is the statute of limitations for claims arising from late payment?
- For civil contracts: Pursuant to Article 429 of the Civil Code 2015, the statute of limitations is 3 years from the date the claimant knows or should have known that their lawful rights and interests were infringed.
- For commercial contracts: Under Article 319 of the Law on Commerce 2005, the limitation period is 2 years from the time the rights and interests are infringed.
2. Can late payment lead to criminal liability in certain cases?
In specific circumstances, late payment may lead to criminal liability if it constitutes intentional misappropriation of property:
- Under Article 175 of the Penal Code 2015 (as amended in 2017), failure to return property received under a contract despite having the ability to do so may constitute the offense of abuse of trust to appropriate property.
In installment contracts, if fraudulent conduct is used to appropriate goods without fulfilling payment obligations, liability may arise under Article 174 (fraudulent appropriation of property), depending on the value and severity.
3. What interim measures may be applied in case of late payment?
In cases of late payment, the injured party may apply interim measures to protect its interests:
- Suspension of contractual performance (Article 292 of the Law on Commerce 2005): The injured party may suspend its obligations (e.g., delivery of goods or services) pending resolution.
- Compulsory performance (Article 297 of the Law on Commerce 2005): The breaching party may be required to fulfill its contractual obligations.
- Security measures such as deposits or guarantees (Articles 292 and 328 of the Civil Code 2015): These measures ensure contractual performance and provide interim protection.
Such measures play a crucial role in maintaining fairness and minimizing damages before formal dispute resolution proceedings.
4. Is the buyer liable for late payment due to force majeure?
Where late payment results from force majeure, liability is determined based on law and contractual terms:
Grounds for exemption:
- Under Article 156 of the Civil Code 2015, force majeure refers to objective, unforeseeable, and unavoidable events.
- Clause 2, Article 351 provides that a party is exempt from liability if the breach results from force majeure, unless otherwise agreed.
- Clause 1, Article 294 of the Law on Commerce 2005 also exempts liability in such cases, subject to proof.
Notification obligations:
- Article 295 requires prompt written notification of the force majeure and its consequences. Failure to notify may result in liability for damages.
- Article 296 allows extension of performance deadlines; if no agreement is reached, the extension corresponds to the duration of the event plus a reasonable period (up to 5 months for short-term contracts and 8 months for long-term contracts).
Accordingly, if the buyer proves force majeure and complies with notification requirements, liability may be exempted; otherwise, the delay remains a breach.
5. What are the rules on compensation for damages?
Under the Law on Commerce 2005:
- Basis for liability: Articles 302 and 303 provide that damages include actual losses and direct benefits that would have been obtained, provided there is a breach, actual damage, and a causal relationship.
- Burden of proof and mitigation: Articles 304 and 305 require the claimant to prove damages and take reasonable measures to mitigate losses; failure to do so may reduce compensation.
- Relationship between sanctions and damages: Articles 307 and 316 allow both contractual sanctions and damages to be applied concurrently if agreed, unless otherwise provided by law.
V. Seeking a reputable lawyer for late payment disputes
If you are facing a situation where a counterparty fails to make timely payment under a contract, seeking legal advice is essential to protect your rights, apply appropriate legal remedies, and minimize risks. With extensive expertise in commercial law, NPLaw is a reputable legal service provider ready to support you in resolving contractual disputes effectively.
