Reputational damage arising from breaches of a commercial contract under Vietnamese law

In Vietnam, it is not common to see the aggrieved party claiming for damage which causes harm to its reputation (Reputational Damage) due to breaches of commercial contracts by the defaulting party. However, in principle, Reputational Damage due to breaches of a commercial contract should be claimed and recovered under Vietnamese law for the following reasons:

  • Under Article 419.3 and 361.3 of Civil Code 2015, an aggrieved party may claim for moral damage arising from a breach of contract, which includes, among others, moral losses caused by infringement of reputation;

  • Reputational Damage may be considered as “actual and direct loss” under Article 302.2 of Commercial Law 2005 if the aggrieved party has actually incurred the loss of reputation directly arising from a breach of contract by the defaulting party;

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Written by Nguyen Quang Vu On In ,

The use of extrinsic evidence for contract interpretation under Vietnamese Law

Does “extrinsic evidence” exist under Vietnamese law?

Vietnamese law does not specifically deal the concept of “extrinsic evidence”. Extrinsic evidence is usually understood as evidence relating to a contract but not appearing on the face of the contract because it comes from other sources, such as statements between the parties or the circumstances surrounding the agreement.

However, Article 404.1 of the Civil Code 2015 provides that:

“Where a contract contains terms and conditions which are unclear, the interpretation of such terms and conditions shall be based not only on the wording of the contract but also on the intentions of the parties which are expressed before and at the time of preparation and performance of the contract.”

Accordingly, the Civil Code 2015 appears to allow the use extrinsic evidence as a source of the contract interpretation.

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Written by Nguyen Quang Vu On In

New Draft Decree on Security Interests in Vietnam

In September 2020, the Ministry of Justice (MOJ) published a draft decree (Draft Decree) on security interests such as mortgages, or pledges in Vietnam. Once issued, the Draft Decree will replace Decree 163/2006 on the same topic. Some important changes are discussed below:

· Legal basis for the Decree - Unlike Decree 163/2006 which implements the Civil Code 2005 only, the Draft Decree is stated to implement the Land Law 2013 and the Housing Law 2014 on secured transactions.

· Parties’ autonomy - The Draft Decree appears to allow the parties to a secured transaction to agree on any issue relating to a secured transaction as long as such agreement complies with the fundamental principles of the Civil Code 2015. However, it is not clear if the parties can agree not to follow the provisions of the Draft Decree as long as such agreements comply with the fundamental principles of the Civil Code 2015.

· Flexible formality requirements – The Draft Decree expressly allows a secured transaction to exist in the form of a separate security contract, a part of another contract, power of attorney, or other unilateral undertakings unless otherwise restricted by law.

· Definitions of secured assets - The Draft Decree introduces various definitions of certain types of assets that can be used as secured assets in a secured transaction. In particular, the Draft Decree defines property rights (quyền tài sản) to include the right to claim debt, right to request for payment, interests arising from a contract, project development rights, right to sublease right to lease infrastructure in an industrial zone of which rent is paid a lump sum, or right to claim damages.

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Written by Nguyen Quang Vu On In ,

Can “actual and direct loss” due to a breach of contract include losses incurred by non-defaulting party under another contract with a third party?

Under the Commercial Law 2005, the value of damage that the non-defaulting party could claim due to a breach of contract will comprise (i) the value of the “actual and direct loss” incurred by the non-defaulting party due to the defaulting party’s breach; and (ii) the “direct profits which the non-defaulting party would have earned” in the absence of such breach. Apparently, the amount that the non-defaulting party must compensate a third party (e.g. non-defaulting party’s customer) as a result of the breach of the defaulting party (Third Party Damage) is not considered as lost profits at (ii). However, it is not clear whether and how Third Party Damage could be included in “actual and direct loss” (Direct Loss) suffered by the non-defaulting party.

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Written by Nguyen Quang Vu On In ,