How to Determine Penalty and Compensation for Damages from Breach of Commercial Contract?

When drafting a contract, especially a commercial business contract, in addition to basic provisions such as the object, scope of the contract, value and payment method, rights and obligations of the parties, dispute settlement, information confidentiality, and the regulations on the penalty for a breach of the contract and damage compensation are also very important. Contract dispute lawyers in Vietnam could help client draft and review contract to ensure the best interest protection.

What is penalty for a breach of the contract?

Under the provisions of the Commercial Law, penalty for a breach means that the breaching party must pay a sum of money to the aggrieved party due to the breach of the violating party if the parties agree in the contract on the fine for a breach. Thus, the penalty for a breach only arises when there is a breach of the contract by the violating party and the parties have agreed on the penalty.

The law gives the right to agree on sanctions for violations to contractual parties, but this freedom to negotiate is limited. Specifically, the parties are only allowed to agree to a maximum penalty of 8% of the breached contractual obligation value, except traders providing assessment services issue assessment certificates showing incorrect results caused by their unintentional faults, they must pay penalty therefor to customers. The penalty level shall be agreed upon by the parties but must not exceed ten times the assessment service charge. In fact, the dispute settlement agency also bases on the prescribed limit of the law to handle; therefore, even if the parties agree to a higher penalty for a breach, it is not applicable in practice.

What is compensation for damage?

Compensation for damage means a remedy whereby the breaching party pays compensation for the loss caused by a contract-breaching act to the aggrieved party. The basis for arising damages is a breach of the contract; there is material loss and act of breaching the contract is the direct cause of the loss. Difference from penalty for a breach, liability to compensate for damages caused by breaches of contract performance obligations arises even in cases where the parties do not have an agreement on this matter. Besides, the law does not provide any regulation to limit the amount of compensation; it is based on the actual damages that the aggrieved party can prove.

When participating in the transaction, if both types of sanctions are specified in the contract, they should clearly specify the basis for the amount of compensation for the damages and the penalty for violation.

In fact, there are many cases where the parties do not agree clearly or agree on the penalty but the amount of the penalty exceeds the prescribed level, the excess could be considered invalid. The parties should also note that there will be no agreement on late payment interest on the infringement penalty and the amount of compensation damages.

How contract dispute lawyers in Vietnam could assist client?

Contract dispute lawyers in Vietnam play a crucial role in helping clients review contracts to protect their best interests.  Here’s how they can assist:

Legal Expertise:

Contract dispute lawyers in Vietnam have a deep understanding of Vietnamese contract law and regulations. They can identify potential legal pitfalls and ensure that the contract complies with all relevant laws.

Risk Assessment:

Contract dispute lawyers in Vietnam can assess the potential risks associated with the contract. They can identify ambiguous or vague terms, potential loopholes, and clauses that might expose their client to undue risk.

Negotiation Support:

When reviewing a contract, contract dispute lawyers in Vietnam can identify terms that might be unfavorable to their client’s interests. They can then negotiate with the other party to amend or clarify these terms to ensure a more balanced agreement.

Terms and Conditions:

Contract dispute lawyers in Vietnam ensure that the terms and conditions of the contract accurately reflect the parties’ intentions. They can clarify unclear language, eliminate contradictory clauses, and ensure that the contract is comprehensive.

Protection of Rights:

Contract dispute lawyers in Vietnam ensure that their client’s rights are adequately protected within the contract. They can identify clauses that might infringe upon their client’s rights and work to modify or remove them.

Legal Compliance:

Contract dispute lawyers in Vietnam ensure that the contract adheres to relevant laws and regulations in Vietnam. This includes ensuring that the contract doesn’t violate any mandatory legal provisions.

Dispute Resolution Clauses:

Contract dispute lawyers in Vietnam can advise clients on the inclusion of effective dispute resolution clauses, such as arbitration or mediation, which can help in resolving disputes more efficiently if they arise in the future.

Damages and Liability:

Contract dispute lawyers in Vietnam can analyze provisions related to damages, liabilities, and remedies. They make sure that these provisions are fair and balanced, protecting their client from excessive liability.

Clear Communication:

Contract dispute lawyers in Vietnam can help clients understand the implications of different clauses and provisions. They translate legal jargon into understandable language, enabling clients to make informed decisions.

Due Diligence:

Contract dispute lawyers in Vietnam conduct thorough due diligence on the other party involved in the contract. This can help uncover any potential red flags or issues that might impact the client’s interests.

Customization:

Every contract is unique, and contract dispute lawyers in Vietnam can tailor their review process to suit the specific needs and concerns of their client. They take into account the client’s industry, business objectives, and risk tolerance.

Documentation:

Contract dispute lawyers in Vietnam ensure that all changes and negotiations made during the contract review process are properly documented. This documentation can be crucial in case a dispute arises in the future.

Overall, contract dispute lawyers in Vietnam provide a combination of legal expertise, negotiation skills, and attention to detail to ensure that their clients’ best interests are protected when reviewing contracts.

About ANT Lawyers, contract dispute lawyers in Vietnam

We help clients overcome cultural barriers and achieve their strategic and financial outcomes, while ensuring the best interest rate protection, risk mitigation and regulatory compliance. ANT lawyers has lawyers in Ho Chi Minh city, Hanoi,  and Danang, and will help customers in doing business in Vietnam.