CASE LAW NO. 21/2018/AL On Fault and Damage in Unilateral Termination of Property Lease Contracts (Please note that this image is not related to the specific case being discussed).

CASE LAW NO. 21/2018/AL

On Fault and Damage in Unilateral Termination of Property Lease Contracts

Approved by the Judicial Council of the Supreme People’s Court on October 17^th, 2018, and published under Decision No. 269/QD-CA on November 6^th, 2018, by the Chief Justice of the Supreme People’s Court.

Source of the Case Law:

The Cassation Decision No. 08/2016/KDTM-GĐT dated May 20^th, 2016, by the Judicial Council of the Supreme People’s Court regarding a business and commercial case of “Property Lease Contract Dispute” in Quảng Ninh Province between the plaintiff, Limited Liability Company D, and the defendant, Joint Stock Company C.

Location of the Case Law’s Content:

Paragraph 1 of the “Court’s Opinion” section.

Summary of the Case Law:

– Case Background:

A fixed-term property lease contract, lacking specific termination clauses, was prematurely terminated by the lessee without the lessor’s consent. The lessee’s abrupt notice provided insufficient time for the lessor to secure a replacement contract for the remainder of the lease term. Consequently, the lessor sought compensation from the lessee equivalent to the outstanding rent for the remaining contract period.

– Legal Resolution:

In this scenario, the lessee’s unilateral and premature termination of the lease contract, without contractual or legal justification, constitutes a breach of contract. As the breaching party, the lessee is liable for any damages suffered by the lessor as a direct result of this breach. The measure of damages in this case is the rental income the lessor would have received for the remaining duration of the lease contract had it not been prematurely terminated.

Relevant Legal Provisions:

Article 426 of the 2005 Civil Code (corresponding to Article 428 of the 2015 Civil Code); Articles 269, 302, 303 of the 2005 Commercial Law;

Keywords:

“Property Lease Contract”; “Termination Conditions”; “Premature Contract Termination”; “Damage Compensation”; “Actual Damage”; “Fault”.

CASE DETAILS

In the lawsuit dated March 18^th, 2007, and subsequent statements, the representative of Limited Liability Company D presented:

On April 10^th, 2006, Limited Liability Company D (hereinafter referred to as Company D) signed Economic Contract No. 1141/HĐ-CNQN (regarding the lease of locomotives) with Joint Stock Company C.

According to the contract, Company D leased to Joint Stock Company C 02 steel-hulled locomotives, each with a power of 135 CV and registered numbers NB2010 and NB2172; and received three towboats from Joint Stock Company C to assist in docking and unloading at 10-10 Port and Khe Dây Port, Quảng Ninh; the rental price (including VAT) was VND 50,000,000/month per locomotive; all fuel costs for the locomotives were to be paid by Joint Stock Company C to Company D based on a rate of 17 liters of diesel/hour/engine/135 CV power plus 0.23 liters of lubricating oil/hour/engine power (fuel prices to be calculated at the time of payment and any additional costs at both ends of the docks, if any).

Company D was responsible for providing personnel, including 01 captain, 01 chief engineer, 01 sailor; and paying all wages for workers on the vehicles. The contract was effective from the signing date until December 31^st, 2006.

On August 17^th, 2006, Joint Stock Company C issued Dispatch No. 2349 INDEVCO requesting Company D to terminate and liquidate Contract No. 1141/HĐ-CNQN dated April 10^th, 2006, prematurely from August 20^th, 2006.

On August 18^th, 2006, Company D responded to Joint Stock Company C’s Dispatch No. 2349 INDEVCO with Dispatch No. 59.CVCty, requesting Joint Stock Company C to settle the rental fees for 02 locomotives for the second quarter of 2006 (as per the reconciliation and settlement record dated July 13^th, 2006) and, if Joint Stock Company C no longer needed to lease the 02 locomotives from August 20^th, 2006, to settle the rental fees for the remaining contract period from August 1^st, 2006, to December 31^st, 2006.

On September 4^th, 2006, Joint Stock Company C and Company D drew up a settlement record for the locomotive rental; both parties confirmed the total amount Joint Stock Company C owed Company D up to August 21^st, 2006, was VND 511,539,505.

On January 16^th, 2007, Joint Stock Company C paid Company D the amount of VND 511,539,505.

On March 18^th, 2007, after multiple unsuccessful negotiations, Company D filed a lawsuit requesting the court to compel Joint Stock Company C to pay Company D VND 403,000,000 and interest for late payment from August 21^st, 2006, to December 31^st, 2006, according to legal regulations. At the first-instance trial, the plaintiff’s representative withdrew the request for interest on late payment.

Representative of Joint Stock Company C stated:

The signing and performance of Contract No. 1141/HĐ-CNQN dated April 10^th, 2006, with Company D was as described by the plaintiff. On August 17^th, 2006, due to no longer needing the 02 leased locomotives, Joint Stock Company C sent a dispatch to Company D requesting to terminate the contract prematurely. Joint Stock Company C had paid Company D VND 511,539,505. Joint Stock Company C disagreed with paying Company D VND 403,000,000, as it was inaccurate, and requested Company D to recalculate. Joint Stock Company C only agreed to support 50% of the total declared amount but it must be correct and appropriate.

In the First-instance Business and Commercial Judgment No. 01/2012/KDTM-ST dated January 18^th, 2012, the People’s Court of Quảng Ninh Province ruled:

Dismissed the claim of Limited Liability Company D demanding Joint Stock Company C (now the Joint Stock Corporation I) to pay the remaining value of Contract No. 1141/HĐ-CNQN dated April 10^th, 2006, amounting to VND 303,000,000 and late payment interest of VND 157,260,000.

Additionally, the first-instance court also ruled on court fees and the litigants’ right to appeal according to the law.

On February 10^th, 2012, Limited Liability Company D filed an appeal against the first-instance judgment (the postal mark of the sending location was February 25^th, 2012).

In the Decision not accept late appeal No. 87/2012/KDTMPT-QĐ dated May 17^th, 2012, the Appellate Court of the Supreme People’s Court in Hà Nội decided not to accept the late appeal of Limited Liability Company D, on the grounds that the appeal was beyond the time limit prescribed in Article 245 of the Civil Procedure Code.

On June 7^th, 2012, Limited Liability Company D filed a petition for a cassation review of the above appellate decision.

In the Appeal Decision No. 29/2015/KN-KDTM, the Chief Justice of the Supreme People’s Court proposed that the Judicial Council of the Supreme People’s Court conduct a cassation trial to vacate the Decision not to accept late appeal No. 87/2012/KDTMPT-QĐ dated May 17^th, 2012, by the Appellate Court of the Supreme People’s Court in Hà Nội, and the First-instance Business and Commercial Judgment No. 01/2012/KDTM-ST dated January 18^th, 2012, by the People’s Court of Quảng Ninh Province; and to remand the case files to the People’s Court of Quảng Ninh Province for retrial in accordance with legal provisions.

At the cassation trial, the representative of the Supreme People’s Procuracy concurred with the appeal of the Chief Justice of the Supreme People’s Court.

COURT’S OPINION:

[1] On April 10^th, 2006, Company D leased two steel-hulled locomotives to Joint Stock Company C, facilitating vessel docking and unloading at 10-10 Port and Khe Dây Port, Quảng Ninh, effective from the signing date until December 31^st, 2006, under Economic Contract No. 1141/HĐ-CNQN. The contract did not include termination clauses.

However, on August 17^th, 2006, Joint Stock Company C issued Dispatch No. 2349/INDEVCO notifying the termination of the contract from August 20^th, 2006, citing “no longer needing the two locomotives” as the reason. The short notice period from the issuance of the notification to the contract’s termination caused damages to Company D due to the inability to secure an alternative contract immediately. The fault lies with Joint Stock Company C, which must bear responsibility for the damages caused to Company D. The actual damage to be considered is the rental fee for the vehicles for the remaining contract period.

[2] Before filing the lawsuit, Company D issued Dispatch No. 75CVCtyDG (undated, but marked 2006) requesting Joint Stock Company C to pay the rental fees for the two locomotives from August 21^st, 2006, to December 31^st, 2006, totaling VND 250,000,000. In Dispatch No. 2774 INDEVCO dated October 17^th, 2006, Joint Stock Company C agreed only to pay the salaries of the locomotive crew.

Disagreeing, on March 18^th, 2007, Limited Liability Company D filed a lawsuit demanding Joint Stock Company C to pay VND 403,000,000 (the rental fee for the two locomotives for the remaining contract period). Thus, this can be considered the actual damage for which the plaintiff is seeking compensation.

[3] When the first-instance court accepted the case for retrial, Company D demanded the remaining contract value from August 21^st, 2006, to December 31^st, 2008, totaling VND 403,000,000, plus interest. Since Joint Stock Company C had already paid VND 100,000,000, the outstanding amount was VND 303,000,000, plus late payment interest. The first-instance court dismissed this claim, arguing it was baseless, as it was for the unfulfilled remaining contract value. Additionally, the first-instance court noted that although Company D had the right to claim damages, it had not explicitly requested them, which was incorrect and affected Company D’s legitimate rights.

[4] According to the record of the first-instance trial on January 18^th, 2012, the representative of Company D was present and thus aware of the court’s decision. On February 10^th, 2012, Company D filed an appeal (postmarked February 25^th, 2012, and received on February 27^th, 2012), which was beyond the time limit prescribed in Article 245 of the Civil Procedure Code.

However, Company D argued that the late appeal was due to the representative not clearly hearing the presiding judge’s decision, which is unfounded according to Section 5, Part I of Resolution No. 05/2006/NQ-HĐTP dated August 4^th, 2006, by the Judicial Council of the Supreme People’s Court. Therefore, the appellate court’s rejection of the late appeal was correct.

[5] Although Decision not to accept the late appeal No. 87/2012/KDTMPT-QĐ dated May 17^th, 2012, by the Appellate Court of the Supreme People’s Court in Hà Nội was grounded, the first-instance judgment took legal effect based on this decision.

Hence, it is necessary to vacate both Decision not accept the late appeal No. 87/2012/KDTMPT-QĐ dated May 17^th, 2012, by the Appellate Court of the Supreme People’s Court in Hà Nội, and First-instance Business and Commercial Judgment No. 01/2012/KDTM-ST dated January 18^th, 2012, by the People’s Court of Quảng Ninh Province; and to remand the case files to the People’s Court of Quảng Ninh Province for retrial in accordance with legal provisions.

In light of the foregoing, pursuant to Clause 3, Article 297, Clauses 1 and 2, Article 299 of the Civil Procedure Code (as amended and supplemented by Law No. 65/2011/QH12 on March 29^th, 2011),

IT IS DECIDED:

1. To vacateDecisionnot to accept the late appeal No. 87/2012/KDTMPT-QĐ dated May 17^th, 2012, by the Appellate Court of the Supreme People’s Court in Hà Nội, and First-instance Business and Commercial Judgment No. 01/2012/KDTM-ST dated January 18^th, 2012, by the People’s Court of Quảng Ninh Province regarding a business and commercial case of “Property Lease Contract Dispute” in Quảng Ninh Province between the plaintiff, Limited Liability Company D, and the defendant, Joint Stock Company C.
2. To remand the case files to the People’s Court of Quảng Ninh Province for retrial in accordance with legal provisions.

CONTENT OF THE CASE LAW:

“[1] On April 10^th, 2006, Company D leased two steel-hulled locomotives to Joint Stock Company C, facilitating vessel docking and unloading at 10-10 Port and Khe Dây Port, Quảng Ninh, effective from the signing date until December 31^st, 2006, under Economic Contract No. 1141/HĐ-CNQN. The contract did not include termination clauses.

However, on August 17^th, 2006, Joint Stock Company C issued Dispatch No. 2349/INDEVCO notifying the termination of the contract from August 20^th, 2006, citing “no longer needing the two locomotives” as the reason. The short notice period from the issuance of the notification to the contract’s termination caused damages to Company D due to the inability to secure an alternative contract immediately. The fault lies with Joint Stock Company C, which must bear responsibility for the damages caused to Company D. The actual damage to be considered is the rental fee for the vehicles for the remaining contract period.”

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