CASE LAW NO. 44/2021/AL On the statute of limitations for a counterclaim (Please note that this image is not related to the specific case being discussed).

CASE LAW NO. 44/2021/AL

On the statute of limitations for a counterclaim

Approved by the Judicial Council of the Supreme People’s Court on November 25^th, 2021, and published under Decision No. 594/QĐ-CA dated December 31^st, 2021, by the Chief Justice of the Supreme People’s Court.

Source of the Case Law:

The Cassation Decision No. 10/2021/KDTM-GĐT dated September 14^th, 2021, of the High People’s Court in Hà Nội regarding the business and commercial case of “Design Consultancy Contract Dispute” in Hà Nội, between the plaintiff, Joint Stock Company H, and the defendant, Limited Liability Design and Construction Company P.

Location of the Case Law’s Content:

Paragraph 2 of the “Court’s Opinion” section.

Summary of the Case Law:

– Case Background:

In the context of a civil case, the defendant initiated a counterclaim against the plaintiff, while an interested party separately asserted an independent claim.

– Legal Resolution:

In adjudicating this matter, the Court is obligated to treat the defendant’s counterclaim akin to an independent lawsuit, thereby subjecting it to the applicable legal provisions governing statute of limitations for filing lawsuits.

Relevant Legal Provisions:

Clause 4, Article 60; Article 159; Article 176; Article 178 of the 2004 Civil Procedure Code (corresponding to Clause 4, Article 72; Article 184; Article 200; Article 202 of the 2015 Civil Procedure Code); point e, Clause 1, Article 217 of the 2015 Civil Procedure Code.

Keywords:

“Counterclaim”; “Statute of limitations for filing lawsuits”.

CASE DETAILS

According to the complaint dated June 24^th, 2010, and the case proceedings, the plaintiff, Joint Stock Company H, represented by its legal representative, stated the following:

On January 29^th, 2008, Joint Stock Company H and Limited Liability Design and Construction Company P signed a Design Consultancy Contract No. 01-2008/PLC-HDC, under which Limited Liability Design and Construction Company P (the Consultant) was responsible for designing the entire “HD – Hotel 4-star Commercial and Hospitality Center” Project on a land area of 8,971m² at D7, Ward X, District T, Hà Nội, with Joint Stock Company H as the Investor. The total contract value was USD 1,754,550 (excluding value-added tax), allocated over three implementation stages: Stage 1 – Construction design; Stage 2 – Interior and landscape design; Stage 3 – Author supervision.

In Stage 1 (Construction design), the design fee was USD 1,191,822 (denoted as A); the author supervision fee was USD 62,728 (denoted as AA), divided into 12 installments (from “First Payment” to “Twelfth Payment”), as follows:

– First Payment: 25% x A immediately after signing the contract and after the Consultant submitted the Bank Guarantee Certificate, Insurance Contracts to the Investor.

– Second Payment: 5% x A after the Consultant submitted the Site Layout Plan and Architectural Plan Dossier to the Investor and receiving approval from the Investor.

– Third Payment: 10% x A after submitting the Site Layout Plan and Architectural Plan Dossier to the Hà Nội Department of Planning and Architecture or other equivalent competent authorities and having the dossier reviewed and approved.

During the implementation of Stage 1 (Construction design), Limited Liability Design and Construction Company P delivered the Insurance Contracts, Bank Guarantee Certificate, and Site Layout Plan and Architectural Plan Dossier of the Project to Joint Stock Company H.

Joint Stock Company H made two payments to Limited Liability Design and Construction Company P: First Payment (25% x A and value-added tax, according to VAT Invoice No. 0081905 dated February 27^th, 2008); Second Payment (5% x A and value-added tax, according to VAT Invoice No. 0081909 dated August 18^th, 2008).

The total of these payments amounted to USD 396,751.75, equivalent to VND 6,374,689,675 based on the exchange rate at the time of payment. Subsequently, due to disagreements over adjusting the contract value for the revised project scope, Joint Stock Company H unilaterally terminated the contract and disputed the payment with the Consultant.

Joint Stock Company H argued that the First Payment included an overpayment relative to the actual work completed by the Consultant. Consequently, Joint Stock Company H proposed to reimburse the Consultant an amount corresponding to 8% of the construction design fee (8% x A) for both the First and Second Payments. Additionally, Joint Stock Company H acknowledged liability for a penalty equivalent to 1% of the contract value for terminating the contract unilaterally.

Therefore, Joint Stock Company H initiated legal proceedings, seeking a court order compelling the Consultant to refund the excess payment of USD 278,841.8, calculated after adjusting the advance payment against the agreed sum.

The defendant, Limited Liability Design and Construction Company P, represented by its legal representative, stated the following:

Limited Liability Design and Construction Company P did not accept the plaintiff’s claim for reimbursement, arguing that the amount paid by Joint Stock Company H was in accordance with the agreed-upon contract schedule, not an advance payment. Additionally, Limited Liability Design and Construction Company P filed a counterclaim, requesting that Joint Stock Company H, besides paying the agreed penalty amount of 1% of the contract value for unilaterally terminating the contract, fulfill the obligation to make the Third Payment (equivalent to 10% of the design fee).

This demand stems from Limited Liability Design and Construction Company P having completed the technical support necessary for the approval of the project design dossier. The failure to submit the design dossier for approval, according to Limited Liability Design and Construction Company P, rests solely with Joint Stock Company H.

In the First-instance Business and Commercial Judgment No. 01/2011/KDTM-ST dated June 20^th, 2011, the People’s Court of Hoàn Kiếm District, Hà Nội, decided:

To accept the lawsuit of Joint Stock Company H against Limited Liability Design and Construction Company P. Limited Liability Design and Construction Company P was ordered to reimburse Joint Stock Company H the advance payment for Contract No. 01-2008/PLC-HDC signed on January 29^th, 2008, amounting to USD 272,571.41, equivalent to VND 5,642,228,187. The counterclaim brought by Limited Liability Design and Construction Company P against Joint Stock Company H was dismissed.

On July 1^st, 2011, Limited Liability Design and Construction Company P appealed the entire First-instance Judgment.

In the Appellate Business and Commercial Judgment No. 27/2011/KDTM-PT dated September 21^st, 2011, the People’s Court of Hà Nội decided:

To dismiss the appeal of Limited Liability Design and Construction Company P and uphold the First-instance Judgment.

After the appellate trial, Limited Liability Design and Construction Company P filed a request for cassation review of the Appellate Judgment.

In the Cassation Decision No. 60/2014/KN-KDTM dated September 15^th, 2014, the Chief Justice of the Supreme People’s Court protested against the Appellate Business and Commercial Judgment No. 27/2011/KDTM-PT dated September 21^st, 2011, of the People’s Court of Hà Nội, and requested the Economic Court of the Supreme People’s Court to conduct a cassation review in order to vacate the aforementioned Appellate Judgment and the First-instance Business and Commercial Judgment No. 01/2011/KDTM-ST dated June 20^th, 2011, of the People’s Court of Hoàn Kiếm District, Hà Nội, and remand the case to the People’s Court of Hoàn Kiếm District, Hà Nội, for first-instance retrial according to the law.

In the Cassation Decision No. 18/2015/KDTM-GĐT dated March 26^th, 2015, the Economic Court of the Supreme People’s Court decided: To vacate the Appellate Business and Commercial Judgment No. 27/2011/KDTM-PT dated September 21^st, 2011, of the People’s Court of Hà Nội, and the First-instance Business and Commercial Judgment No. 01/2011/KDTM-ST dated June 20^th, 2011, of the People’s Court of Hoàn Kiếm District, Hà Nội; remand the case file to the People’s Court of Hoàn Kiếm District, Hà Nội, for first-instance retrial according to the law.

In the First-instance Business and Commercial Judgment No. 32/2019/KDTM-ST dated November 25^th, 2019, the People’s Court of Hoàn Kiếm District, Hà Nội, decided:

1. To dismiss the lawsuit of Joint Stock Company H against Limited Liability Design and Construction Company P regarding the claim that Limited Liability Design and Construction Company P must reimburse Joint Stock Company H VND 6,308,478,665.
2. To partially accept the counterclaim of Limited Liability Design and Construction Company P, ordering Joint Stock Company H to pay Limited Liability Design and Construction Company P(as of November 20^th, 2019) the following amounts:

– Third Payment (according to Design Consultancy Contract No. 01/2008/PLC-HDC dated January 29^th, 2008): VND 1,599,420,000.

– Compensation (according to Article 2.8.5b, general conditions of Design Consultancy Contract No. 01/2008/PLC-HDC dated January 29^th, 2008): VND 406,704,690.

– Interest on the amount of VND 1,599,420,000: VND 2,080,735,870.

Total: VND 4,086,860,560.

3. In addition to the amount Joint Stock Company H must pay to Limited Liability Design and Construction Company Pas stated above, Joint Stock Company H must also pay Limited Liability Design and Construction Company P interest on the amount of VND 1,599,420,000 from November 21^st, 2019, until full payment, at the late payment interest rate agreed upon by the parties, which is 12% per annum.
4. For the compensation amount (according to Article 2.8.5b, general conditions of Design Consultancy Contract No. 01/2008/PLC-HDC dated January 29, 2008) of VND 406,704,690, from the date Limited Liability Design and Construction Company P files for enforcement until Joint Stock Company H completes payment, Joint Stock Company H must also pay interest on the outstanding amount according to the interest rate stipulated in Articles 357 and 468 of the 2015 Civil Code.

Additionally, the first-instance court decided on the court fees and the right to appeal of the litigants.

On December 9^th, 2019, both Limited Liability Design and Construction Company P and Joint Stock Company H filed appeals against the above-mentioned First-instance Judgment.

In the Appellate Business and Commercial Judgment No. 82/2020/KDTM-PT dated June 15^th + 19^th, 2020, the People’s Court of Hà Nội decided:

To amend the First-instance Business and Commercial Judgment No. 32/2019/KDTM-ST dated November 25^th, 2019, of the People’s Court of Hoàn Kiếm District regarding the late payment interest obligation.

1. To dismiss the lawsuit of Joint Stock Company H against Limited Liability Design and Construction Company P regarding the claim that Limited Liability Design and Construction Company Pmust reimburse VND 6,308,478,665.
2. To partially accept the counterclaim of Limited Liability Design and Construction Company P. Joint Stock Company H must pay Limited Liability Design and Construction Company Pthe following amounts:

– VND 1,599,420,000 (Third Payment of the design consultancy contract)

– VND 2,080,735,870 (late payment interest)

– VND 406,704,690 (penalty for unilateral termination of the contract).

Total: VND 4,086,860,560.

On November 2^nd, 2020, Joint Stock Company H submitted a petition for a cassation review of the aforementioned Appellate Civil Judgment.

In the Appeal Decision No. 02/KNGĐT-VC1-KDTM dated March 2^nd, 2021, the Chief Prosecutor of the High People’s Procuracy in Hà Nội appealed the Appellate Business and Commercial Judgment No. 82/2020/KDTM-PT dated June 15^th + 19^th, 2020, of the People’s Court of Hà Nội, and requested the Judicial Committee of the High People’s Court in Hà Nội to vacate the said Appellate Business and Commercial Judgment and the First-instance Business and Commercial Judgment No. 32/2019/KDTM-ST dated November 25^th, 2019, of the People’s Court of Hoàn Kiếm District, Hà Nội, and remand the case to the People’s Court of Hoàn Kiếm District, Hà Nội, for first-instance retrial according to the law.

At the cassation hearing, the representative of the High People’s Procuracy in Hà Nội requested the Judicial Committee of the High People’s Court in Hà Nội to accept the appeal of the Chief Prosecutor of the High People’s Procuracy in Hà Nội.

COURT’S OPINION:

[1] Regarding procedural matters: According to the Power of Attorney dated October 1^st, 2015, and the Power of Attorney dated March 16^th, 2016, Mr. S, the legal representative of Limited Liability Design and Construction Company P, authorized Mr. D and Mr. N to act as representatives in the proceedings on behalf of the defendant.

However, verification conducted by the Immigration Management Department, as per Dispatch No. 9089/A72-P4 dated August 10^th, 2015, Dispatch No. 14733/A72-P4 dated December 11^th, 2015, and Dispatch No. 9443/QLXNC-P4 dated June 12^th, 2019, confirmed that “Mr. S departed Vietnam on October 18^th, 2014, with no record of entry or exit from Vietnam between August 1^st, 2015, and June 7^th, 2019″. Therefore, it is established that Mr. S was not present in Vietnam at the time he signed the Power of Attorneys authorizing Mr. D and Mr. N.

If these Power of Attorneys were executed and sent from abroad, they must comply with Article 478 of the Civil Procedure Code, requiring notarization, certification, and consular legalization to be considered legally valid. Moreover, the determination of Mr. S’s presence in Vietnam or abroad when issuing these Power of Attorneys is crucial for assessing the court’s jurisdiction over the case.

Despite the plaintiff’s request for verification of the authenticity and legality of these Power of Attorneys, both the first-instance and appellate courts failed to address these concerns and accepted the validity and content of the Power of Attorneys, constituting a significant procedural violation.

[2] Regarding the counterclaim: The appellate court’s assertion in Judgment No. 82/2020/KDTM-PT, on page 15, that the counterclaim is not subject to the statute of limitations is erroneous. According to the provisions stipulated in both the 2004 Civil Procedure Code and the 2015 Civil Procedure Code, a counterclaim constitutes an independent claim separate from the plaintiff’s claim, which may be adjudicated in a separate lawsuit; or within the same proceedings to ensure efficient and accurate resolution. Importantly, a counterclaim is tantamount to a lawsuit and must adhere to the statute of limitations for filing.

Therefore, in cases where a counterclaim is raised and a party within the case invokes the application of the statute of limitations, it is incumbent upon both the first-instance and appellate courts to ascertain whether the counterclaim remains within the permissible statute of limitations period. This approach is essential for upholding legal provisions and ensuring procedural compliance in the resolution of counterclaims.

[3] Regarding the merits: According to the Design Consultancy Contract between the parties, the condition precedent for the Third Payment stipulates: “After submitting the Site Layout Plan and Architectural Plan Dossier to the Hà Nội Department of Planning and Architecture or equivalent competent authorities and upon their approval.”

The case files reveal that upon receiving Dispatch No. 99-2008/CV-HĐ/QLDA dated September 3^rd, 2008, from Joint Stock Company H, notifying the cessation of design drawing printing due to project scale changes (increasing the number of floors), Limited Liability Design and Construction Company P concurred with Joint Stock Company H’s notification.

Consequently, on September 29^th, 2008, Limited Liability Design and Construction Company P issued Dispatch No. MLS/HD/29/9/08 regarding “Design fee quotation for the luxury hotel project H” to adjust the price for the new design scheme. The inability to agree on the contract value adjustment led Joint Stock Company H to unilaterally terminate the contract prematurely.

The parties are now in dispute over the consequences of this unilateral termination. Joint Stock Company H claims it has overpaid Limited Liability Design and Construction Company P an amount of USD 278,841.8 (after deducting the advanced payment) and seeks to recover this amount through litigation. Limited Liability Design and Construction Company P disputes Joint Stock Company H’s claims and counterclaims, demanding payment of the Third Payment under the contract and the penalty for breach of contract.

It is noted that Joint Stock Company H unilaterally terminated the contract (pursuant to Article g of Clause 2.8.1 Part II). Accordingly, Article a of Clause 2.8.5 Part II of the Design Consultancy Contract stipulates: “When terminating the contract under Clauses 2.8.1 or 2.8.2 of the General Conditions of the Contract, the parties shall agree on the payment for the Consultant’s income under Clause 6 of the General Conditions of the Contract based on the services rendered meeting the requirements and approved by the Investor before the effective termination date of the contract.

Additionally, the Investor shall not be liable to pay any other amounts to the Consultant, except as provided in Clause 2.8.1.g, where the Investor shall compensate the Consultant an amount equivalent to 1% of the contract value.”

Therefore, the determination of Joint Stock Company H’s payment obligations must be based on the actual workload performed by Limited Liability Design and Construction Company P. The first-instance and appellate courts failed to require Limited Liability Design and Construction Company P to submit documents and evidence proving the actual workload performed post-Second Payment of Phase 1, as stipulated in Clause 6.4 of the Design Consultancy Contract.

Furthermore, the courts incorrectly accepted part of the defendant’s counterclaim, obligating Joint Stock Company H to pay Limited Liability Design and Construction Company P half of the amount of the Third Payment under the contract (equivalent to 5% of the construction design fee), which adversely affects the plaintiff’s rights.

[4] Therefore, the appeal of the Chief Prosecutor of the High People’s Procuracy in Hà Nội is well-founded, so it is necessary to vacate the entire Appellate Judgment and the First-instance Judgment for first-instance retrial.

In light of the foregoing,

IT IS DECIDED:

Pursuant to Article 337 Clause 1 Point a, Article 343 Clause 3, and Article 345 of the Civil Procedure Code 2015;

1. To accept the Appeal Decision No. 02/QĐKNGĐT-VC1-KDTM dated March 2^nd, 2021 of the Chief Prosecutor of the High People’s Procuracy in Hà Nội.
2. To vacate the entire Appellate Business and Commercial Judgment No. 82/2020/KDTM-PT dated June 15^th + 19^th, 2020 of the People’s Court of Hà Nội and the entire First-instance Business and Commercial Judgment No. 32/2019/KDTM-ST dated November 25^th, 2019 of the People’s Court of Hoàn Kiếm District, Hà Nội, regarding the case “Design Consultancy Contract Dispute” between the plaintiff Joint Stock Company H and the defendant Limited Liability Design and Construction Company P.
3. Remand the case to the People’s Court of Hoàn Kiếm District, Hà Nội for first-instance retrial in accordance with the legal procedures.

CONTENT OF THE CASE LAW:

“[2] Regarding the counterclaim: The appellate court’s assertion in Judgment No. 82/2020/KDTM-PT, on page 15, that the counterclaim is not subject to the statute of limitations is erroneous. According to the provisions stipulated in both the 2004 Civil Procedure Code and the 2015 Civil Procedure Code, a counterclaim constitutes an independent claim separate from the plaintiff’s claim, which may be adjudicated in a separate lawsuit; or within the same proceedings to ensure efficient and accurate resolution. Importantly, a counterclaim is tantamount to a lawsuit and must adhere to the statute of limitations for filing.

Therefore, in cases where a counterclaim is raised and a party within the case invokes the application of the statute of limitations, it is incumbent upon both the first-instance and appellate courts to ascertain whether the counterclaim remains within the permissible statute of limitations period. This approach is essential for upholding legal provisions and ensuring procedural compliance in the resolution of counterclaims.”

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