An invalid contract will make performance of the signed contract impossible, then possibly giving rise to economic loss for businesses. Choose the legal services provided by Vietnamese attorneys to ensure your interests are best protected from the outset of the transactions.
The contract value or unit price expressed in foreign currency is becoming more common nowadays. Accordingly, whether payment obligation will be performed in foreign currency or Vietnamese dong and whether such provision makes the contract invalid or not are the matters that businesses should take into account. The article below summarizes a cassational review decision showing the viewpoint of the Council of Judges of the Supreme People’s Court (“CJ”) on these matters.
Brief contents of the case
On 20 May 2008, Company A entered into the contract for sale of dried cassava (“Contract”) to Company B. The unit price and value of the Contract were recorded in United State dollars and it did not stipulate the exchange rate of USD to VND upon payment. During the contract performance period, Company A issued 6 VAT invoices for 6 batches of goods delivered to Company B in May and June of 2008 for which the invoiced amount was recorded in Vietnamese dong (VND) based on the exchange rate on the date of invoice.
In June and July of 2008, Company B fully paid Company B all amounts for 6 invoices mentioned above plus more than VND 200 million for the different exchange rates at the time of payment. However, Company A claimed that the different amount paid by Company B was not sufficient and then started legal action against Company B to request payment of the different amount of such exchange rate.
Under the first-instance judgment No. 138/2008/DKTM-ST dated 16 September 2008, the Council of Adjudicators accepted Company A’s claims and required Company B to pay the difference. Company B then lodged an appeal against the first-instance judgment. Under the appellate judgment No. 94/2009/KDTM-PT dated 3 July 2009, the Council of Adjudicators decided that the appeal would not be accepted and the first-instance judgment remained unchanged.
On 31 May 2010, the Chairman of the Supreme People’s Procuracy (“COSPP”) released the Protest Decision No. 09/QD-KNGDT-V12 under which the first-instance judgment and the appellate judgment would be overturned pursuant to Article 29 of Decree 160/2006/ND-CP “In the Vietnamese territory, all transactions, payments, listings and advertisements of residents and non-residents must not be effected in foreign exchange, except for transactions with credit institutions and other organizations licensed to provide foreign exchange services”.
In such case, if the parties sough professional legal advice of Vietnamese attorneys from the outset, they might avoid wasting time and human resources for litigation.
When the dispute is referred to court for adjudication, no matter what the result is, the parties should calculate a reasonable estimate of the human resources and expenses incurred because lawsuits often drag on for years, thus significantly affecting their business activities. Consequently, the parties should consider other resolution methods such as negotiation or conciliation out of court or in court, etc. Professional legal service rendered by Vietnamese attorneys will absolutely assist the businesses in achieving the best negotiation results in the shortest time possible. The participation of Vietnamese attorneys in hearings also helps businesses in presenting their viewpoint and attacking the adversary’s counter-attacks.
Viewpoint of the CJ
Referring to the said judgment, at the cassational hearing held on 30 August 2012, the request of COSPP was set aside by the CJ and the appellate judgment remained unchanged. Pursuant to Point b, Section 3, Part I of Resolution No. 04/2003/NQ-HDTP: “If the economic contracts contains agreements on prices and payment in foreign currencies between the involved parties while either or both parties is or are not allowed to make payment in foreign currencies, but later the involved parties agree to make payment in VND or in the economic contracts, the involved parties agree to use foreign currencies as price-determining currency (in order to stabilize the value of the contracts) but make payment in VND, these economic contracts shall not be considered totally invalid”, the CJ assumed that Company B paying in VND means they accepted payments in VND, so the Contract was not considered to be null and void. In addition, the fact that Company B accepted an extra payment of VND 200 million as the difference means that Company B agreed with Company A’s claim, therefore Company A’s payment of the remaining difference seemed reasonable.
Transactions often involve certain potential legal risks that businesses may not foresee. With vast knowledge and long-standing experience in legal practice, Vietnamese attorneys can absolutely assist businesses in minimizing risks in their transactions and laying a solid foundation for their business activities.