Precedent No. 21/2018/AL

Precedent No. 21/2018/AL on determining fault and damages in cases of unilateral termination of property lease contracts was adopted by the Council of Judges of the Supreme People's Court on October 17, 2018 and promulgated under Decision No. 269/QD-CA dated November 6, 2018 of the Chief Justice of the Supreme People's Court.

Source of case law:

Final judgment No. 08/2016/KDTM-GDT dated May 20, 2016 of the Council of Judges of the Supreme People's Court on the business and commercial case "Dispute over property lease contract" in Quang Ninh province between the plaintiff, Limited Liability Company D, and the defendant, Joint Stock Company C.

Location of case law:

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

Overview of case law:

- Case law:

The lease contract has a fixed term, without any agreement on termination conditions. The lessee terminates the contract before the term without the consent of the lessor.

The time from when the lessee gives written notice to when the contract is terminated is too short, resulting in the lessor being unable to have another contract to replace it within the remaining term of the lease.

The lessor requires the lessee to pay rent for the property for the remaining term of the contract.

- Legal solutions:

In this case, it must be determined that the lessee is at fault and must be responsible for the damage caused to the lessor. The actual damage to be considered is the amount of the vehicle rental for the remaining term of the contract.

Legal provisions relating to precedents:

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 of case law:

“Asset Lease Agreement”; “Termination Conditions”; “Early Termination”; “Damages”; “Actual Damages”; “Fault”.

CASE CONTENT

In the petition dated March 18, 2007 and subsequent statements, the representative of D Company stated:

On April 10, 2006, Company D (hereinafter referred to as Company D) signed Economic Contract No. 1141/HD-CNQN (on the rental of towing and pulling locomotives) with Joint Stock Company C. According to the contract, Company D leased to Joint Stock Company C 02 steel-hulled towing and pushing locomotives with a capacity of 135 CV, license plates No. NB2010 and NB2172; at the same time, received three towing and pushing vessels of Joint Stock Company C to enter and exit the port to pick up goods at Port 10-10 and Khe Day Port, Quang Ninh; the rental price (including VAT) is 50,000,000 VND/month for one locomotive; The total fuel cost for the locomotive is paid by Joint Stock Company C to Company D at the rate of 17 liters of diesel oil/1 hour of engine operation/1 engine with a capacity of 135 CV + 0.23 liters of lubricating oil/1 hour/1 engine with a capacity of 135 CV (fuel price will be calculated by both parties at the time of payment and additional expenses at both ends of the terminal, if any). Company D is responsible for arranging human resources and positions on the vehicle, including 01 captain, 01 chief engineer, 01 sailor; must pay all salaries to workers on the vehicle... The contract is effective from the date of signing until December 31, 2006.

On August 17, 2006, Joint Stock Company C issued Official Letter No. 2349 INDEVCO requesting Company D to terminate and liquidate Contract No. 1141/HD-CNQN dated April 10, 2006 before the deadline from August 20, 2006.

On August 18, 2006, Company D issued Official Letter No. 59.CVCty in response to Official Letter No. 2349 INDEVCO of Joint Stock Company C with the following content: requesting Joint Stock Company C to pay off the rental fee for 02 locomotives in the second quarter of 2006 (with the Minutes of reconciliation and settlement dated July 13, 2006) and in case Joint Stock Company C no longer needs to rent 02 locomotives from August 20, 2006, it is requested to pay off the rental fee for 02 locomotives for the remaining period of the contract from August 1, 2006 to December 31, 2006.

On September 4, 2006, Joint Stock Company C and Company D made a record of the settlement of the locomotive rental fee; accordingly, both parties determined that the total amount that Joint Stock Company C had to pay to Company D as of August 21, 2006 was VND 511,539,505.

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

On March 18, 2007, after many unsuccessful negotiations, Company D filed a lawsuit requesting the Court to force Joint Stock Company C to pay Company D the amount of VND 403,000,000 and interest due to late payment calculated from August 21, 2006 to December 31, 2006 according to the provisions of law. At the first instance trial, the plaintiff's representative withdrew the request to force the payment of interest due to late payment.

Representative of Joint Stock Company C presented:

The signing and implementation of Contract No. 1141/HD-CNQN dated April 10, 2006 with Company D as stated by the plaintiff. On August 17, 2006, due to no longer needing to use the 02 rented locomotives, Joint Stock Company C sent an official dispatch to Company D requesting to terminate the contract before the deadline. Joint Stock Company C paid Company D 511,539,505 VND. Joint Stock Company C did not agree to pay Company D 403,000,000 VND because it was not true to reality, 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 Commercial Judgment No. 01/2012/KDTM-ST dated January 18, 2012, the People's Court of Quang Ninh province decided:

Not accepting the request of Company D to demand that Joint Stock Company C (now Joint Stock Corporation Group I) must pay the remaining value of Contract No. 1141HD-CNQN dated April 10, 2006 , the amount of VND 303,000,000 and late payment interest of VND 157,260,000.

In addition, the Court of First Instance also decides on court fees and the parties' right to appeal according to the provisions of law.

On February 10, 2012, Company D filed an appeal against the first instance judgment (postmark of the place of sending is February 25, 2012).

In Decision No. 87/2012/KDTMPT-QD dated May 17, 2012, the Appeal Court of the Supreme People's Court in Hanoi decided not to accept the appeal of Company D, Ltd., on the grounds that the appeal was beyond the time limit prescribed in Article 245 of the Civil Procedure Code.

On June 7, 2012, Company D filed a request for review under the cassation procedure for the above appellate decision.

In the Appeal Decision No. 29/2015/KN-KDTM dated May 4, 2015, the Chief Justice of the Supreme People's Court requested the Council of Judges of the Supreme People's Court to conduct a review trial in accordance with the cassation procedure in the direction of annulling the Decision not to accept the overdue appeal No. 87/2012/KDTMPT-QD dated May 17, 2012 of the Supreme People's Court of Appeal in Hanoi and the First Instance Commercial and Business Judgment No. 01/2012/KDTM-ST dated January 18, 2012 of the People's Court of Quang Ninh province; handing over the case file to the People's Court of Quang Ninh province for retrial in accordance with the provisions of law.

At the appeal hearing, the representative of the Supreme People's Procuracy agreed with the appeal decision of the Chief Justice of the Supreme People's Court.

JUDGMENT OF THE COURT

[1] On April 10, 2006, Company D leased two steel-hulled locomotives to Joint Stock Company C and towed ships in and out of Port 10-10 and Khe Day Port, Quang Ninh, effective from the date of signing until December 31, 2006 under Economic Contract No. 1141/HD-CNQN. The contract did not include any agreement on the conditions for contract termination. However, on August 17, 2006, Joint Stock Company C issued Document No. 2349/INDEVCO notifying the termination of the contract from August 20, 2006 for the reason that "there was no need to lease two locomotives". The time from which Joint Stock Company C issued the notice to the termination of the contract was too short, causing damage to Company D because it could not immediately obtain another contract to replace it. The fault lies with Joint Stock Company C, so it must be responsible for the damage caused to Company D. The actual damage to be considered is the rental fee for the vehicle during the remaining period of the contract.

[2] Before filing the lawsuit, Company D issued Official Letter No. 75CVCtyDG (no date, only the year 2006) requesting Joint Stock Company C to pay for the rental of 02 locomotives from August 21, 2006 to December 31, 2006 with a total amount of 250,000,000 VND. In Official Letter No. 2774 INDEVCO dated October 17, 2006, Joint Stock Company C only agreed to support the payment of train drivers' salaries. Disagreeing, on March 18, 2007, Company D filed a lawsuit requesting Joint Stock Company C to pay the amount of 403,000,000 VND (the rental amount for 02 locomotives for the remaining term of the contract). Thus, this can be considered as the actual damage for which the plaintiff requests compensation.

[3] When the Court of First Instance accepted the case for retrial, Company D requested to claim the remaining value of the contract from August 21, 2006 to December 31, 2008, which was VND 403,000,000 and interest. Because Joint Stock Company C had paid VND 100,000,000, it still had to pay VND 303,000,000 and late interest. The Court of First Instance considered this request to be unfounded and therefore did not accept it because it considered this the remaining value of the contract that had not been performed. On the other hand, the Court of First Instance also determined that because Company D had the right to claim compensation for damages but Company D did not request it, it did not consider Company D's request to be incorrect, affecting Company D's legitimate rights.

[4] According to the minutes of the first instance trial on January 18, 2012, the representative of Company D was present at the trial and should have known the content and decision of the Court. On February 10, 2012, Company D filed an appeal (postmark of the place of sending was February 25, 2012, official dispatch was dated February 27, 2012), which was overdue according to the provisions of Article 245 of the Civil Procedure Code. However, Company D argued that the reason for the overdue appeal was that the Company representative did not clearly hear the presiding judge pronounce the judgment, which was unfounded according to the provisions of Section 5, Part I of Resolution No. 05/2006/NQ-HDTP dated August 4, 2006 of the Council of Judges of the Supreme People's Court. Therefore, the Court of Appeal was correct in not accepting the overdue appeal.

[5] Although the Decision not to accept the overdue appeal No. 87/2012/KDTMPT-QD dated May 17, 2012 of the Supreme People's Court of Appeal in Hanoi is well-founded, because the first-instance judgment has legal effect according to this decision, it is also necessary to annul both the Decision not to accept the overdue appeal No. 87/2012/KDTMPT-QD dated May 17, 2012 of the Supreme People's Court of Appeal in Hanoi and the first-instance commercial judgment No. 01/2012/KDTM-ST dated January 18, 2012 of the People's Court of Quang Ninh province; hand over the case file to the People's Court of Quang Ninh province for retrial in accordance with the provisions of law.

For the above reasons, pursuant to Clause 3, Article 297, Clauses 1 and 2, Article 299 of the Civil Procedure Code (amended and supplemented by Law No. 65/2011/QH12 dated March 29, 2011),

DECISION

1. Annul the Decision not to accept the overdue appeal No. 87/2012/KDTMPT-QD dated May 17, 2012 of the Court of Appeal of the Supreme People's Court in Hanoi and the First Instance Commercial and Business Judgment No. 01/2012/KDTM-ST dated January 18, 2012 of the People's Court of Quang Ninh province on the trial of the commercial and business case of a property lease contract dispute between the plaintiff, D Company Limited, and the defendant, C Joint Stock Company.
2. Transfer the case file to the People's Court of Quang Ninh province for retrial in accordance with the provisions of law.

CONTENT OF PRECEDENT

“[1] On April 10, 2006, Company D leased two steel-hulled locomotives to Joint Stock Company C and towed ships in and out of Port 10-10 and Khe Day Port, Quang Ninh, effective from the date of signing until December 31, 2006 under Economic Contract No. 1141/HD-CNQN. The contract did not include any agreement on the conditions for contract termination. However, on August 17, 2006, Joint Stock Company C issued Document No. 2349/INDEVCO notifying the termination of the contract from August 20, 2006 for the reason that “there was no need to lease two locomotives”. The time from which Joint Stock Company C issued the notice to the termination of the contract was too short, causing damage to Company D because it could not immediately obtain another contract to replace it. The fault lies with Joint Stock Company C, so it must be responsible for the damage caused to Company D. The actual damage to be considered is the rental fee for the vehicle during the remaining period of the contract.”

Major