Tiếng Việt⚖️ SUPREME COURT OVERTURNS CONSTRUCTION DISPUTE RULING – A CASE STUDY IN PENALTY & DEBT OFFSET PROCEDURE
🔍 CASE SUMMARY
In Decision No. 15/2016/KDTM-GĐT, the Supreme People’s Court of Vietnam reviewed a construction dispute between Company A (Vietnam) and Company B (China) over a subcontract for MEP works worth USD 5.1 million. The dispute arose from:
🔹 Additional works increasing the contract value by ~USD 600,000.
🔹Company A completed the project and obtained final acceptance.
🔹However, Company B only paid USD 5.2 million, leaving USD 549,978 unpaid.
🔹Company B claimed it had offset penalties for delays and quality issues, totaling USD 357,988, and recognized only USD 133,000 in remaining warranty-related debt.
Lower courts rejected Company A’s claim for the full amount, concluding that the penalty offsets were valid.
🧑⚖️ THE SUPREME COURT’S VIEWS
✅ On Liquidated Damages (5% Delay Penalty):
🔸 The Supreme Court found that the lower courts failed to verify whether the penalties were properly imposed according to contract terms, including:
– Timely notification of delay,
– Decisions by the Project Manager in accordance with Clause 3.5, and
– Presence of a valid claim or payment certificate.
🔸 Evidence showed Company A only accepted part of the penalty, not the full 5%.
✅ On Debt Offset Procedure:
🔸The court emphasized that offsetting debts requires:
– Mutual acknowledgment of amounts owed,
– Adherence to contractual procedures, and
– Transparent account reconciliation.
🔸No clear proof was presented that offsetting was agreed before or after reconciliation.
✅ On Judicial Oversight:
🔸The Supreme Court invoked Articles 337, 343, and 345 of the Civil Procedure Code (2015) to annul the judgments and return the case for retrial by the Hanoi People’s Court.
📌 KEY LEGAL LESSONS
✅ For Subcontractors:
Never assume silence means agreement. Always demand formal documentation for penalties and ensure timely dispute resolution clauses are followed.
✅ For Contractors & Employers:
Even with clear contract clauses, procedural compliance is critical when applying penalties or offsets. Unilateral deductions without due process are risky.
✅ For Legal Practitioners & Courts:
Do not treat internal reports or payment logs as definitive. Due diligence in contractual enforcement and dispute procedures is fundamental, especially in FIDIC construction contracts.
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📞Tel: +84 (0)28 710 58 222 – 6288 3798 – Hotline: +84 (0) 97 309 77 77
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