Articles
Commercial Law inconsistent with other laws

12 - 10 - 2011
By Ho Phuong Luan*

The National Assembly's passage of the Commercial Law in 2005 was a significant event in promoting commerce and a healthy business climate. However, after nearly seven years in effect, the law has revealed some shortcomings, making it imperative that the law be amended in order to create the most favourable conditions for commercial development in Viet Nam.

For instance, the definitions of terms used in the law, e.g., "business entities", "commercial activities", and "commodities exchanges", are inadequate and unclear, and provisions on penalties, promotions and complaints are incoherent. Overall, the law contains many provisions inconsistent with other laws and regulations. 

The concept of "business entities" as defined in Article 6.1 of the Commercial Law is confused and appears to conflict with Article 7. Article 6.1 provides that "business entities shall be comprised of economic organisations which have been lawfully established ... and have business registration." However, an enterprise is already considered lawfully established only if it has been established in accordance with the procedures prescribed by law and have obtained business registration. Yet Article 6.1 also says that "business entities shall consist of economic organisations which conduct commercial activities independently and frequently." This condition is both unclear and unnecessary, as the law is otherwise silent as how an economic organisation may be judged to have satisfied such a requirement.

Regulations on commodities exchanges are also incomplete. In particular, the Commercial Law only defines some concepts related to commodities exchanges and the primary rights and obligations of parties engaged in the trading of goods via a commodities exchange. It does not provide for the organisation, management or operation of commodities exchanges and lacks regulations on the transactions and allocation of risks among parties trading on a commodities exchange. The law is not sufficiently comprehensive to support the development and operation of these markets for goods in Viet Nam. 

The Commercial Law also provides for remedies for breach of contract. Article 300 defines the remedy as one in which "the aggrieved party requires the defaulting party to pay a penalty for breach of contract if so agreed and recorded in the contract." In other words, the remedy is only available if it has been expressly agreed upon by the parties and recorded in the contract. In the case of a breach, neither party has the right to seek such a remedy from the other unless it is so stipulated in the contract.

Article 301 also limits the damages available, stating, "The penalty rate in respect of any one breach of a contractual obligation or the total penalty rate in respect of more than one breach shall be as agreed by the parties in the contract, but shall not exceed 8 per cent of the value of the contractual obligation which is the subject of the breach." 

This contradicts Article 422.2 of the Civil Code, which stipulates that "the penalty rate shall be as agreed by the parties" without limiting the maximum penalty. Lawmakers should revise the limit on damages of 8 per cent of the value of the contractual obligation to be consistent with the Civil Code. It is the nature of a contract that is an agreement between the parties and the parties therefore bear responsibility for setting an applicable penalty rate.

With respect to the right to claim interest in the case of late payment, under Article 306 of the Commercial Law, "the aggrieved party shall have the right to demand the defaulting party to pay interest on late payment amount at the average interest rate applicable to overdue debts in the market at the time of such payment for the delayed period." However, the Commercial Law offers no detailed guidance on how to determine the average interest rate applicable to overdue debts on the market, or which banks' rates would be used in that calculation. 

The Commercial Law should be revised to address these inconsistencies to encourage and promote the healthier and more stable development of the economy and of commercial relationships in Viet Nam.

(*) Please contact the author at luan.ho@indochinecounsel.com or our partners if you wish to have more information or specific advice for the topic of this article.

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