Research directions and related theoretical bases to discuss theoretical and practical issues and provide recommendations and solutions to improve commercial law regulations in general, the law on TNBTTH due to violations of commercial contracts in particular and improve the effectiveness of law enforcement on this institution.
Chapter 1
THEORETICAL ISSUES RELATED TO LIABILITY FOR COMPENSATION FOR DAMAGES CAUSED BY BREACH OF COMMERCIAL CONTRACTS AND LAW ON LIABILITY FOR COMPENSATION FOR DAMAGES CAUSED BY BREACH OF COMMERCIAL CONTRACTS
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Theoretical Research Method: Collecting Documents Related to the Thesis, Analyzing, Synthesizing to Build a Theoretical Framework
1.1. Theoretical issues related to liability for damages due to breach of commercial contracts
In legal science, the issue of compensation for non-compliance with commercial contracts is researched by many scholars in many different countries. Research on the laws of some countries under the common law system and some countries under the civil law system, including Vietnam, shows that the legislative views of countries under these two legal systems have clear differences when designing and building regulations on compensation for non-compliance with commercial contracts. This difference is reflected in many different aspects, including basic differences such as:
(i) Is the compensation for damages due to breach of a commercial contract a punitive or compensatory regime? (ii) Is the compensation for damages due to breach of a commercial contract based on fault or not? (iii) Are the damages compensated for breach of a commercial contract only material damages or include mental damages? These differences lead to State intervention in the agreement of the parties in the contract at different levels. In addition, one of the factors leading to this difference is the difference in the choice of theoretical foundation for the design and construction of regulations on compensation for damages due to breach of a commercial contract. These differences, to a greater or lesser extent, all have an impact on the implementation of the law in practice, especially when the parties to the contract are citizens or legal entities of different countries participating in the conclusion and implementation of international commercial contracts.
In Vietnam, legal science also records many different views on the contents related to TNBTTH due to violations of commercial contracts. These differences lead to a lack of unity in the perception and application of the law in practice. This first of all partly affects the rights and interests of the subjects in the dispute relationship, then affects the progress and quality of dispute resolution, and even leads to a decline in the reliability of the law in social life. To contribute to overcoming this problem, it is necessary to solve the theoretical problem of TNBTTH due to violations of commercial contracts.
1.1.1. Concept of liability for damages due to breach of commercial contract
1.1.1.1. Concept of commercial contract
In the legal systems of countries around the world, the contract system always holds an important position in the private legal system in particular and in the entire legal system in general. Originating from meeting human needs, the group of legal norms on contracts was formed earlier than other groups of legal norms. To meet their own needs, people must communicate, trade, and exchange goods with each other, thereby forming agreements and consensus between the parties - the fundamental factor for forming contractual relationships. However, if based only on the consensus of will between the parties, it is not enough, but there must be a strong enough mechanism to ensure that the parties properly exercise their rights and obligations.
There are many scientific works that have discussed the concept of contract. According to the Legal Dictionary of the Institute of Legal Science - Ministry of Justice: A contract is an agreement between two or more parties on establishing, changing or terminating rights and obligations. A contract is one of the first concepts of law, formed right from when people made the first transactions. The term contract is also used to refer to legal relationships arising from contracts and to refer to documents containing the content of the contract. A contract can be performed as soon as the parties reach an agreement. For simple contracts such as gestures and words, the form of contract expression is the form of contract expression. Along with the increase in the need for exchange, especially since the formation of merchants, the performance of contracts gradually separated from the time the parties reached an agreement, and contracts in written form appeared. To combat fraud and deceit in transactions, the form of notarized and certified documents was gradually formed. The contract system achieved perfection in both content and form in the early period of bourgeois society. Along with the development of society, the basic principles of contracts were gradually limited to protect the common interests of the community .
In Vietnam, the concept of contract also appeared very early and has been inherited through different stages of development. Up to now, Vietnam has issued three Civil Codes in 1995, 2005 and most recently in 2015, but the concept
39 Institute of Legal Science - Ministry of Justice (2006), Legal Dictionary , Justice Publishing House - Encyclopedia Dictionary Publishing House, Hanoi, pp.388-389.
The concept of contract in these Codes 40 does not change the nature of the concept, but if anything, there is only a small change in the connotation of the concept in the 2015 Civil Code when this Code removed the two words "civil". It can be said that the omission of the two words "civil" from the concept of contract in the 2015 Civil Code does not change the nature of the contract, but only aims to affirm that the Civil Code is the original law, with a wide scope of regulation, not only contractual relationships in the purely civil field, but also including contracts formed in many other fields such as trade, investment, land, labor, finance, banking... Civil rights and obligations arising from contracts are essentially rights and obligations formed in many different types of contracts such as property sale and purchase contracts, property loan contracts, commercial contracts, investment contracts, labor contracts, etc. In addition to the general concept of contract in the Civil Code, depending on each specific field, the concept of contract is recorded in specialized legal documents corresponding to the field and scope of regulation, for example: Labor contracts are regulated in the Labor Code, construction contracts are regulated in the Construction Law, commercial contracts are regulated in the Commercial Law. In the Land Law, contracts for the transfer and lease of land use rights are regulated in the Land Law, credit contracts are regulated in legal documents on credit and banking...
In the field of business and commerce, contracts can be called by different names such as: commercial contracts, business contracts or economic contracts... However, the concept of commercial contracts is not recorded in any legal documents. Through research on legal documents in different periods, it can be seen that only the Economic Contract Ordinance of 1989 specifically records the concept of economic contracts, according to which, economic contracts are defined as "a written agreement, transaction documents between the signing parties on the implementation of production work, exchange of goods, services, research, application of scientific and technical research and other agreements with business purposes with clear provisions on the rights and obligations of each party to build and implement their plans" 41 . In this concept, the subjects of economic contracts also have basic similarities with the subjects of commercial activities recorded in the 2005 LTM.
From the results of analyzing the concept of contracts in general and contracts in commercial activities in particular, the author allows to give the concept of commercial contracts as follows:
“A contract is an agreement between the parties to establish, change, or terminate a contract.
40 See: Article 385 of the 2015 Civil Code stipulates: "A contract is an agreement between the parties on establishing, changing or terminating civil rights and obligations".
41 See: Article 1 of the 1989 Economic Contract Ordinance.
terminate the rights and obligations of the parties in commercial activities, including the purchase and sale of goods, provision of services, investment, trade promotion and other commercial activities for profit purposes" 42 .
Commercial activities are specific activities. They are activities aimed at generating profits, including buying and selling goods, providing services, investing, promoting trade and other activities aimed at generating profits . 43 Therefore, commercial contracts also have basic characteristics compared to contracts in general mentioned in the Civil Code such as: the subject of concluding a commercial contract when at least one party to the contract is a trader; the purpose of establishing a contract when at least one party has the purpose of making a profit from establishing a contract; the nature of the contract when a commercial contract is always a contract with compensation. Although these characteristics are not factors reflecting the nature of contracts in general, they partly reflect the nature of commercial contracts. The reason is that, in essence, talking about a contract means talking about the element of agreement, unanimity of will between the parties aiming at establishing, changing, terminating the rights and obligations of one or more parties. Therefore, in the end, a commercial contract is just a specific form of a general contract that the legislator has mentioned in the 2015 Civil Code. Therefore, the establishment, implementation and termination of a commercial contract must also comply with the basic principles of civil law stipulated in Article 3 of the 2015 Civil Code, in which the characteristic principle reflects the nature of contract law in general and the law of commercial contracts in particular, which is the principle of agreement on the basis of free will and equality.
1.1.1.2. Concept of breach of commercial contract
From a theoretical perspective, when a contract is established in the spirit of voluntariness, equality, goodwill, honesty, legality, and not contrary to social ethics, it will be considered a "law" for the contracting parties and therefore a legal basis for determining the level of compliance with the contract of each contracting party, and at the same time a legal basis for determining violations and resolving disputes arising from contracts signed between the parties . 44 From a legal perspective, any commitment or agreement that does not violate the prohibitions of the law, is not contrary to social ethics, and meets the conditions for the validity of a civil transaction will be binding on the contracting parties and must be
42 See: Dinh Van Cuong (2016), Compensation for damages due to breach of commercial contracts under current commercial law , Master's thesis in law, Academy of Social Sciences, Hanoi, p.8.
43 See: Clause 1, Article 3 of the 2005 Commercial Law.
44 See: Hanoi Law University (2017), General theory textbook on State and law , Justice Publishing House, Hanoi, p.294 .
respected by other subjects 45 . Accordingly, when a commercial contract comes into effect, it will be considered a binding law for the parties, forcing the parties to comply, forcing other individuals and organizations to respect. In the event that the terms of the contract are not performed or are not performed properly by the parties for any reason, a problem called "breach of contract" may arise, except in the case of exemption from liability and the violating subject will have to bear the adverse consequences of being subject to sanctions according to the provisions of the contract or according to the provisions of the law. So, how should we understand "breach of commercial contract"?
In legal science, breach of contract in general and breach of commercial contracts in particular are understood as illegal acts, committed by one or more parties to the contract through non-performance or improper performance of the terms committed in the contract and therefore subject to sanctions according to the provisions of the contract or according to the provisions of the law. With this definition, breach of contract in general and breach of commercial contracts in particular can be identified through some basic characteristic signs such as: (i) Being an illegal act (not recognized by law) whose core content is to violate the terms agreed upon in the contract; (ii) The subject of breach of contract can only be the parties to the contract; (iii) The subject of the breach of contract is the terms agreed upon in the contract (these terms reflect the rights and obligations of the contracting parties) or are prescribed by law even though not stipulated in the contract (for example, the mandatory duty to guarantee, maintain, and service goods and products according to the Law on Consumer Protection 2011, the Housing Law 2014, etc.); (iv) The breach of contract is committed during the period the contract is in effect; (v) It may cause adverse consequences for the violated party; (vi) The subject of the breach of contract must be subject to sanctions according to the provisions of the contract or according to the provisions of the law.
In positive law, the concept of breach of contract has been introduced by the legislator in Clause 12, Article 3 of the 2005 Law on Contracts, according to which: “Breach of contract is when a party fails to perform, does not fully perform or does not properly perform its obligations according to the agreement between the parties or according to the provisions of the Law on Contracts” . In addition, in Clause 13, Article 3 of the 2005 Law on Contracts, the legislator also introduced another definition, called “fundamental breach”, according to which: “Fundamental breach is a breach of contract by one party that causes damage to the other party to the extent that the other party cannot achieve the purpose of the contract”.
45 See: Clause 2, Article 3 of the 2015 Civil Code.
"contractual conclusion" . It can be seen that the definitions of contract breach have certain differences in approach between legal scientists and lawmakers. The difference lies in the fact that, while lawmakers consider contract breach as the act of not performing or not properly performing contractual obligations, legal scientists believe that contract breach is essentially an illegal act, performed by the parties to the contract by not performing or not properly performing the terms committed in the contract (not just the act of not performing obligations arising from the contract). Obviously, the views of lawmakers show a narrow approach to the concept of breach of contract (only a breach of contractual obligations), while the views of legal researchers show a broad approach to the concept of breach of contract (an act of violating the terms committed in the contract, meaning that this act may violate the rights as well as the obligations arising from the contract).
1.1.1.3. Concept of liability for damages due to breach of commercial contract
To ensure compliance with commitments and agreements that have come into effect, in addition to stipulating the principles of agreement, honesty, and goodwill cooperation in the process of concluding contracts, lawmakers also recognize the principle of civil liability for entities that violate contracts, according to which: "Individuals and legal entities must take responsibility for not performing or not properly performing civil obligations" 46 . According to this principle, the act of not performing or not properly performing obligations arising from a commercial contract will be considered a breach of contract. The breach of commitment by one party will cause the other party to suffer unnecessary consequences. Therefore, the act of breach of contract will cause the parties to be responsible for that breach.
According to positive law, similar to TNBTTH due to breach of contract in general, lawmakers have introduced the concept of TNBTTH in the 2005 LTM, according to which: "TNBTTH is the act of the breaching party compensating for losses caused by the breach of contract to the injured party" 47 . However, with this recognition, it is not possible to help us identify or determine the basic characteristics of TNBTTH due to breach of contract. It seems that lawmakers have only stopped at a general interpretation of the phrase "compensation for damages" without pointing out the nature of
46 See: Clause 5, Article 3 of the 2015 Civil Code.
47 See: Clause 1, Article 302 of the 2005 Commercial Law.
What is BTTH, is it a legal liability and what are the principles for applying compensation sanctions?
In legal science, there are many different views surrounding the connotation of the concept of "TNBTTH due to violation of the commercial contract". However, these views are in agreement that, like other breaches of contract, the breach of the commercial contract by the parties to the contract is the direct cause leading to the legal consequences that the subject committing the breach will be subject to one or more different types of sanctions such as: forced performance of the contract, cancellation of the contract, penalty for breach, compensation for damages, temporary suspension of contract performance, suspension of contract performance and other forms of sanctions agreed by the parties that are not contrary to the basic principles of Vietnamese law, international treaties to which Vietnam is a member and international commercial practices. Among these types of legal liability, TNBTTH due to violation of the commercial contract is the most commonly applied sanction when damage occurs to the injured party. The application of this type of liability can be for different purposes such as compensation, restoration of material benefits that the injured party must bear, at the same time aiming to prevent violations, educate legal awareness and strengthen contract discipline in business activities... Therefore, this can be considered the most basic and important type of sanction among the sanctions recognized by the LTM, because it can be applied to most acts of contract violation and is highly practical. However, it is not difficult to see that the provisions on commercial contracts in general, and the TNBTTH due to violations of commercial contracts in particular, are contents that always receive special attention and heated debate among scholars and legal researchers. Therefore, in fact, many researchers have developed the concept of TNBTTH due to violations of commercial contracts with different approaches and uses of terms. At a general level, it can be seen that there are two different approaches to the concept of compensation for breach of contract in general and commercial contracts in particular as follows:
(i) Interpretive approach (non-identifying): According to this approach, some researchers do not directly affirm that BTTH is a type of sanction, a type of legal responsibility or a measure to remedy the consequences of a breach of contract, but simply interpret the term BTTH in the traditional sense as the consequences of a breach. Author Quach Thuy Quynh affirms: “Compensation for breach of contract in business is when a party to a contract must compensate for actual losses due to non-performance or improper or incomplete performance.