The most concerned issue in commercial lawsuits over late performance of payment obligation for goods, services, return of deposit, advance, etc. is how the Court will determine late payment interest. In practice, the late payment interest is decided based on the first-instance hearing date.

Before the First-instance Hearing

The interest is pursuant to Article 306, the 2005 Commercial Law, which means the late payment interest rate is the average interest rate applicable to overdue debts in the market at the time of payment for the delayed period, unless otherwise agreed or provided by law.

Precedent No.09/2016/AL and Article 11, Resolution No.01/2019/NQ-HDTP provide clear guidance on how the average interest rate applicable to overdue debts in the market will be calculated. Accordingly, in order to determine the late payment interest rate, the Court shall collect the average interest rates applicable to overdue debts in the market announced at the time of payment (at the time of the first-instance hearing) by at least 03 commercial banks (such as Vietcombank, VietinBank, Agribank, etc.) that have their head offices, branches or transaction offices located in the province or central-level city where the Court resolving the lawsuit is located.

From the First-instance Hearing Onwards

If the payment of interest is agreed in the contract

The specific interest rate is subject to the agreement of the parties provided that such rate complies with the law; if there is no agreement on the specific interest rate, the court will decide the interest rate in compliance with Article 468.26, the 2015 Civil Code.

The interest shall be calculated from the next day after the first-instance hearing until the judgement is fully enforced.

If the payment of interest is not agreed in the contract

The interest rate is specified in Article 357 and Article 468, the 2015 Civil Code, unless otherwise provided by law.

The interest shall be calculated from the date the judgement creditor submits the judgement enforcement request until the judgement is fully satisfied.

For instance: Company A is a landlord and Company B is a tenant. Company B sues Company A for return of the deposit while Company A sues Company B for the rent in the remaining lease period. In the lease contract, the parties agree that Company B must pay late payment interest if rent payments are delinquent. After the first-instance hearing, Article 13, Resolution No.01/2019/NQ-HDTP is applied as follows: (i) for overdue rent, Company B must pay interest at the rate agreed to by the parties in the contract which must comply with the law; (ii) for the late return of the deposit, Company A must pay the interest at the rate of 10% per year according to Article 357 and Article 468, the 2015 Civil Code. As such, Article 13, Resolution No. 01/2019/NQ-HDTP will be applied for determining the interest rate for the judgement enforcement stage. For the previous period, i.e. from the date the obligation arises until the first-instance hearing, the interest rate must comply with the Commercial Law.

Judicial Practice

In judicial practice, the Court have applied the above provisions in resolving disputes. For instance, in Judgement No. 06/2019/KDTM-ST dated November 21, 2019 of the People’s Court of Kien An District, Hai Phong City regarding a dispute over a contract for supply of goods (Judgement No. 06), the interest was decided as the average market interest rate applicable to overdue debts as prescribed in Article 306, the 2005 Commercial Law from the time the obligation arose until the first-instance hearing. Then, the Court applied Article 468.2, the 2015 Civil Code to determine the interest rate for judgement enforcement stage.

However, there exists some inconsistency in applying late payment interest in commercial lawsuits among the Courts at all levels. In particular, there are differences in the Court’s decision in localities:

According to Judgement No. 06 above, Company N sued Company B for the outstanding amount worth VND 333,364,050 plus interest. In the contract signed by the parties, there was no agreement about the payment of interest. As a result, Article 13.1.(b), Resolution No. 01/2019/NQ-HDTP should have been applied. In other words, meant that the interest should have been calculated from the date the judgement creditor submitted the judgement enforcement request, not from the day after the first-instance hearing as decided by the People’s Court of Kien An District, Hai Phong City.

Judgement No.22/2019/KDTM-ST dated November 25, 2019 of the People’s Court of Vung Tau City regarding a dispute over a sales and purchase contract (Judgement No. 22). In Judgement No. 22, Company BT sued Company An Bao L for the outstanding payment worth VND 647,756,160 and the interest arising at the rate of 12% per year as agreed in the contract by the parties. The People’s Court of Vung Tau City concluded that such interest rate complied with Article 306, the 2005 Commercial Law which was lower than the average interest rate applicable to overdue debts in the market. Based on this conclusion, according to Article 13, Resolution No. 01/2019/ NQ-HDTP, such agreed rate should have been applied for calculating the interest during the judgement enforcement period by Company An Bao L starting on the day following the first-instance hearing. However, in Judgement No. 22, instead of applying the interest rate agreed by the parties, the People’s Court of Vung Tau City applied the interest rate provided in Article 468.2, the 2015 Civil Code for calculating the interest from the date the judgement creditor submitted the judgement enforcement request.

Another precedent is Judgement No. 01/2020/KDTMPT dated January 10, 2020 of the People’s Court of Can Tho City regarding a dispute over a sale and purchase contract. In particular, Company P and Company Quang G disagreed over the outstanding amount worth VND 999,999,454 plus interest at the rate of 1.25% per month as agreed in the contract by the parties. Similar to Judgement No. 22, the People’s Court of Can Tho City concluded that such interest rate complied with the 2005 Commercial Law and applied it for calculating the late payment interest from the day the obligation arose until the first-instance hearing. However, regarding the interest rate for the judgement enforcement stage, the People’s Court of Can Tho City decided to apply the average interest rate applicable to overdue debts based on the interest rate promulgated by 03 banks in the market. However, according to Article 13, Resolution No. 01/2019/NQ-HDTP, the interest rate in this situation must be the rate agreed by the parties provided that the agreed rate is in compliance with the law.

Overall, it can be seen that although there are clear regulations guiding the Courts for determining the applicable interest and interest rates in their judgements and decisions, the practical application of such regulations varies. This may adversely affect the parties’ legitimate interests. In particular: if there is an agreement regarding the payment of interest, the creditor will be entitled to interest for a longer period, i.e. from the next date of first-instance hearing; if there is no agreement on the payment of interest, the debtor will pay interest for a shorter period, i.e. from the date of the judgement enforcement request. As a consequence, during court litigation, a full picture of the terms and application of Article 13, Resolution No. 01/2019/NQ-HDTP needs to be considered and applied diligently to protect the relevant parties’ legitimate rights and interests.

This article contains legal knowledge and professional terms, readers who are interested in the provisions of late payment interest or commercial dispute resolution under the Vietnamese laws, please contact our commercial Lawyers at info@letranlaw.com.