On October 17, 2018, the Judge Council of the Supreme People’s Court adopted Case Law No. 25/2018/AL (“Case Law 25”), which is based on Cassation Decision No. 79/2012/DS-GDT regarding a dispute over deposit contract. In general, Case Law 25 establishes an exemption from the penalty for a contractual party who breaches obligations due to objective causes from State’s bodies. The application of Case Law 25, however, leads to concerns over its possibility and rationality of the regulation under the case law.
Pursuant to Resolution No. 04/2019/NQ-HDTP of the Judge Council of the Supreme People’s Court, a legal precedent shall be selected if it is able to clarify the key legal issue of a case and, accordingly, set forth rules or explain laws which are applied to answer the key legal question of the case. Equally essential, a legal precedent must provide material facts of a case that affect decisions or judgments of the court. This is because material facts are important elements based on which the court decides to apply a precedent to similar cases in the future. According to this, Case Law 25 apparently shows the insufficiency of reasonable explanations and analysis of regulations which are applied to the decision of the Supreme People’s Court.
Summary of the Case Law 25:
On May 12, 2009, Ms. H agreed to sell a house addressed at 1222C, Street 43, T Ward, Ho Chi Minh City to Mr. L. The house was bought at an auction and transferred to Ms. H under Decision No. 786/QD-THA of the Civil Judgment Execution Agency (“CJEA”) of Ho Chi Minh City. Ms. H, however, had not been granted a certificate of ownership for the house at the time it was agreed to be sold to Mr. L, because the agency had kept documents of the house and delayed conducting procedures to transfer the ownership to Ms. H. Therefore, Mr. L deposited an amount of VND 2,000,000,000 and required Ms. H to complete the paperwork to be certified as the true owner of the house before signing an official contract to buy the house at a public notary office.
After 30 days as agreed under a deposit contract, Ms. H failed to have the ownership certificate. Mr. L then sued her to the court for the return of the deposit and a penalty of VND 2,000,000,000 for breaching the contract.
Judgments of the first instance and appellate courts agreed on the request of Mr. L. Yet, the Head Judge of the Supreme Court lodged an appeal under the cassation procedure to require termination of the judgements and to re-hear the case. The Head Judge also stated that the delay of the CJEA in transferring the ownership to Ms. H had to be taken into consideration of the judgement. To the view of the head judge, the delay of CJEA is an objective cause leading to the failure of Ms. H to perform her obligation. Therefore, she shall be exempted from the penalty as promised under the deposit contract.
“Objective causes”: Lack of legal ground and guides for application
Pursuant to Civil Code 2005 and 2015, obligors can be exempted from their duties where they are unable to perform due to:[1]
- a force majeure event;
- a complete fault of obligees, which shall be proved by obligors; or
- being agreed by parties or prescribed by laws.
Nonetheless, Case Law 25 states that the delay in actions of State’s agencies is an objective cause where obligors are relieved from their responsibilities, which is certainly not fell into the cases of exemption mentioned above.
It is obvious that the failure of Ms. H in her contractual performance is completely not the fault of Mr. L, and there is no other agreement between the parties regarding the exclusion of obligations. The legal precedent also fails to analyze facts and evidence to prove the delay of CJEA is a force majeure event, which shall meet the following conditions:[2]
- the delay of CJEA occurs beyond the will of Mr. L and Ms. H;
- the delay is unforeseeable; and
- H is unable to be remedied although she applied all necessary measures.
In addition, Case Law 25 provides the term “objective cause” which is not defined under laws and the precedent also does not give any specific interpretation for application. In case of lacking regulations prescribed by laws, judges are permitted to initiatively set forth rules or principles for governing particular cases on the base of equity and rationality, provided that such rules or principles shall be precisely explained and guided for unified application in future. Linguistically speaking, the definition of objective cause is greatly wide. It can be construed as an event that happen out of the control of parties. This means, in terms of contractual context, any reason beyond the ability of obligors to manage, which results in the failure of obligation performance, can be considered to be objective. Accordingly, obliged parties shall be excluded from their liabilities.
Conclusion: The possibility of the application of Case Law 25
Considering the above analysis, Apolat Legal holds a believe and conclude that Case Law 25 is low in the possibility of application. This is because the legal precedent is insufficiently provided with factual analysis, legal ground as well as a clear explanation of rule applied to the case. The application of Case Law 25 probably worries obligees that obligors may refer to this precedent to be excluded from their liabilities where there is an objective cause. Furthermore, from the perspective of Apolat Legal, Case Law 25 might unintentionally reduce the responsible attitude of a party to his obligations. In other words, a party will make a promise without or with insufficiency of considering his ability to perform or situations that will be able to be managed if they are predicted before signing a contract. Besides, a vague explanation and guide will probably cause difficulty for other courts in applying and inconsistent judgements.
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This article is for general information only and is not a substitute for legal advice.
[1] Clause 2, 3 Article 302 of the Civil Code 2005 and clause 2, 3 Article 351 of the Civil Code 2015.
[2] Article 161.1 of the Civil Code 2005 and Article 156.1 of the Civil Code 2015.
