03 notes on late payment interest under Vietnamese law and judicial precedents

Late payment interest is interest on the amount that the obligor makes a late payment to the obligee. Late payment means the obligor fails to perform or improperly perform the payment obligation when the payment is due. Late payment interest is a common issue that is often encountered in judicial practice. However, not everyone understands regulations on late payment interest. Through this article, BLawyers Vietnam will note some issues regarding late payment interest according to the prevailing law and judicial precedents.

"late payment interest"

1. When does late payment interest arise?

Civil Code 2015 provides that “The obligor that is late in his/her/its payment of money shall pay an interest on the late-paid amount corresponding to the late payment period”. As such, in principle, when payment is due, the obligor shall make a full payment to the obligee. Any delay in payment may result in late payment interest.

Civil Code 2015 provides that for an interest-free loan, if the loanee fails to repay or fully repay the debt when it becomes due, the loaner has the right to request the loanee to pay interest on the overdue amount for the period of late payment. Or Commercial Law 2005 has a provision on the right to claim interest due to delayed payment for goods or service charges and other reasonable fees.

In addition to payment obligations, late payment interest may arise from the following obligations:
  1. Civil Code 2015 provides that in case the purchaser has made payment for the object but refuses to receive it as it is not integrated, the purchaser shall be entitled to interest on the paid amount. As such, late payment interest can arise from the obligation to handover of non-integrated objects.
  2. Precedent No. 09/2016/AL supplements a case where the late payment interest arises. Accordingly, in the contract for the sale of goods, if the buyer made a payment in advance, and the seller failed to deliver or delivered insufficient goods to the buyer, the seller is obligated to return the advance payment and overdue interest for late payment.

Of note, before Civil Code 2015, the law did not allow the calculation of late payment interest for interest on the principle in an interest-bearing loan contract. However, from Civil Code 2015 onwards, it is legal to charge late payment interest for interest on the principle.

To summarize, late payment interest arises when:
  1. a party who is obligated to make a payment but fails to pay or fully pay when the payment is due;
  2. the purchaser has made a payment but refuses to receive it as it is not integrated;
  3. a party has paid in advance but the other fails to perform or improperly perform the obligation to deliver goods; and
  4. other cases prescribed by law.

2. Amounts that do not generate late payment interest

According to precedent No. 09/2016, there are two amounts that do not generate late payment interest. Specifically, The Judicial Council of the Supreme People’s Court found that: “There is a basis for the first-instance court to accept the penalties claim from Vietnam – Italy Steel Company; however, calculating interest over the penalties is not correct”; “the first-instance court’s calculations of interest on the damages are not compliant with Article 302 of the Commercial Law 2005”.

As such, penalties and compensation for damages do not generate late payment interest.

3. The interest rate applied for late payment interest after the trial

In case of late performance of liabilities in a contract which includes the parties’ agreement on interest payment, the judgment debtor is liable to pay interest on the outstanding judgment debt at the agreed interest rate from the date following the date of the first-instance trial to the end of the judgment enforcement.

In case there is no agreement among parties on interest payment, the judgment debtor is liable to pay interest on the outstanding judgment debt with the late payment interest equal to 150% of the due debt interest rate from the effective date of the judgment (in case the judgment-enforcing authorities are entitled to proactively decide the judgment enforcement) or from the date of submission of a request for judgment enforcement by the judgment creditor (with respect to amounts payable to the judgment creditor) to the end of the judgment enforcement.

However, it should be noted that for a credit contract, if the parties agreed on the adjustment of the interest rate of the bank or the lending credit institution from time to time, the interest rate that the borrower is obliged to continue paying pursuant to the court decision shall be adjusted in accordance with the adjustment of interest rate of the lending bank or credit institution. This is one of the important points of Precedent No.08/2016/AL that parties to credit contract shall pay attention to when enforcing the Court’s decision or judgment.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

Date: 27 April 2022

Writer: Thao Nguyen & Quang Nguyen

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