In commercial trading, a contract for sale of goods is the foundation for recording the rights and obligations of the parties. When a dispute arises, the application of sanctions as agreed to in the contract is necessary to protect the rights of the violated party. In this article, BLawyers Vietnam describes the factors to consider when applying fines for violations and compensation for damages, which will help enterprises handle disputes and protect their legitimate rights.
1. Notes when applying fines for violations
1.1. Note on the legal basis for applying fines for violations
Fines for violations are one of the trade sanctions stipulated in the Law on Commerce 2005, in which the aggrieved party has the right to request the violating party to pay a fine for violating the contract, if so agreed to in the contract, except for cases of liability exemption.
According to the above provisions, fines for violations are only applied if there is such agreement in the contract. Therefore, the parties in the contract for sale of goods need to pay attention to the negotiating, and record the fines for violations in the contract to have a legal basis for application when a violation occurs.
1.2. Note on the fine levels
In addition, the fines for violating a contractual obligation or the total fines for multiple violations shall be agreed upon in the contract by the parties. But they must not exceed 8% of the value of the violating contractual obligation, except for fines in the case of incorrect assessment results. On that basis, the parties in the contract for sale of goods need to note specifically the fines for violating the contract that will be applied in the contract, or for each specific obligation in the contract, but it must not exceed 8% of the value of that obligation, to avoid cases in which the competent dispute resolution authority does not accept the fine level for the violation of the contract.
2. Notes when applying compensation for damages
2.1. Note on the legal basis for applying compensation for damages
Compensation for damages is another trade sanction stipulated in the Law on Commerce 2005, whereby the violating party compensates for losses caused by violating the contract to the aggrieved party.
Unlike the provisions of fines for violations, compensation for damages will arise when there are sufficient grounds for liability to compensate for damages, including the following factors:
- There is a violation of the contract;
- There is actual damage with material loss;
- The act of violating the contract is the direct cause of the damage.
According to the above definition, the right to claim compensation for damages from the aggrieved party will arise if all the above factors are fully met, regardless of the agreement between the parties recorded in the contract.
2.2. Note regarding actual damages with material loss
In the case of actual damage with material loss, the party claiming damages – the aggrieved party – shall bear the burden of proof of the loss, the extent of the loss caused by the violation and the direct profit amount that the aggrieved party would have earned if there had been no violation.
In addition to the burden of proof of the loss, the aggrieved party also has the obligation to mitigate the loss. Accordingly, the party claiming damages must apply reasonable measures to mitigate the loss, including the loss of direct profit that would have been earned as a result of the violation of the contract. If the party claiming damages fails to apply such measures, the violating party has the right to request a reduction in the value of the compensation for damages by the amount of the loss that could have been mitigated.
Accordingly, the actual damage of the aggrieved party will be the sum of the losses caused by the violating party’s breach, which such losses have been mitigated by the aggrieved party’s application of reasonable measures. The above provisions on the obligation to mitigate losses will contribute to minimize the damage, and will avoid the party that is entitled to claim damages from taking advantage of the violation of contract to make the damage greater or to claim excessive damages from the violating party.
3. Notes on how to apply fines for violations and compensation for damages
According to the provisions of the Law on Commerce 2005, if the parties do not have an agreement on fines for violations, the aggrieved party only has the right to request compensation for damages; if the parties have an agreement on fines for violations, the aggrieved party has the right to apply both fines for violations and compensation for damages.
As mentioned in Item 2.2., the actual damages of the aggrieved party are the sum of the losses caused by the violating party’s breach, which such losses have been mitigated by the aggrieved party’s application of reasonable measures. This calculation is considered the basis for determining the actual damages for claiming compensation.
The agreement on a general and fixed amount of compensation for damages in the contract has not been specifically mentioned or regulated in legal documents. Therefore, the application of the agreed amount of compensation for damages in the contract has no legal basis for dispute resolution authority to apply and accept.
To avoid the case where the dispute resolution authority refuses to apply the agreed amount of compensation for damages, or cannot request the application of fines for violations, the parties of the contract for sale of goods should specifically stipulate the following contents:
- Clearly define the terms of compensation for damages, such as how to calculate damages, losses, and measures to limit losses;
- Specify the specific time and method of notification of violations, including the time limit for remediation, the sanctions intended to be applied when the time limit for remediation expires, and the loss mitigation measures to be applied (if any);
- Clearly define the responsibilities of the parties in providing evidence and documents related to damage and violations;
- Specify the circumstances in which fines for violations may be applied, such as when it is difficult to prove loss.
The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at info@blawyersvn.com. BLawyers Vietnam would love to hear from you.
Date: 12 August 2025
Writer: Thai Bui
