THE LEGAL CONSEQUENCES OF EXEMPTION UNDER CISG 1980 – IN COMPARISON WITH VIETNAMESE LAWS (luận văn thạc sỹ luật học)

M ANAGING BOARD OF S PECIAL P ROGRAMS

BACHELOR THESIS
MAJOR IN INTERNATIONAL LAW

T HE L EGAL C ONSEQUENCES OF
E XEMPTION U NDER CISG 1980
– I N C OMPARISON W ITH
V IETNAMESE L AWS
Student name

:

ĐẶNG VIỆT HƯNG

Student code

:

1055050112

Class

:

CLC K35

Supervisor

:

Ph.D. ĐỖ THỊ MAI HẠNH

Ho Chi Minh City
2014


A CKNOWLEDGEMENTS
I would like to express my sincere appreciation and thanks to my supervisor
Ph.D. Đỗ Thị Mai Hạnh for the continuous support of my thesis study and research,
for your motivation, enthusiasm, along with immense skills and knowledge. Your
guidance helped me in all the time of research and writing of this thesis.
My sincere thanks also go to Center for Information and Library, Ho Chi Minh
City University of Law and Institute of International Commercial Law, Pace
University website, from where I have obtained most of the materials and
documents for the study, as well as offering me the facilities so that I could
complete my thesis.
A special thanks to Uông Thị Mỹ Châu (Cindy) for your support by
proofreading the drafts of this thesis and giving me a lot recommendations for
improvement.
Last but not least, I would like to thank my family: my parents and sister, and
all of my friends, for supported me spiritually and encouraged me to strive towards
my goal.


COMMITMENT

I, Đặng Việt Hưng, hereby declare that this thesis “The Legal
Consequences of Exemption under CISG 1980 – in Comparison with
Vietnamese Laws” is wholly my own work, unless otherwise referenced
or acknowledged, under the supervision of Ph.D. Đỗ Thị Mai Hạnh. I

shall be at full responsibility for my commitment.

Đặng Việt Hưng
21 July 2014


T ABLE

OF

C ONTENTS

I NTRODUCTION ....................................................................................................... 1
Rationale of The Research ......................................................................................1
Literature Review ...................................................................................................2
Objectives of This Thesis .......................................................................................5
Scope of This Thesis ...............................................................................................5
Research Methodologies .........................................................................................6
Outline of This Thesis.............................................................................................6
CHAPTER 1. OVERVIEW ON THE INSTITUTION OF EXEMPTION ............................. 7
1.1. The United Nations Convention on Contracts for the International
Sales of Goods and Vietnamese Commercial Law of Viet Nam .......................7
1.1.1. Scope of application ................................................................................8
1.1.2. Reasons to study about CISG ..................................................................8
1.2. Overview on the Breach of Contract ..........................................................9
1.3. Liability and Remedies for breach of contract........................................11
1.3.1. Specific performance .............................................................................12
1.3.2. Damages ................................................................................................14
1.3.3. Penalty ...................................................................................................18
1.3.4. Suspension of performance ...................................................................19

1.3.5. Avoidance, cancellation and stoppage of performance of contract ......21
1.4. Significance of Exemption from Liability for Breaches of Contract ....25
CHAPTER 2. CONDITIONS FOR EXEMPTION AND LEGAL CONSEQUENCES OF
EXEMPTION UNDER CISG AND VIETNAMESE LAWS ............................................ 27
2.1. Scope of Exemption ....................................................................................27
2.2. The Occurrence of Impediment or Event of Force Majeure .................29


2.2.1. Conditions for Exemption .....................................................................29
2.2.2. Burden of Proof .....................................................................................42
2.2.3. Legal Consequences ..............................................................................43
2.2.4. Duration of exemption and continuation of the remaining
obligation ..........................................................................................................50
2.3. The Failure to Perform Is Caused by The Fault or The Act or The
Omission of The Aggrieved Party .....................................................................53
2.3.1. Conditions for Exemption .....................................................................54
2.3.2. Legal Consequences ..............................................................................57
2.4. Agreement on Exemption ..........................................................................59
2.4.1. Conditions for Exemption .....................................................................60
2.4.2. Legal Consequences ..............................................................................63
2.5. Suggestions for Improvement of Vietnamese Laws on Exemption .......63
2.5.1. Characteristics of Force Majeure, Examination of the Elements of
Unforeseeability and Inability to Avoid or Overcome Need to Be
Supplemented ...................................................................................................63
2.5.2. The System of Remedies Available in Case of Exemption Needs
to Be Reformed.................................................................................................65
CONCLUSION ............................................................................................................ 67
BIBLIOGRAPHY ......................................................................................................... 68

I NTRODUCTION
RATIONALE OF THE RESEARCH
Commercial transactions play a very important part in the modern society,
especially the international transactions in a world where globalization is
flourishing. Commercial contracts are not only the form but also the tools for these
transactions. One of the most important principles of the laws on contract is pacta
sunt servanda, stressing that contained clauses are law between the parties, and
implying that non-fulfillment of respective obligations is a breach of the pact. The
general principle of correct behavior in commercial praxis — and implies the bona
fide — is a requirement for the efficacy of the whole system, so the eventual
disorder is sometimes punished by the law of some systems even without any direct
penalty incurred by any of the parties.1
The risks of changes in circumstances, to the extent that one party cannot
perform its contractual obligation, in commercial transaction are unavoidable,
particularly in international transactions. That is because there are many external or
even internal elements that could hamper the performance of obligation and out of
the control of the parties.
Upon the occurrence of such impediment, one party may become unable or
extremely difficult to properly perform the contractual obligations. It would be
unfair and discouraging to such party if it is held liable for damages in the usual
manner. Therefore, the party failed to perform its obligation due to an impediment
should be discharged from liabilities for such nonperformance to maintain the
balance between the parties. CISG regulation on exemption is the solution for this
problem.
CISG, one of the most renowned and widely applied legal instruments in an
international scale governing contract for the sales of goods, has introduced the
regulation on exemption in Section IV of Chapter 5 – Provisions Common to The
Obligations of the Seller And of the Buyer, which consists of Articles 79 and 80.
Article 79 deals with one of the most delicate questions in contract law, the effects
of the impossibility to perform one of the obligations of the contract. To what extent

may the non-performing party be exempted, i.e., may he avoid the remedies
1

Princeton University, Definition of Pacta sunt servanda, />wiki100k/docs/Pacta_sunt_servanda.html, last visited on 16 May 2014.

1


available to the other party?2 Article 80 nonetheless deals with the second case of
exemption, which is due to the promisee’s act or omission.3
The Vietnamese laws on contracts have just emerged for almost 30 years, after
the Sixth Congress of the Communist Party of Viet Nam in 1986 and the
introduction of Doi Moi policies. Specifically, the National Assembly has passed
Civil Code 1995 and then Civil Code 2005 No. 33/2005/QH11, which set out the
general principle for civil transactions and contracts; Ordinance on Economic
Contract 1989, then Vietnamese Commercial Law 1997 No. 58/L-CTN and
eventually the prevailing Vietnamese Commercial Law 2005 No. 36/2005/QH11 as
well as other relevant laws, decrees, circulars and regulations. In the course of
development, Viet Nam has referenced a lot of institutions and regulations from
other countries’ laws as well as from international conventions. This research is
meant to give a comprehensive view, through the detailed analysis of the texts and
examples, of the institution of exemption from contractual liability and particularly
its legal consequences under CISG 1980 and in comparison with Vietnamese laws.
With the desire to contribute to the improvement of the laws, the author would like
to propose certain suggestions.

LITERATURE REVIEW
There have been a number of academic writings regarding this subject from
foreign and Vietnamese professionals.
On the view that this thesis is a research in the field of comparative law, the

author acknowledges the necessity to look in both the works and writings on
exemption under CISG and under Vietnamese laws. A survey of papers on this
subject published on Vietnamese and foreign legal journals have been carried out by
the author of this thesis. The ones that are accessible by the author can be allocated
into three groups.
The first group is the writings, papers and research, by foreign authors, which
deliver analysis and comments on the regulations of CISG.
This group insists of: Dennis Tallon, Article 79 and 80, in “Bianca-Bonell
Commentary on the International Sales Law”, Giuffrè: Milan (1987) 572-600;
Joseph Lookofsky, Article 79 Liability Exemptions for Failure to Perform, excerpt
2
3

Tallon, “Bianca-Bonell Commentary on the International Sales Law” (1987), 574.
Tallon, above n. 2, 596.

2


from International Encyclopaedia of Laws - Contracts, Suppl. 29 (December 2000)
1-192; John O. Honnold, Article 79 Impediments Excusing Party From Damages
(“Force Majeure”) and Article 80 Failure of Performance Caused by Other Party,
excerpt from Uniform Law for International Sales under the 1980 United Nations
Convention, 3rd ed. (1999), 472-500; Chengwei Liu (2005), Force Majeure.
Perspectives from CISG, UNIDROIT Principles, PECL and Case Law; Barry
Nicholas, Impracticability and Impossibility in the U.N. Convention on Contracts
for the International Sale of Goods, in International Sales: The United Nations
Convention on Contracts for the International Sale of Goods, Matthew Bender
(1984), Ch. 5, pages 5-1 to 5-24; Peter Schlechtriem, Items H. Exemptions (Article
79) and I. Failure of Performance Caused by the Other Party (Article 80), excerpt

from Uniform Sales Law – The UN-Convention on Contracts for the International
Sale of Goods, Manz, Vienna (1986), 100-105.
These are very detailed and enormous works in analyzing and evaluating the
rule on exemption of CISG. Some of them even provide the origin of the solutions
in the convention by the way of comparing them to principles of national laws.
Above all, the Secretariat Commentary on the 1978 Draft is rather the most
authoritative source. Other writings represent the different ideas of the authors on a
certain number of elements of this institution, such as the scope of application, the
qualification of characteristics of impediment and the consequences of exemption.
Furthermore, these papers also put the rule in the context by giving a lot of
examples and practical cases. Despite being unanimous in many aspects of the rule,
the authors of the aforesaid writings have different opinions on certain confusing
points within the text of CISG. For instance, whether the breach of seller’s
obligation to deliver conforming goods constitutes exemption effect; whether the
changes in circumstances that create excessive financial or economic difficulties
satisfy the ‘out-of-control’ element set out in CISG Article 79 and whether a general
supplier of goods, particularly fungible goods, falls inside the notion of ‘third
person’ under Article 79 (2) of CISG are several issues on which the scholars have
different opinions.
The second group comprises of writings, papers and research on Vietnamese
laws which govern the same subject. In Ho Chi Minh City University of Law, there
are some theses in bachelor degree which focus or relate to Vietnamese regulations
on exemption, such as:

3


Nguyen Thi Le (2012), “The relations between commercial remedies in
Vietnamese Commercial Law 2005” and Nguyen Thi Thanh Nu (2013), “Damages
remedy in Vietnamese Commercial Law 2005.” These theses’ focus is the

commercial remedies provided by Vietnamese Commercial Law 2005 of Viet Nam.
Hence, the regulations and analysis of exemption are only briefly presented, that is,
they only furnish short explanations of the four grounds for exemption under Article
294 of Vietnamese Commercial Law.
Nguyen Do Son Tra (2012), Legal aspects of exemption and limitation of
liability for traders trading in Logistics. This research focuses on the exemption in
the logistics activities. The conditions for exemption, therefore, are represented in
two groups, depending to the scope of exemption. The first group is exemptions of
liability for the act of breaching. However, the examples given are specifically
related to the logistics activities and extracted from Maritime Code 2005, Postal
Law 2010, Civil Aviation Law 2006, Railway Law 2005, etc. The second group is
exemptions of liability for the loss of goods, in which the author of this thesis
provided analysis of the statutory conditions for exemption stipulated in Vietnamese
Commercial Law.
Nguyen Thi Ngan (2013), Exemption in commercial activities. This is one of
the most comprehensive works on the institution of exemption under Viet Nam’s
Vietnamese Commercial Law 2005. Ngan presents about the basic exemption
conditions stated in Article 294 and those for logistics and assessment services in
Articles 237 and 266 of Vietnamese Commercial Law respectively. Moreover, the
author also takes examples from the clauses of contracts and judgments of the
courts or arbitral tribunals in order to draw attention to the defects of the prevailing
laws as well as the inconsistency in the interpretation and application of the laws;
and finally to make suggestions for the improvement of the same.
The third group contains the research on the aforementioned matter with a
comparative manner. Nguyen Thi Kim Phung (2010), Liability for breach of
contract under CISG 1980 in comparison with Viet Nam’s Commercial law 2005.
Though exemption is an integral part of the institution of liability for breach of
contract, the analysis on exemption in this research is not extensive and primarily
focuses on the regulations of Vietnamese Commercial Law. The author of this
thesis concluded that CISG is more relevant and reasonable than Vietnamese

Commercial Law 2005 for the following reasons: (i) CISG provides restriction of

4


liability exemption clause, as in case the seller already knew or would have known
about the inconformity of the goods at the time the contract is concluded, the
exemption agreement is void; (ii) CISG clearly stipulates the exemption for the
liability incurred by the failure to perform of a third party and (iii) CISG is also a
better legislation because instead of listing or defining the conditions for exemption,
it provides the criteria of the same.

OBJECTIVES OF THIS THESIS
By deeply analyzing the regulations of CISG on exemption, with comparison
with Vietnamese laws, the author intends to give a comprehensive understanding on
the legal institution of exemption of liability and its legal consequences as well as to
point out the similarities and differences between the two jurisdictions.
On the other hand, the research is meant to help Vietnamese traders who
engaged in international transactions for the sale of goods, where the applicable law
is CISG, to get better preparation to protect themselves from damages in certain
circumstances.
Last but not least, the research is also conducted for the purpose of using the
merits of CISG 1980 as an experience for improving Vietnamese laws in terms of
exemption by the way of providing recommendation to improve the prevailing laws
of Viet Nam.

SCOPE OF THIS THESIS
Due to restrictions on the availability of the materials and the time frame for
the research, it is the author’s intention that the thesis is limited in scope as defined
below:

Firstly, CISG is the convention on contracts for the sale of goods; hence, the
Vietnamese laws to be in comparison with CISG must also be the law that governs
commercial activities in general and sales of goods in particular. By this approach,
the author finds it appropriate to consider the Vietnamese Commercial Law 2005
(Law No. 36/2005/QH11, passed by Legislature XI of the National Assembly of the
Socialist Republic of Vietnam at its 7th Session on 14 June 2005) as the
corresponding law to CISG for the purpose of analyzing and comparing. The author
also sees the need to cite provisions of Civil Code in this thesis because a number of
definitions and basic principles can only be found in such legislation, since

5


Vietnamese Commercial Law is a specific law in correlation with the general law
on contracts, i.e., the Civil Code 2005.
Secondly, the author intends to make neither a deep research on the
commercial remedies provided by CISG and Vietnamese laws nor the conditions for
them to be applied nor the relation of the remedies with each other. When dealing
with theoretical issues, however, the author finds it is necessary to introduce general
understanding on these matters in order to maintain the systematicity and logic of
the entire thesis.

RESEARCH METHODOLOGIES
The following methodologies were applied in the course of researching and
writing of this thesis:
Systematical reading: the author started by reading secondary sources like
writings, treatises, official and academic commentaries, etc. to obtain the initial
understanding on the matter. After the first step, the author has searched for
necessary information from the primary sources to deepen the knowledge.
Combining and analyzing methods: when processing a significant amount of

documents, the author deeply analyzes the opinions and examples of the scholars,
then combining the relevant ideas and put them into a logical order.
Comparative method: the author not only compares the text of the laws, but
also compares and the practice of the laws in reality, in order to obtain the
knowledge correctly in its context.

OUTLINE OF THIS THESIS
In addition to the Introduction, the thesis is presented in two chapters as
follows: The first chapter is an Overview on The Institution of Exemption, which
presents the basic understandings on CISG and the theoretical issues relating to
exemption, such as concepts, principles and rationale of such institution.
The second chapter is on Conditions for Exemption and Legal Consequences
of Exemption under CISG and Vietnamese laws, which analyzes and evaluates the
regulations of the convention and Vietnamese laws. Some suggestions of further
research are included as well.
At the end, the whole presentation is summarized in a short brief.

6


Chapter 1. O VERVIEW ON T HE I NSTITUTION OF E XEMPTION
1.1. THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE
INTERNATIONAL SALES OF GOODS AND VIETNAMESE COMMERCIAL
LAW OF VIET NAM
Before the emergence of a set of international trade laws, the disputes arising
out of international sales contracts have been settled in accordance with the rules of
private international law, that is to say, Lex loci contractus, Lex loci solutionis, or
Lex fori, etc. This diversity of various legal systems creates legal uncertainty and
imposes additional transactional costs to the contracting parties.4
The uniform rules in existence prior to The United Nations Convention on

Contracts for the International Sales of Goods (hereinafter: CISG) were established
in the 1964 Hague Conventions, sponsored by the International Institute for the
Unification of Private Law (UNIDROIT). They consist of a Convention dealing
with the formation of contracts for international sale (ULF) and the other one
indicating obligations of parties to such contracts (ULIS).
The United Nations Conference on Contracts for the International Sale of
Goods was held in Vienna, Austria from 10 March to 11 April 11 1980. It was
attended by representatives of 62 states and 8 international organizations. The final
outcome of the Vienna Conference was the adoption of the United Nations
Convention on Contracts for the International Sale of Goods. After 50 years of
work, the main document of the New Law Merchant was created.5
CISG combines the subject matter of the two 1964 Hague Conventions which
had failed to receive substantial acceptance outside Western Europe and had
received widespread criticism of their provisions as reflecting primarily the legal
traditions and economic realities of continental Western Europe, the region that had
contributed the most to those conventions preparation.6

See John Felemegas, “Introduction in an International Approach to the United Nations Convention on
Contracts for the International Sale of Goods (1980) as Uniform Sales Law” (1980), 1.
5 Nives Povrzenic, “Interpretation and Gap-filling Under the United Nations Convention on Contracts
For The International Sale of Goods”, Pace Law School Institute of International Commercial Law
Database, last visited on 14 May 2014.
6
See John Honnold, “Documentary History of the Uniform Law for International Sales” (1989), 5-6.
4

7


1.1.1. Scope of application

Article 2 of CISG specifies its scope of application by listing the objects to
which it is not applicable. Among those, CISG does not apply to sales of goods
bought for personal, family or household use, unless the seller, at any time before
or at the conclusion of the contract, neither knew nor ought to have known that the
goods were bought for any such use. On this point, the scope of application of
Vietnamese Commercial Law is comparable to that of CISG, as two out of three
circumstances which the Vietnamese Commercial Law is applicable under Article 1
refer to commercial activities. Commercial activity, in turn, means activity for profit
making purposes comprising purchase and sale of goods7 [...] which does not
covers the sale and purchase of goods merely for personal, family or household use.
1.1.2. Reasons to study about CISG
Since Viet Nam joined WTO in 2007, international trading volumes of
domestic firms have increased dramatically. Trading between Viet Nam and other
countries grows stronger as enterprises now has more convenience in international
trade, especially small and medium enterprises (SMEs), the sector that accounts for
approximately 90% of the Vietnamese enterprises. However, Viet Nam has not
ratified CISG, and most traders in Viet Nam nearly know nothing about this
convention. When entering into contracts with foreign partners, therefore, they are
often in a passive status as very few of them seeking for legal assistance before
conducting negotiations. Legal support is usually the last resort once disputes arise.
This is a severe shortcoming since the well-known convention has already brought
extensive benefits to enterprises of its contracting states.8
“If adopted in Viet Nam, CISG can help both foreign and Vietnamese business
people to make sales of goods more efficient, and dispute resolution easier,” said
Matthias Duhn, executive director of the European Chamber of Commerce in Viet
Nam.
First, to Vietnamese traders, application of CISG can help avoiding the risk of
being forced into using a legal system that may be completely alien to their own.

7

Article 3 (1) of Vietnamese Commercial Law 2005.
See Quoc Hung, “Viet Nam advised to join int’l trade convention”, The Saigon Times Daily, 8
September 2010, < at 27 May 2014.
8

8


Secondly, once Viet Nam becomes a signatory to CISG, local enterprises can
minimize the complication in disputes arising from contracts with foreign partners
in regard of sale and purchase of goods.
Last but not least, Viet Nam’s participation in CISG will reduce costs and time
needed to negotiate the applicable law to contract; reduce the difficulty and cost
which may incur due to the fact that the applicable law is the law of another country
and avoid having to use rules of private international law to determine the laws
applicable to contracts.
For that reason, studying CISG is both coherent and necessary. One of the best
way to attain a deeper knowledge of an unfamiliar legal field, in this case is CISG,
to compare it with the domestic law of the researcher in order to spot the similarities
and differences between them. The process of analyzing and evaluating those
differences not only rewarding in terms of obtaining the knowledge, but also
helping to improve the national legal system of Viet Nam, by following the merits
and preparing to cope with the difficulties and problems that may arise due to the
variances of the laws. Finally, studying the regulations of CISG also equips the
Vietnamese traders with essential understanding of such convention, particularly
when Viet Nam is taking steps to adopt this treaty.9

1.2. OVERVIEW ON THE BREACH OF CONTRACT
Commercial transactions, sales and purchases of goods for example, are

conducted through contracts. CISG uses the term “contract” frequently throughout
almost all of its 101 articles but does not explain what a “contract” is. On the other
hand, the precise definition of contract can be found in Article 388 of Civil Code
2005, in which a civil contract is an agreement between the parties to establish,
change or terminate civil rights and/or obligations. Since commercial contracts are
parts of civil contracts, this notion also covers the most important characteristics of
commercial contracts.
A contract for the sales of goods can be inferred as an agreement between the
parties, i.e., the seller and the buyer, to establish, change or terminate the rights and/
9

On 28 December 2012, the Ministry of Industry and Trade, after finalizing the feasibility study on Viet
Nam’s assertion to CISG, proposed to the Prime Minister for the entry into this convention. On 14
January 2013, the Office of the Government issued official letter No. 413/VPCP-QHQT to approve the
proposal of the Ministry of Industry and Trade and such Ministry is assigned to cooperate with the
Ministry of Foreign Affairs and Ministry of Justice to prepare and finalize the dossier for the
abovementioned matter.

9


or obligations, in order to achieve the legitimate interests they expected to attain at
the time the contract was concluded10, namely, goods to the buyer and money to the
seller. Contractual relation in those for the sales of goods is a mutual relation, in
which the rights of one party are implemented through the performance of
obligation of the other party.11 A contract once entered into by competent parties
and satisfies the requirements of the law (if any) become “the law between the
parties,” which will be legally binding to them.12 Proper performance of a contract
is, therefore, very important to the parties because it directly impacts on the
expected interests of the parties.13

Where one party of a contract does not perform or performs inconsistently
with the promises he has made in the contract, he has breached the contract. Breach
of contract is defined in Black’s Law Dictionary (8th edition, 2004) as the violation
of a contractual obligation by failing to perform one’s own promise, by repudiating
it, or by interfering with another party’s performance (page 200).
As a matter of laws, CISG utilizes the term breach without giving any
definition for such term. Nevertheless, fundamental breach is defined in Article 25
of CISG as a breach committed by one of the parties which results in such
detriment to the other party as substantially to deprive him of what he is entitled to
expect under the contract, unless the party in breach did not foresee and a
reasonable person of the same kind in the same circumstances would not have
foreseen such a result. In brief, a breach of contract by one party (A) is
“fundamental” if it results in such “detriment” to the other party (B) as to
“substantially” deprive B of what B is entitled to expect under the contract.14
For example, a seller who delivers goods unfit for ordinary purposes (or for
the buyer’s particular purpose, if known to the seller) not only has breached his

Do Van Dai, “Cancellation and Suspension of Contract Upon Breach of Contract under Civil Code of
Viet Nam” (2004), 3 Jurisprudence Journal 22, 35.
11 See Nguyen Xuan Quang, Le Net and Nguyen Ho Bich Hang, “Vietnamese Civil Law” (2007), 227.
12 Van Dai Nam and Nam Cat, “International Commercial Contract Law” (1999), 38.
13 Nguyen Thi Kim Phung, “Liability for breach of contract under CISG 1980 in comparison with Viet
Nam’s Commercial law 2005” (Bachelor Thesis, Ho Chi Minh City University of Law, 2010), 2.
14 John O. Honnold, “Uniform Law for International Sales under the 1980 United Nations Convention”
(3rd edition, 1999), 326.
10

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obligation to deliver conforming goods; he– at least in the case of an ‘incurable’
defect – has also committed a fundamental breach.15
On the other hand, Civil Code 2005 does not provide exactly what a breach of
contract is. The concept of breach of contract, though, can be extracted from Article
302 of Civil Code, as the title of the article says “Civil liability arising from breach
of civil obligations” while the content of the provision refer to “the failure to
perform or incorrect performance of the obligor” as the basis for the arising of civil
obligations. Breach of contract is the failure to perform or incorrect performance of
contractual obligation(s).
Instead, the Vietnamese Commercial Law dedicates Article 3 for the
explanation of terms. The definition of ‘breach of contract’ and ‘fundamental
breach of contract’ can be found in clause 12 and 13 of this provision respectively,
namely, “breach of contract means one party fails to perform, fails to perform fully
or performs incorrectly an obligation in accordance with an agreement of the
parties or in accordance with the Vietnamese Commercial Law” and “fundamental
breach means breach of contract by one party causing loss to the other party to the
extent that such other party is unable to achieve its objective in entering the
contract.”
Both non-fundamental breaches and fundamental breaches of contract are the
basis for the establishment of remedies. However, there are certain remedies that
can only be resorted against fundamental breaches, such as Avoidance of Contract
under CISG (Articles 49, 51 and 64 of CISG) and its equivalence in Vietnamese
Commercial Law – Cancellation of Contract (Articles 312 to 315 of Vietnamese
Commercial Law).
In summary, CISG and Vietnamese laws almost resemble to each other on the
notion of the most basic elements of contract law, namely the definition of contract,
breach of contract and fundamental breach of contract.

1.3. LIABILITY AND REMEDIES FOR BREACH OF CONTRACT
“Liability from breach of contract is the adverse consequences, in terms of

material liability, which the default party has to suffer resulted from its failure to

Joseph Lookofsky, “The 1980 United Nations Convention on Contracts for the International Sale of
Goods” in “International Encyclopaedia of Laws - Contracts” (2000), 122.
15

11


perform contractual obligations.”16 Whereas, the liability for fundamental breach of
contract is a form of legal responsibility, the right to impose sanctions only arises
when there is a fundamental breach of contract of either party.17
Regarding this matter, Section III of Chapter II of CISG is dedicated for the
stipulation of remedies for breaches of contract by the seller and Section III of
Chapter III is for the remedies for breaches by the seller. The Vietnamese
Commercial Law, on the contrary, regulates all the remedies available for the
aggrieved party, whether it is the seller or the buyer to a contract, in Section 1 of
Chapter VII. Generally, the remedies for breach of contract provided by CISG and
Vietnamese laws are, based on their nature, specific performance, damages and
penalty, suspension of performance (of contractual obligation), stoppage of
performance (of contractual obligation) and cancellation of contract.
1.3.1. Specific performance
The rationale for the buyer’s right to compel performance of the other party is
that “legal actions for damages cost money and may take a considerable period of
time. Moreover, if the buyer needs the goods in certain quantities with certain
qualities ordered, he may not be able to make substituted purchases in the time
necessary. This is particularly true if alternative sources of supply are in other
countries, as will often be the case when the contract was an international contract
of sale.”18 Under the same logic, the Secretariat Commentary on article 58 of the
1978 Draft [draft counterpart of CISG article 62] also insists the importance of

duly payment or taking delivery or performing other obligations to the seller and
thus, specific performance is, in many cases, still a better choice than other
remedies.19
Specific performance under CISG is a remedy that can be put on either the
seller or the buyer for his non-performance. Pursuant to Article 46 of CISG, the
buyer may require performance by the seller of his obligations such as to deliver the

Nguyen Van Luyen, Le Thi Bich Tho and Duong Anh Son, “Textbook on International Commercial
Contract Law” (2007), 51.
17 Nguyen Thi Khe and Bui Thi Khuyen, “Law on Commerce and Commercial Dispute Resolution”
(2006), 76.
18 Secretariat Commentary on article 42 of the 1978 Draft [draft counterpart of CISG article 46]
[Buyer’s right to require performance].
19 See Secretariat Commentary on article 58 of the 1978 Draft [draft counterpart of CISG article 62]
[Seller’s right to require performance].
16

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goods. This can also be in the form of providing substitute goods or repairing if the
goods do not conform to the contract. Whereas CISG Article 62 provides that the
seller may require the buyer to pay the price, take delivery or perform his other
obligations. Nonetheless, in both cases, the aggrieved party can only use this
remedy if he has not resorted to a remedy which is inconsistent with this
requirement, i.e., the legal consequences of the other remedy(s) to be resorted
alongside with specific performance should not be paradoxical to its consequence.
For instance, the buyer to a contract may not, at the same time, require the seller to
deliver the goods and declare the contract avoided.
Under Article 297 of Vietnamese Commercial Law, specific performance

means the aggrieved party requests the default party to properly implement the
contract or to take other measures to cause the contract to be performed, and the
default party shall bear any costs incurred. Although the law sets forth two modes
of implementation of this remedy, it does not explicitly state which mode of
implementation should be applied first, except for the case the seller fails to deliver
goods in full amount or delivers defective goods. In such case, the law requires the
aggrieved party to compel performance from the default party before remedying the
breach by its own and claiming the reasonable costs for such. The imposition of
specific performance by the way of taking other measures to cause the contract to
be performed must be informed to the non-performer, as a demonstration of the
principle of good faith.20
The Vietnamese Commercial Law, however, dedicates an entire provision –
Article 299 – to clearly stipulate the relations between specific performance and
other remedies. Accordingly, while the default party is performing his obligation
upon requirement of the aggrieved party, the latter party can only resort to claiming
damages and/or claiming penalty but not any other remedies.
CISG Articles 47 and 63 entitle the aggrieved party to fix an additional time
period of reasonable length for performance of the other party. The buyer (as well
as the seller) can always fix an additional period of time for performance, and
thereby offer the other party an opportunity to cure any lack of conformity. Such an
extension, however, usually means only that the aggrieved party’s remedies are

See Ho Chi Minh City University of Law, “Textbook on the Laws of Commerce in Goods and
Services” (2013), 417.
20

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restricted during the additional time period, unless the non-performer has already

declared that he will not (correctly) perform his obligations by the new deadline.21
In short, specific performance comprises a part of the remedy system
introduced by both CISG and Vietnamese Commercial Law, which allow the
aggrieved party to compel performance of contractual obligation from the nonperforming party. Under Vietnamese laws, specific performance also means that the
aggrieved party taking other measures to cause the contract to be performed and the
default party shall bear any costs incurred.
1.3.2. Damages
Claiming damages is a major remedy for breach of contract, since it is a
common remedy for any aggrieved party, regardless of whether it is the seller or the
buyer to a contract. Besides, it is available for any failure to perform any of the
default party’s obligations under the contract or CISG. The damages serve as
compensation for the losses that the aggrieved party had to suffer, and thereby make
the breach become economically harmless to the aggrieved party.22
The rights to claim damages of the buyer and the seller are circulated
respectively at CISG Article 45 and 61; and collectively at Article 302 of
Vietnamese Commercial Law. Damages are available for “the loss resulting from
any objective failure by the seller (buyer) to fulfill his obligations.”23 CISG sets
aside the system of liability based on fault.24 In order to claim damages,
consequently, it is not necessary to prove the existence of fault or the lack of good
faith or the breach of an express promise.
Whereas Article 303 of Vietnamese Commercial Law sets forth the grounds
for liability to pay damages, which are: (i) there is an act in breach of the contract;
(ii) there is an actual loss; and (iii) the act in breach of the contract is the direct
cause of the loss. The element of fault is not compulsory for the establishment of
damages either.

See Peter Schlechtriem, “Uniform Sales Law - The UN-Convention on Contracts for the International
Sale of Goods” (1986), 75-77 and 83-85.
22 Ho Chi Minh City University of Law, above n. 20, 428.
23 Secretariat Commentary on article 41 of the 1978 Draft [draft counterpart of CISG article 45]

[Buyer’s remedies in general; claim for damages; no period of grace]
24
Tallon, above n. 2, 572.
21

14


CISG Article 74 also provides the rule for the calculation of damages applies
whenever the contract has not been declared avoided by the party claiming
damages. It also applies where the contract has been avoided but there are damages
in addition to those which can be calculated under Articles 75 or 76. Article 74
provides that the injured party may recover as damages “a sum equal to the loss,
including loss of profit, suffered … as a consequence of the breach.” This makes it
clear that the basic philosophy of the action for damages is to place the injured party
in the same economic position (“restore the benefit of the bargain” 25) he would have
been in if the contract had been performed.26 Or in other words, assuming a causal
connection between the breach and the loss, the Convention scheme seeks to place
the injured party in the position he would have enjoyed ‘but for’ the breach.27
On the subject of how damages should be calculated, the Vietnamese
Commercial Law introduces the same regulation as the value of damages for loss
comprises the value of the actual and direct loss which the aggrieved party has had
to bear plus the direct profits which the aggrieved party would have earned in the
absence of such breach. On the other hand, “whether the injured party is entitled to
recover the loss of profit he actually suffered, the exact profit he could have
expected, or an average profit to be expected at a certain time in a certain place”28 is
still left unanswered by both CISG and the Vietnamese Commercial Law. It is
unclear also for which period of time the loss of profit can be measured.29
Unlike the Vietnamese Commercial Law, the amount of damages that the
aggrieved party can recover under CISG may not exceed the loss which the party in

breach foresaw or ought to have foreseen at the time of the conclusion of the
contract, in light of the facts and matters which he then knew or ought to have
known, as a possible consequence of the breach of contract. Foreseeability under
CISG is measured at the time of the conclusion of the contract in the light of the
facts and matters of which the breaching party then knew or ought to have known,
the underlying idea being that the ‘parties, at that point in time, should be able to
See E. Allan Farnsworth, “Damages and Specific Relief” (1979), 27 American Journal of
Comparative Law 249.
26 Secretariat Commentary on article 70 of the 1978 Draft [draft counterpart of CISG article 74]
[General rule for measurement of damages].
27 Joseph Lookofsky, above n. 15, 153.
28 Fritz Enderlein & Dietrich Maskow, “International Sales Law: United Nations Convention on
Contracts for the International Sale of Goods” (1992), 299.
29
Fritz Enderlein & Dietrich Maskow, above n. 28, 299.
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calculate the risks and potential liability they assume by agreement.’30 In order to
determine the foreseeability, it will be sufficient to prove that the party either
actually foresaw the loss, or was objectively in a position to foresee it, in
consideration of particular circumstances. Therefore, it is not necessary to prove
that the party in breach actually foresaw the loss.31 However, if the party in breach
actually foresees the loss, even though such loss is not foreseeable to a reasonable
person, such non-performing party is also responsible for the loss. This limitation
on the liability of the party in breach characterizes the principle of good faith and
fair dealing, as the default party should not be held liable for the other party’s
exceptionally heavy losses or losses of an unusual nature, which it could not have

been foreseeable at the time the contract was entered into. In other words, if the
default party could have anticipated such extravagant loss of the other party, it
might not have signed the contract.
CISG Article 78 and Article 306 of Commercial also provide a type of
statutory damages, arising from a breach of payment obligation. That is, if a party
fails to pay the price or any other sum that is in arrears, the other party is entitled to
interest on it. The value of the amount of interest for overdue payment can be
considered as the damages that the party in breach has to pay to the aggrieved party
for the damages caused by such delay, for the reason that the traders conduct their
business not only by their share capital but also by loan capital. However, the party
claiming for interest of overdue payment needs not to prove that he used loan
capital for the performance of the contract since equity capital and loan capital is
equal in terms of value.32 The provision on interest for overdue payment of
Vietnamese Commercial Law takes a step further than it of CISG when it clarifies
that the aggrieved party shall have the right to demand interest on such delayed
payment at the average interest rate applicable to overdue debts in the market at the
time of such payment for the delayed period. The average interest rate applicable to
overdue debts in the market is usually determined by calculating the average
overdue debts interest rate from three credit institutions.

30

Joseph Lookofsky, above n. 15, 153.
Chengwei Liu, ‘Section 14.2.2 Test for Foreseeability’, “Remedies for Non-performance:
Perspectives from CISG, UNIDROIT Principles & PECL” (2003), < />biblio/chengwei-74.html#ch14> at 11 June 2014.
32
Ho Chi Minh City University of Law, above n. 20, 436.
31

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Paragraph 2 of Articles 45 and 61 “reject the notion that the aggrieved party is
forced to elect between claiming damages and exercising the other remedies
conferred on him under the Convention, for example, specific performance and
avoidance.”33 “It is basic law that a buyer who rejects non-conforming goods or
cancels the contract on some other ground is not thereby deprived of his entitlement
to damages.”34 Under the same approach, Article 316 of Vietnamese Commercial
Law states that the right to claim damages of a party is not impaired after other
remedies have been applied. This rule is also emphasized and repeated in many
provisions on other remedies such as specific performance (Articles 299), penalty
(Articles 307), suspension of performance of contract (Articles 309), stoppage of
performance of contract (Articles 311) and cancellation of contract (Articles 314).
Last but not least, the laws also offer the non-performing party protection from
the threat of being claimed for an excessive amount of damages by putting on
innocent party the duty to take actions to mitigate the harm the he will suffer from
the breach so as to mitigate the damages he will claim, as required by CISG Article
77 and Article 305 of Vietnamese Commercial Law. Both rules also set forth the
sanction against a party who failed to mitigate his loss is that “the party in breach
may claim a reduction in the damages in the amount which [by which the loss]
should have been mitigated.”35
In conclusion, claiming for damages is rather the most important remedy
under commercial contract law in general and under CISG and Vietnamese laws in
particular. The injured party is entitled to recover not only the direct loss resulting
from the breach alone, but also the indirect loss, including the loss in the expected
profit caused by non-performance, but shall not exceed the loss which the party in
breach foresaw or ought to have foreseen at the time of the conclusion of the
contract. Nonetheless, such party has the duty to mitigate the loss and if he fails to
do so, the party in breach may claim a reduction in the damages mount.

See Jacob Ziegel, “Report to the Uniform Law Conference of Canada on Convention on Contracts for
the International Sale of Goods” (1981), 104.
34 Jacob Ziegel, above n. 33, 104.
35 Secretariat Commentary on article 73 of the 1978 Draft [draft counterpart of CISG article 77]
[Mitigation of damages].
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1.3.3. Penalty
There is no article in CISG obviously says whether the injured party can
impose a penalty, in form of an amount of money or things, as a remedy for the
breach of the other party. On the other hand, Article 9 (1) of CISG provided that
“the parties are bound by any usage to which they have agreed and by any practices
which they have established between themselves.” Therefore, CISG does not
prohibit the parties to agree to apply penalty as a remedy.
Under Article 300 of Vietnamese Commercial Law, penalty for breach is a
remedy whereby the aggrieved party requires the default party to pay a penalty sum
for breach of contract where this is so agreed in the contract. Unlike the remedy of
damages, the party who claims penalty for breach of contract does not have to prove
the actual loss. The liability to pay penalty of the default party arises upon (i) the
agreement on penalty of the parties and (ii) the occurrence of a breach of contract,
unnecessarily a fundamental breach, which the parties agree as a ground for penalty.
Penalty for breach of contract serves both as a guarantee for performance and a
sanction for the party in breach.36
In fact, there are cases where the parties did not have agreement on penalty for
breach of contract but later admit such remedy and the penalty level proposed by
the other party. Though cases of this kind have not been mentioned by the
Vietnamese Commercial Law or any other relevant laws, they should be regarded as

valid penalty agreements. Because, ultimately, the penalty remedy is designated to
ensure the interests of the parties. Therefore, if the parties agree to be bound by the
remedy, there is no reason not to recognize this agreement as a valid one.37
Despite being a remedy established on mutual agreement, the level of penalty,
i.e., the maximum amount of money that the party not in breach may recover is
limited at eight per cent (8%) of the value of the contractual obligation which is the
subject of the breach (Article 301 of Vietnamese Commercial Law). This principle
is the legacy of a centrally planned economy, where the parties to a contract are
either state-owned or collective economic entities and the performance of
contractual obligations is not only the duty of one party to the other, but also its

36

Ho Chi Minh City University of Law, above n. 20, 423.
Nguyen Thi Hang Nga, “Application of penalty and damages remedies in the reality of contractual
dispute settlement in commercial activities” (2006), 9 People’s Court Journal 25, 26.
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duty to accomplish the economic targets assigned by the government.38 For
instance, the Ordinance on Economic Contracts 1989 stipulates that penalty is a
statutory remedy or sanction for breach of contract, either for non-performance, late
performance, nonconforming performance or illegal imposition of remedies.39 In the
market economy nowadays, this rule is no longer relevant and should be removed
so as to insist the guarantee-for-performance nature of this remedy.
In summary, penalty is a remedy provided by Vietnamese Commercial Law
which requires an agreement between the parties that if one party breaches a certain
obligation, such party will have to pay the agreed sum of penalty to the other,

regardless whether there was actual loss or not. The maximum penalty rate allowed
by the law is eight per cent (8%) of the value of the contractual obligation which is
the subject of the breach. CISG does not recognize penalty as a remedy for either
seller or buyer, but it does not prohibit the parties from using this remedy as well.
1.3.4. Suspension of performance
The contracts for the sale of goods are bilateral agreements, in which the rights
and obligations of one party is corresponding to the obligations and rights of the
other party. If a party fails to perform its obligation, therefore, it is justifiable for the
other party to suspend its performance.40 A suspended contract, apparently, does not
lose its effect and the parties are not released from their obligations. In other words,
after the ground for suspension has come to an end, the contract will automatically
resume.
The grounds for suspension of performance of contract under CISG and
Vietnamese Commercial Law are different. Under CISG Article 71, a party may
suspend the performance of his obligations if, after the conclusion of the contract, it
becomes apparent that the other party will not perform a substantial part of his
obligations “as a result of a serious deficiency in his ability to perform or in his
creditworthiness; or “his conduct in preparing to perform or in performing the
contract.” Since suspension of performance of contract under CISG is a remedy for
anticipatory breach. Vietnamese Commercial Law employs a number of grounds for
suspension of contract which to some extent embodies suspension is a remedy
against anticipatory breach as well. Under Article 51, the buyer is entitled to
38

Ho Chi Minh City University of Law, above n. 20, 426.
Ordinance on Economic Contracts 1989, Articles 29 to 38.
40
Ho Chi Minh City University of Law, above n. 20, 438-439.
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suspend his performance if there are certain evidences that the seller would breach
the contract, such as (1) the buyer ‘has proof of fraud on the part of the seller,’ (2)
the buyer ‘has proof that the goods are currently subject to a dispute,’ or (3) the
buyer ‘has proof that the seller delivered nonconforming goods.’ Under Article 308
of Vietnamese Commercial Law, Suspension of performance may also arise, for
both parties, (4) upon occurrence of a breach which the parties have agreed shall be
a condition for suspension of performance, or (5) when one party commits a
fundamental breach of the contractual obligations.
Suspension of performance under CISG can either be in the form of
suspending the performance of contractual obligations pursuant to CISG Article
71.1 or stopping the goods in transit pursuant to Article 71 (2). Stopping the goods
in transit is the case where the seller has the right against the buyer to order the
carrier not to hand over the goods to the buyer even though the buyer holds a
document which entitles him to obtain them, e.g., an ocean bill of lading, and even
if the goods were originally sold on terms granting the buyer credit after receipt of
the goods.41 The same situation where the seller wants to suspend his performance
when the goods have already been dispatched is not governed by Vietnamese
Commercial Law. CISG Article 71 (3) and Article 315 of Vietnamese Commercial
Law both provide that the party suspending performance pursuant must
immediately notify the other party of that fact. Suspension of contract cannot be
concurrently applies alongside with avoidance of contract or stoppage of
performance of contract due to the differences in their legal consequences.
In theory, unless there is a specific regulation of the law or the parties agreed
otherwise, the party not in breach is no longer entitled to suspend his performance
when the party in breach performs his own obligations.42
It can be concluded that, suspensions of performance of obligation although
lead to the same consequence, i.e. the performance of contract is paused for a

certain period of time, the grounds for application of this remedy are very different
under CISG and Vietnamese laws. CISG authorizes one party to suspend his
performance if there is apparent proof that the other party will not perform a
substantial part of his obligations. While under Vietnamese Commercial Law, the
41

Secretariat Commentary on article 62 of the 1978 Draft [draft counterpart of CISG article 71]
[Suspension of performance].
42
Ho Chi Minh City University of Law, above n. 20, 441.

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