I. Legal Basis

Compensation for damages in commercial contracts under Vietnam’s Commercial Law 2005 is stipulated to protect the rights of parties when a contractual breach occurs. Liability for compensation arises when one party fails to fulfill its obligations, causing damage to the other party. To claim compensation, the injured party must prove actual damages and establish a causal relationship between the breach and the damages.

The scope of compensation includes direct damages and may extend to indirect damages if agreed upon by the parties beforehand. Compensation is usually monetary, but in some cases, the breaching party may be required to restore the original state of the contract.

The law also sets limits on compensation, often based on terms agreed upon in the contract. The statute of limitations for claiming compensation for damages is two years from the date the injured party discovers the damage and the breach. Overall, these regulations create a clear legal framework, ensuring fairness and transparency in commercial transactions.

II. Definition

Compensation for damages in commercial contracts refers to the liability of the breaching party to compensate the injured party for damages incurred due to the breach.

III. Determination of the Value of Compensation for Damages in Commercial Contracts

According to Article 302 of the Commercial Law 2005, compensation for damages refers to the breaching party compensating for losses caused by their breach of contract to the injured party. The value of compensation includes the actual, direct losses suffered by the injured party due to the breach and the direct benefits that the injured party would have received if the breach had not occurred.

The current law does not specify a fixed amount for compensation in commercial contracts. Instead, the compensation amount depends on the actual damages suffered by the injured party and the direct benefits they would have received if the breach had not occurred. The party claiming compensation must prove the losses, the extent of those losses caused by the breach, and the direct benefits that would have been obtained in the absence of the breach.

Furthermore, under Article 305 of the Commercial Law 2005, the injured party must take reasonable measures to mitigate losses, including losses related to the direct benefits that would have been received due to the breach. If the injured party fails to take such measures, the breaching party may request a reduction in the compensation amount equivalent to the losses that could have been mitigated.

IV. Basis for Liability to Compensate for Damages

Under the Commercial Law 2005, liability for compensation arises when a contractual breach occurs. Determining this liability requires three fundamental elements. First, there must be a clearly established breach of contract. Second, the injured party must prove that actual damages occurred. Finally, the breach must be the direct cause of the damages. Once these elements are established, the breaching party is obligated to compensate the injured party in accordance with the law, ensuring fairness and protecting the lawful rights of the parties involved in the commercial transaction.

V. Cases of Exemption from Liability for Compensation in Commercial Contracts

Within the framework of the Commercial Law 2005, certain specific cases allow the breaching party to be exempted from liability for compensation. First, force majeure events, including situations such as natural disasters, fires, or other unforeseeable and uncontrollable events, may reduce or eliminate liability for compensation.

Second, if the injured party contributed to the damages, the breaching party might also be exempt from liability. Third, if the injured party fails to fulfill their contractual obligations, this may lead to the breaching party not being liable for compensation. Lastly, if the damages were entirely caused by the injured party’s fault or resulted from implementing a decision by a competent state authority that was unknown at the time of contract formation, the breaching party may be exempt.

The party causing the damages has the obligation to prove these cases of exemption from liability. These provisions aim to ensure fairness and reasonableness in commercial relationships while protecting the rights of the parties involved.

VI. Obligation to Prove Damages and Obligation to Mitigate Damages

In the field of commercial contracts, the obligation to prove damages and the obligation to mitigate damages are two critical aspects that parties must adhere to under the Commercial Law 2005. The obligation to prove damages lies with the injured party, requiring them to provide specific evidence of the damages suffered due to the other party’s breach of contract. This proof must include not only the value of the damages but also the causal link between the breach and the damages.

In parallel with the obligation to prove damages, the injured party also has a responsibility to mitigate losses. This means they must take necessary measures to minimize the damages incurred, avoiding unnecessary escalation of losses. If the injured party fails to fulfill this obligation, the unmitigated portion of the damages may not be compensated, or the compensation amount may be reduced accordingly. These regulations strike a balance between the rights and obligations of the parties and encourage effective handling of damages.

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