Precedent no. 21/2018/AL on fault and damage in unilateral termination of equipment lease agreement

The equipment lease agreement has a fixed term and specifies no condition for termination of the agreement. The Lessee terminated the agreement prior to its expiry without consent of the Lessor.

Because the Lessee just provided a short term advance notice to the Lessor of the termination of the agreement, the Lessor could not make a substituted agreement in the remaining term of the agreement.

The Lessor requires the Lessee to pay the rent for the remaining term of the agreement.

Representation of the representative of D Co., Ltd in the lawsuit petition dated March 18, 2007 and subsequent depositions:

On April 10, 2006, D Co., Ltd (hereinafter referred to as Company D) concluded an economic agreement No. 1141/HD-CNQN to take out a lease of tugboats) with C Joint-Stock Company (Company C). Under the agreement, Company D leases to Company C 2 tugboats with capacity of 135 CV and license plate No. NB2010 and NB2172; and provide towage services for Company C to maneuvers their vessels to come into and leave Khe Day Port (Quang Ninh) and Port 10-10 to load goods; monthly rent (VAT inclusive) is VND 50,000,000 per tugboat; Company C will pay to Company D 17 litter Diezel/1 hour/1 135 CV tugboat + 0.23 litter of lubricant/1 hour/1 tugboat (the fuel price and costs incurred at two terminals will be re-calculated at the payment time, if any). Company D shall assign 1 master, 1 chief mechanic and 1 sailor on a tugboat and fully pay them salaries… The agreement is effective from the date of signing to December 31, 2006 inclusive.

On August 17, 2006, Company C sent the Dispatch No. 2349 INDEVCO, requesting Company D to terminate and complete the agreement No. 1141/HD-CNQN dated April 10,2006 prior to its expiry from August 20, 2006.

On August 18, 2006, Company D sent the Dispatch No. 59.CVCty in reply to the Dispatch No. 2349 INDEVCO of Company C as follows:  requesting Company C to pay a lump sum of the rent of 2 tugboats in 2^nd quarter of 2006 (enclosed with the record of statement dated July 13, 2006) and pay a lump sum of the rent of 2 tugboats for the remaining term of the agreement from August 1, 2006 to December 31, 2006 if Company C does not wish to lease 2 tugboats from August 20, 2006.

On September 4, 2006, Company C and Company D made a record of statement of tugboat rent; thereby two parties also determined total sum of money payable to Company D up to August 21, 2006 is VND 511,539,505.

On January 16, 2007, Company C paid Company D VND 511,539,505.

On March 18, 2007, after unsuccessful negotiations, Company D filed a lawsuit with the Court compelling Company C to pay Company D VND 403,000,000 and late payment charge from August 21, 2006 to December 31, 2006 as per the law. At the first instance court hearing, the representative of the plaintiff withdrew the claim for late payment charge.

Representation of representative of Company C:

The agreement No. 1141/HD-CNQN dated April 10, 2006 with Company D was concluded and performed as stated by the plaintiff. On August 17, 2006, no longer wishing to use 2 leased tugboats, Company C sent a dispatch to Company D requesting the termination of agreement prior to its expiry. Company C paid Company D VND 511,539,505. Company C refused to pay Company D VND 403,000,000 because it did not incur such debt in fact. So Company C requires recalculation. Company C only accepts 50% of the statement provided that it is calculated correctly and properly.

In the First Instance Commerce Judgment No. 01/2012/KDTM-ST dated January 18, 2012, the People’s Court of Quang Ninh Province judged:

Refuse the request of D Co., Ltd claiming Company C (now is Joint-Stock General Company of Group I) the payment of the remaining value of agreement No. 1141HD-CNQN dated April 10, 2006 of VND 303,000,000 and late payment charge of VND 157,260,000.

In addition, the Court of First Instance decided the court fee and announced the appeal right to litigants as per the law.

On February 10, 2012, Company filed an appeal against First Instance Judgment (postmark stating sending date is February 25, 2012).

In the Decision No. 87/2012/KDTMPT-QD dated May 17, 2012, the Court of Appeal of the Supreme People’s Court in Hanoi decided to reject the appeal of Company D for the ground of overdue appeal as prescribed in Article 245 of the Civil Procedure Code.

On June 7, 2012, Company D filed another claim, requesting a cassation review against the said Decision.

In the Appeal No. 29/2015/KN-KDTM dated May 4, 2015, the Chief Justice of the Supreme People’s Court requested the Council of Judges of the Supreme People’s Court to review the case under cassation procedure to quash the above Decision on Rejection of Appeal No. 87/2012/KDTMPT-QD dated May 17, 2012 of the Court of Appeal of the Supreme People’s Court of Hanoi and First Instance Commercial Judgment No. 01/2012/KDTM-ST dated January 18, 2012 of People’s Court of Quang Ninh; refer the case to the Court of Appeal of the Supreme People’s Court of Hanoi city for re-conduct trial as per the law.

At the cassation trial court hearing, the representative of the Supreme People’s Procuracy consents to the appeal made by the Chief Justice of the Supreme People’s Court.

[1] On April 10, 2006, Company D leased to Company C 2 tugboats to maneuvers vessels between Port 10-10 and Khe Day Port (Quang Ninh); the lease was valid from the date of signing to December 31, 2006 under the economic agreement No. 1141/HD-CNQN. The equipment lease agreement specifies no condition for termination of the agreement. However, on August 17, 2006, Company C sent a written notice No. 2349/INDEVCO of termination of agreement from August 20, 2006 for the reason of “no longer wishing to lease 2 tugboats”. As Company C provided a short term advance notice to the Lessor of the termination of the agreement, it caused damage to Company D because it could not make a substituted agreement. Company C was at fault, so it is responsible for the damage suffered by Company D. The actual damage should be the rent of equipment for the remaining term of the agreement.

[2] Before proceedings were issued, Company D sent the Dispatch No. 75CVCtyDG (mentioning 2006 only), requesting Company C to pay the rent of 2 tugboats from August 21, 2006 to December 31, 2006 of VND 250,000,000. In the Dispatch No. 2774 INDEVCO dated October 17, 2006, Company C only agreed to cover the salaries paid to the pilots. Disagreeing with such reply, on March 18, 2007, Company D filed a lawsuit, requesting Company C to pay VND 403,000,000 (equivalent to the rent of 2 tugboats for the remaining term of the agreement). Thus, this is possibly considered as the actual damage claimed by the plaintiff.

[3] When the Court of First Instance accepted the case for first instance retrial, Company D claims the residual value of the agreement from August 21, 2006 to December 31, 2008 of VND 403,000,000 and late payment charge. As Company C paid VND 100,000,000, it has to keep paying VND 303,000,000 and the late payment charge. The Court of First Instance refused this claim as stating that it is unfounded and such amount is residual value of the agreement which has not been performed. On the other hand, the Court of First Instance did not consider request of Company D because Company D did not claim compensation for damage while it has to right to do so. This wrong decision negatively affects the legitimate interests of Company D.

[4] As mentioned in the record of first instance court hearing on January 18, 2012, the representative of Company D was present at the court hearing on that date, so that representative should have known the content and decision of the Court. It was not until February 10, 2012 that Company D filed an appeal (the postmark mentioning the sending date is February 25, 2012, and the seal indicating the receiving date is February 27, 2012), which was overdue as prescribed in Article 245 of the Civil Procedure Code. However, Company D is ungrounded when citing its representative not clearly hearing what the Presiding Judge pronounced as the reason for its overdue appeal as prescribed in Section 5 Part I of Resolution No. 05/2006/NQ-HDTP dated August 4, 2006 of Council of Judges of the Supreme People’s Court. Thus, the Court of Appeal was right when rejecting the appeal.

[5] Although the Decision on Rejection of Appeal No. 87/2012/KDTMPT-QD dated May 17, 2012 of the Court of Appeal of the Supreme People’s Court of Hanoi is well-grounded, the First Instance Judgment takes effect upon this Decision, so it is necessary to quash both Decision on Rejection of Appeal No. 87/2012/KDTMPT-QD dated May 17, 2012 of the Court of Appeal of the Supreme People’s Court of Hanoi and First Instance Commercial Judgment No. 01/2012/KDTM-ST dated January 18, 2012 of People’s Court of Quang Ninh; and then refer the case to the Court of Appeal of the Supreme People’s Court of Hanoi city for re-conduct trial as per the law.

According to facts and matters, pursuant to Clause 3 Article 297, Clause 1, 2 Article 299 of the Civil Procedure Code (amended in the Law No. 65/2011/QH12 dated March 29, 2011),

“[1] On April 10, 2006, Company D leased to Company C 2 tugboats to maneuvers vessels between Port 10-10 and Khe Day Port (Quang Ninh); the lease was valid from the date of signing to December 31, 2006 under the economic agreement No. 1141/HD-CNQN. The equipment lease agreement specifies no condition for termination of the agreement. However, on August 17, 2006, Company C sent a written notice No. 2349/INDEVCO of termination of agreement from August 20, 2006 for the reason of “no longer wishing to lease 2 tugboats”. As Company C provided a short term advance notice to the Lessor of the termination of the agreement, it caused damage to Company D because it could not make a substituted agreement. Company C was at fault, so it is responsible for the damage suffered by Company D. The actual damage should be the rent of equipment for the remaining term of the agreement.”

1. Quash the Decision on Rejection of Overdue Appeal No. 87/2012/KDTMPT-QD dated May 17, 2012 of the Court of Appeal of the Supreme People’s Court in Hanoi and First Instance Commercial Judgment No. 01/2012/KDTM-ST dated January 18, 2012 of People’s Court of Quang Ninh Province on trial of dispute over equipment lease agreement between D Co., Co., Ltd, the plaintiff, and C Joint-Stock Company, the defendant.

2. Refer the case file to People’s Court of Quang Ninh Province for re-trial as per the law.