DISPUTE OVER A MANUFACTURING CONTRACT

Legal issue: The Plaintiff demands that the Defendant accept delivery of the goods, pay the purchase price in full, pay interest on overdue amounts, and compensate the Plaintiff for damages arising from the Defendant’s breach of contract.

Case brief: V.A Corporation contracted V.K.D Company Limited to manufacture components for forklifts and other factory equipment. The two parties signed a master agreement with a term of five years. At the time of signing the contract, V.A Corporation provided V.K.D Company with sample components, molds, drawings, and technical specifications as appendices to the contract. Any changes to the production requirements, including sample components, molds, drawings, and technical specifications, were to be communicated by V.A Corporation to V.K.D Company. In the initial stages of contract performance, the two parties signed two contract addendums to adjust the production requirements. Subsequently, due to the slowness of this procedure and the established relationship between the parties, when V.A Corporation had a notification to adjust the production requirements, the Sales Manager of V.A Corporation would notify V.K.D Company, and V.K.D Company would adjust the production accordingly, without the parties signing a contract addendum. After more than two years of contract performance, a dispute arose between the two parties. Specifically, V.A Corporation frequently made changes to the production requirements, and each time, they would notify V.K.D Company, which would then adjust its production accordingly. Around May 2022, V.A Corporation made changes to the production requirements and sent a notification regarding new sample components, molds, drawings, and technical specifications to V.K.D Company. V.K.D Company manufactured the products, and the total value of the first batch produced was approximately 1.5 billion VND. After production, V.K.D Company requested V.A Corporation to accept the goods. However, V.A Corporation refused to accept the goods because the newly appointed Director of V.A Corporation did not agree with the quality of the new batch, arguing that (1) the person who signed the notification of changes to the production requirements of V.A Corporation was the Sales Manager, who did not have the authority to represent the company in the performance of the contract; and (2) since the two parties did not sign a contract addendum to change the production requirements, the notification had no legal validity, and the manufactured goods did not comply with the contract. Therefore, V.A Corporation refused to accept the goods, refused to pay, and requested V.K.D Company to bear the losses itself.

How we helped our clients: Our attorney, in providing legal advice, determined that the parties had established a commercial practice of modifying production requirements. Citing Article 12 of the Commercial Law 2005, our attorney requested the Arbitration Council to recognize the validity and binding effect of the agreement to modify the production requirements based on this established commercial practice. Accordingly, relying on Articles 55, 56, 297, and 306 of the Commercial Law, our attorney, representing V.K.D Company, requested the Arbitration Council to compel V.A Corporation to accept the full delivery of goods, pay the full purchase price for the entire order, pay interest on overdue amounts, and compensate for all costs incurred due to the delay in accepting the goods, including inventory management costs, storage costs, and property insurance premiums while the goods were in storage.

Dispute Resolution Result: Prior to the arbitration hearing, the parties reached a settlement agreement. After one voluntary session at the Arbitration Center and one informal mediation session, the parties agreed on the following: (1) V.A Company shall accept the full delivery of goods and pay the full purchase price, including costs incurred due to the delay in accepting the goods; and (2) V.K.D Company shall waive its right to claim interest on overdue amounts. Subsequently, V.K.D Company withdrew its arbitration claim.