DISPUTE REGARDING WARRANTY AND GUARANTEE WITHIN A CONTRACT

Matter in Brief:

On December 1, 2022, LC Corporation (hereinafter referred to as “LC Company”) and XT Technology and Environment Company Limited (hereinafter referred to as “XT Company”) entered into Contracts for the installation of a weather monitoring system on CT Island in KH Province, comprising two Stations, A and B, with a total value of 20.000.000.000 VND. Pursuant to the Contracts, upon completion of the acceptance and handover of the project, LC was obligated to issue a performance bond equivalent to 5% of the project value, with a guarantee period of one year from the date of completion of the acceptance and handover.

On December 30, 2022, the parties executed an Acceptance and Handover Certificate, confirming that the project was operating as designed and was free from defects or deficiencies. The accepted value was VND 20.000.000.000. XT Company paid VND 19.000.000.000, with the remaining VND 1.000.000.000 to be paid on the expiration of the warranty period on January 2, 2024.

On December 20, 2023, XT Company issued a notice requesting LC Company to extend the warranty period for the project and the guarantee by an additional year, citing the following reasons: (i) LC Company performed warranty services on the equipment in an untimely manner, resulting in the project being unable to operate right on purpose for an extended period; and (ii) LC Company took up to two months to complete repairs, and the project malfunctioned again after one month and became unusable.

Client’s Request:

LC Company is a regular legal consultancy client of TAPHALAW. Upon receipt of the document from XT Company, the General Director of LC Company requested that TAPHALAW provide legal consultancy regarding the resolution of XT Company’s request for an extension of the construction warranty and guarantee.

Work Performed by TAPHALAW Attorneys:

After reviewing the case file and additional documents from LC Company, the Attorneys sent a consulting letter to LC Company. The letter concluded that the request made by XT Company was only partially justified. A summary of the consulting opinion is as follows:

– LC Company’s failure to perform warranty for the project within the stipulated time frame, as outlined in the contract, did indeed occur. However, the reasons for this delay are not solely attributable to LC Company but also to various objective factors, including: (i) adverse sea weather conditions at the time of the warranty period, preventing access to the project site; (ii) XT Company’s failure to provide personnel to accompany LC Company in conducting timely warranty; (iii) the damaged equipment could not be repaired onsite and had to be sent to the manufacturer in Singapore for repairs; (iv) the manufacturer concluded that the damage was caused by XT Company personnel’s improper operation; and (v) only the equipment at Station A experienced frequent breakdowns, while the equipment at Station B was warranty in accordance with the terms of the contract.

– The attorney has determined that LC Company’s breaches of the contract are partially due to its own fault, partially due to XT Company’s fault, and partially due to objective hindrance. Therefore, the request for LC Company to extend the warranty and guarantee period by an additional year is without sufficient grounds. The attorney recommends agreeing to a maximum extension of six months, limited to the portion of the project with frequent breakdowns, namely Station A, in order to mitigate costs for LC Company and maintain the cooperative relationship with XT Company.

The attorney has assisted LC Company in gathering necessary evidence and drafting a response to XT Company, expressing its disagreement with a one-year extension of the warranty and guarantee for the entire contract, and also proposed a meeting between the two parties to resolve the dispute.

Outcome: LC Company requested that the attorney represent them participate in a meeting with XT Company. During the meeting, the attorney analyzed, argued, and presented compelling evidence to renegotiate XT Company’s request for an extension of the warranty and guarantee period. XT Company subsequently agreed to LC Company’s proposal to extend the warranty and guarantee period for Station A by an additional 6 months. XT Company will pay LC Company the amount of 500.000.000 VND within 3 working days from the date of signing the Contract Annex, and the remaining 500.000.000 VND will be paid immediately upon completion of the warranty period. At the conclusion of the meeting, the attorney drafted a Contract Annex, recording the agreed-upon terms for both parties to sign.