CONSULTATION ON RESOLVING CONSTRUCTION CONTRACT DISPUTES

Matter in Brief:

On January 2, 2023, CT Construction Company Limited (hereinafter referred to as “CT”) and SH Construction Joint Stock Company (hereinafter referred to as “SH”) entered into a Contract and its Appendices to undertake the construction of certain works for SH’s KL industrial zone project. The contract value was VND 5.000.000.000. Payment was to be made in two installments: 20% upon contract signing and 80% within 30 days of the inspection and handover of the works. As per the Contract, the inspection and handover of the works were scheduled for December 31, 2023.

On December 20, 2023, CT notified SH of their inability to meet the contractual deadline for the acceptance and handover due to force majeure in the form of flooding at the construction site, which required additional time for remediation. The new deadline for inspection and handover was set for January 10, 2024. SH agreed to this extension.

The inspection and handover of the works were completed on January 10, 2024. SH was obligated to pay the remaining balance of VND 4.000.000.000 by February 9, 2024.

On April 1, 2024, CT sent a written request to SH demanding payment of the outstanding balance. On April 10, 2024, SH responded with the following key points: (i) SH has not received payment from the investor, General Corporation V, and therefore cannot pay CT; (ii) the investor is auditing and reviewing the completed work, resulting in a reduction in the quantity and cost of the works, so SH cannot determine the exact amount to pay CT; (iii) due to CT’s delay in handover of the works, SH has been penalized by the investor and is requesting that CT compensate for the damages, which will be deducted from the payment amount, totaling VND 600.000.000.

Client’s Request:

CT has contacted TAPHALAW seeking legal advice on the following matters:

(i) Whether the reasons provided by SH for the delay in payment are legally justifiable.

(ii) Whether SH’s claim for damages arising from CT’s delay in handover of the construction is legally grounded.

(iii) What legal options are available to compel SH to pay the remaining debt to CT.

Attorney’s Work Performed:

After reviewing the case file and relevant legal provisions, the attorney has prepared a consulting report for CT, providing legal advice to resolve the aforementioned issues. The summary of the legal advice is as follows:

1. Regarding CT’s right to be payment under the Contract:

The Inspection and Handover Report contains CT and SH confirmation that CT has completed its work under the Contract. Therefore, SH has an obligation to pay CT in accordance with the terms of the Contract and applicable law.

2. SH’s reasons for refusing payment are groundless:

The attorney has reviewed the Contract and relevant legal provisions and found that there is no agreement between CT and SH stipulating that SH shall only make payment to CT after the investor has made payment to SH; and the law also does not have such a provision. Therefore, SH’s reason that the investor has not paid SH, so SH has not yet incurred the obligation to pay CT, is groundless.

The payment value in the Contract between CT and SH is based on the actual value of the work performed by CT, as recorded in the Inspection and Handover Report, and does not depend on the figures calculated by the Investor for SH. The Inspection and Handover Report has been confirmed by SH, therefore, SH’s reason that they have not been able to determine the exact figures from the Investor to make payment to CT is groundless.

Although CT has delayed the handover of the construction compared to the schedule due to force majeure reasons such as storms and floods, this has been agreed to in writing by SH. The Contract also does not stipulate any penalties or estimated damages for CT’s breach. SH has also not provided any evidence to prove actual damages. Therefore, SH’s request for CT to pay damages is groundless.

3. Proposed solutions: The attorney has proposed various options that CT can take to resolve the outstanding debt between CT and SH, analyzing and clarifying the advantages and disadvantages of each option for CT to consider. First, the attorney recommends sending a response letter to SH, requesting a meeting between the parties to resolve the dispute in the best possible way.

Consultancy Outcome:

At CT’s request, TAPHALAW’s attorney drafted a document to SH with the aim of protecting CT’s rights. Accordingly refuted SH’s unsubstantiated claims, demanded the payment of outstanding debts and accrued interest.

However, SH is still not willing to fulfill their payment obligations and consistently ignores CT’s notices to resolve the matter. Consequently, CT opted to file a lawsuit against SH, appointing TAPHALAW’s attorney to represent to protect their interests in court. SH also filed a counterclaim.

During the trial, the attorney presented compelling arguments, evidence, and legal reasoning to support CT’s request, demonstrating their validity and legality. Conversely, the counterclaims asserted by SH were shown to be unfounded and unsupported by evidence.

Following the trial, the Court entered judgment granting all of CT’s claims and denying SH’s counterclaims; ordered SH to pay CT the full amount of the outstanding debt, together with accrued interest.