Precedent No. 44/2021/AL on determining the statute of limitations for counterclaims

1. What is a precedent?

Precedents are arguments and rulings in legally effective judgments and decisions of the Courts regarding specific cases selected by the Judicial Council of the Supreme People’s Court and published by the Chief Justice of the Supreme People’s Court as precedents for Courts to study and apply in adjudication. (Article 1 of Resolution 04/2019/NQ-HĐTP)

A selected precedent must meet the following criteria:

– It has value in clarifying legal provisions with different interpretations, analyzing and explaining legal issues and facts, and pointing out principles, guidelines for handling, and legal norms to be applied in a specific case, or demonstrating justice toward issues for which there are no specific legal provisions;

– It is of a standard nature;

– It has value in guiding the uniform application of law in adjudication.

2. Precedent No. 44/2021/AL on determining the statute of limitations for counterclaims

2.1. Source of the precedent

Cassation Decision No. 10/2021/KDTM-GĐT dated September 14, 2021, of the High People’s Court in Hanoi regarding the commercial business case “Dispute over design consultancy contract” in Hanoi, between the plaintiff, H Joint Stock Company, and the defendant, P Design and Construction Co., Ltd.

Location of the precedent content:

Paragraph 2 of the “Court’s Assessment” section.

2.2. Summary of the precedent content

– Precedent situation:

In a civil case, the defendant has a counterclaim against the plaintiff, and a person with related rights and obligations has an independent claim.

– Legal solution:

In this case, the Court must determine that the defendant’s counterclaim is essentially a lawsuit petition and must comply with the legal provisions on the statute of limitations for filing a lawsuit.

Legal provisions related to the precedent:

Clause 4 Article 60, Article 159, Article 176, Article 178 of the Civil Procedure Code of Vietnam 2004 (corresponding to Clause 4 Article 72, Article 184, Article 200, Article 202 of the Civil Procedure Code of Vietnam 2015); Point e, Clause 1, Article 217 of the Civil Procedure Code 2015.

Keywords of the precedent:

“Counterclaim”; “Determination of statute of limitations for filing a lawsuit”.

CASE CONTENT:

According to the lawsuit petition dated June 24, 2010, and during the process of resolving the case, the plaintiff, H Joint Stock Company, represented by its representative, presented:

On January 29, 2008, H Joint Stock Company and P Design and Construction Co., Ltd. signed Design Consultancy Contract No. 01-2008/PLC-HDC, with the following content: P Design and Construction Co., Ltd. (the Consultant) was responsible for the entire design of the Project “Commercial Center – 4-star Hotel HD – Hotel” on a land area of 8,971m² at D7, X Ward, T District, Hanoi City, for which H Joint Stock Company was the Investor. The total value of the Contract was 1,754,550 USD (excluding value-added tax), allocated into 3 implementation phases: Phase 1 – Construction design; Phase 2 – Interior and landscape design; Phase 3 – Author’s supervision.

Accordingly, for Phase 1 (Construction design), the design fee was 1,191,822 USD (denoted as A); the author’s supervision fee was 62,728 USD (denoted as AA), divided into 12 installments (from “1st Payment” to “12th Payment”), in which:

– 1st Payment: 25% x A immediately after signing the Contract and the Consultant having submitted the Bank Guarantee for the Contract and insurance contracts to the Investor.

– 2nd Payment: 5% x A after submitting the general site plan design documents and architectural options to the Investor and obtaining the Investor’s approval.

– 3rd Payment: 10% x A after submitting the general site plan design documents and architectural options to the Hanoi Department of Architecture and Planning or equivalent competent authorities and the documents are appraised and approved.

During the implementation of Phase 1 (Construction design), P Design and Construction Co., Ltd. delivered insurance contracts, a Bank Guarantee, and the general site plan design documents and architectural options of the Project to H Joint Stock Company. H Joint Stock Company made two payments to P Design and Construction Co., Ltd.: 1st Payment (25% x A and value-added tax, according to VAT Invoice No. 0081905 dated February 27, 2008); 2nd Payment (5% x A and value-added tax, according to VAT Invoice No. 0081909 dated August 18, 2008). The total amount of the two payments mentioned above was 396,751.75 USD, equivalent to 6,374,689,675 VND converted at the exchange rate at the time of payment. Subsequently, due to changes in the project scale and the inability of both parties to reach an agreement on adjusting the contract value for the new design, H Joint Stock Company unilaterally terminated the Contract and had a dispute with P Design and Construction Co., Ltd. regarding the payment value.

H Joint Stock Company claimed that in the 1st Payment, it had overpaid an advance compared to the actual volume of work performed by P Design and Construction Co., Ltd. Now, H Joint Stock Company only accepted to pay P Design and Construction Co., Ltd. an amount accounting for about 8% of the construction design fee (8% x A) for both payments (1st and 2nd). Additionally, H Joint Stock Company accepted a penalty equivalent to 1% of the Contract value due to its unilateral termination. Therefore, H Joint Stock Company filed a lawsuit requesting the Court to compel P Design and Construction Co., Ltd. to refund the overpayment of 278,841.8 USD (after offsetting the advance against the paid amount).

The defendant, P Design and Construction Co., Ltd., represented by its representative, presented:

P Design and Construction Co., Ltd. did not accept the plaintiff’s lawsuit request for a refund, reasoning that this was the amount H Joint Stock Company paid according to the agreed progress in the Contract, not an advance. Furthermore, P Design and Construction Co., Ltd. filed a Counterclaim, requesting H Joint Stock Company to not only bear a penalty equivalent to 1% of the Contract value for unilateral termination but also continue paying the 3rd installment (10% of the design fee) as P Design and Construction Co., Ltd. had completed the technical support for the approval of the Project’s design documents. P Design and Construction Co., Ltd. argued that the failure to submit the design documents to the competent authorities, resulting in the non-approval of these documents, was entirely due to H Joint Stock Company’s fault.

In First-instance Business and Commercial Judgment No. 01/2011/KDTM-ST dated June 20, 2011, the Hoan Kiem District People’s Court of Hanoi City decided:

Accept the lawsuit petition of H Joint Stock Company against P Design and Construction Co., Ltd. Compel P Design and Construction Co., Ltd. to refund H Joint Stock Company the advance payment of Contract No. 01-2008/PLC-HDC signed on January 29, 2008, amounting to 272,571.41 USD, equivalent to 5,642,228,187 VND. Reject the counterclaim of P Design and Construction Co., Ltd. against H Joint Stock Company.

On July 1, 2011, P Design and Construction Co., Ltd. appealed the entire first-instance judgment.

In Appellate Business and Commercial Judgment No. 27/2011/KDTM-PT dated September 21, 2011, the Hanoi People’s Court decided:

Do not accept the appeal of P Design and Construction Co., Ltd. Uphold the decision of the First-instance Judgment.

After the appellate trial, P Design and Construction Co., Ltd. filed a petition for cassation review of the aforementioned appellate judgment.

In Protest Decision No. 60/2014/KN-KDTM dated September 15, 2014, the Chief Justice of the Supreme People’s Court protested Appellate Business and Commercial Judgment No. 27/2011/KDTM-PT dated September 21, 2011, of the Hanoi People’s Court; requested the Economic Court of the Supreme People’s Court to conduct a cassation trial in the direction of quashing the aforementioned appellate judgment and quashing First-instance Business and Commercial Judgment No. 01/2011/KDTM-ST dated June 20, 2011, of the Hoan Kiem District People’s Court, Hanoi City; and transfer the case file to the Hoan Kiem District People’s Court for a first-instance retrial according to law.

In Cassation Decision No. 18/2015/KDTM-GĐT dated March 26, 2015, the Economic Court of the Supreme People’s Court decided: Quash Appellate Business and Commercial Judgment No. 27/2011/KDTM-PT dated September 21, 2011, of the Hanoi People’s Court and First-instance Business and Commercial Judgment No. 01/2011/KDTM-ST dated June 20, 2011, of the Hoan Kiem District People’s Court; transfer the case file to the Hoan Kiem District People’s Court for a first-instance retrial according to law.

In First-instance Business and Commercial Judgment No. 32/2019/KDTM-ST dated November 25, 2019, the Hoan Kiem District People’s Court, Hanoi City decided:

1. Reject the lawsuit request of H Joint Stock Company against P Design and Construction Co., Ltd. regarding compelling P Design and Construction Co., Ltd. to refund H Joint Stock Company the amount of 6,308,478,665 VND.

2. Partially accept the counterclaim of P Design and Construction Co., Ltd., compelling H Joint Stock Company to pay P Design and Construction Co., Ltd. (as of November 20, 2019) the following specific amounts:

+) 3rd Payment (according to Design Consultancy Contract No. 01/2008/PLC-HDC dated January 29, 2008): 1,599,420,000 VND.

+) Compensation (according to Clause 2.8.5b, general conditions of Design Consultancy Contract No. 01/2008/PLC-HDC dated January 29, 2008): 406,704,690 VND.

+) Interest on the amount of 1,599,420,000 VND: 2,080,735.870 VND.

Total: 4,086,860,560 VND.

3. In addition to the amount H Joint Stock Company must pay P Design and Construction Co., Ltd. as stated above, H Joint Stock Company must also pay P Design and Construction Co., Ltd. interest on the amount of 1,599,420,000 VND from November 21, 2019, until the payment is completed, at the late payment interest rate agreed upon by the parties, which is 12%/year.

4. For the compensation amount (according to Clause 2.8.5b, general conditions of Design Consultancy Contract No. 01/2008/PLC-HDC dated January 29, 2008) of 406,704,690 VND, from the date P Design and Construction Co., Ltd. files a request for judgment enforcement until H Joint Stock Company completes payment, H Joint Stock Company must also pay interest on the remaining amount to be enforced at the interest rate prescribed in Article 357 and Article 468 of the Civil Code 2015.

Additionally, the First-instance Court decided on court fees and the parties’ right to appeal.

On December 9, 2019, both P Design and Construction Co., Ltd. and H Joint Stock Company filed appeals against the aforementioned first-instance judgment.

In Appellate Business and Commercial Judgment No. 82/2020/KDTM-PT dated June 15+19, 2020, the Hanoi People’s Court decided:

Amend First-instance Business and Commercial Judgment No. 32/2019/KDTM-ST dated November 25, 2019, of the Hoan Kiem District People’s Court regarding the phrasing of the obligation to pay late enforcement interest.

1. Do not accept the lawsuit request of H Joint Stock Company against P Design and Construction Co., Ltd. regarding compelling P Design and Construction Co., Ltd. to refund the amount of 6,308,478,665 VND.

2. Partially accept the counterclaim of P Design and Construction Co., Ltd. H Joint Stock Company must pay P Design and Construction Co., Ltd. the following: 1,599,420,000 VND (payment for phase 3 of the Design Consultancy Contract) + 2,080,735,870 VND (late payment interest) + 406,704,690 VND (penalty for unilateral contract termination). Total: 4,086,860,560 VND.

On November 2, 2020, H Joint Stock Company filed a petition for cassation review of the aforementioned appellate civil judgment.

In Protest Decision No. 02/KNGĐT-VC1-KDTM dated March 2, 2021, the Chief Procurator of the High People’s Procuracy in Hanoi protested Appellate Business and Commercial Judgment No. 82/2020/KDTM-PT dated June 15+19, 2020, of the Hanoi People’s Court; requested the Council of Judges of the High People’s Court in Hanoi to quash the aforementioned appellate judgment and First-instance Business and Commercial Judgment No. 32/2019/KDTM-ST dated November 25, 2019, of the Hoan Kiem District People’s Court; and transfer the file to the Hoan Kiem District People’s Court for a first-instance retrial according to law.

At the cassation trial, the representative of the High People’s Procuracy in Hanoi requested the Council of Judges of the High People’s Court in Hanoi to accept the protest of the Chief Procurator of the High People’s Procuracy in Hanoi.

COURT’S ASSESSMENT:

[1] Regarding procedure: The Power of Attorney dated October 1, 2015, and the Power of Attorney dated March 16, 2016, show that Mr. S, the legal representative of P Design and Construction Co., Ltd., authorized Mr. D and Mr. N to participate in the proceedings as authorized representatives of the defendant. However, verification results from the Immigration Department in Official Dispatch No. 9089/A72-P4 dated August 10, 2015, Official Dispatch No. 14733/A72-P4 dated December 11, 2015, and Official Dispatch No. 9443/QLXNC-P4 dated June 12, 2019, determined that “Mr. S exited on October 18, 2014, and there is no information regarding the entry or exit of Mr. S between August 1, 2015, and June 7, 2019.” Thus, there are grounds to determine that at the time Mr. S signed the power of attorney for Mr. D and Mr. N, Mr. S was not present in Vietnam. If these powers of attorney were established and sent from abroad, according to Article 478 of the Civil Procedure Code, they must be notarized, authenticated, and legalized by the consulate to have legal value. Furthermore, determining whether Mr. S was in Vietnam or abroad at the time of establishing the power of attorney is also related to the consideration and determination of the jurisdiction to resolve the case. The First-instance Court and the Appellate Court did not clarify these contents but accepted the value and content of the powers of attorney (while the plaintiff also requested the Court to verify the authenticity and legality of these powers of attorney), which is a serious procedural violation.

[2] Regarding the counterclaim, the assessment of the Appellate Court in Judgment No. 82/2020/KDTM-PT that the counterclaim is not limited by the statute of limitations for filing a lawsuit (p. 15) is incorrect. According to the provisions of the Civil Procedure Code 2004 and the Civil Procedure Code 2015, a counterclaim is a request that does not fall within the plaintiff’s request and can be resolved in an independent case; resolving the counterclaim in the same case is to ensure the resolution results are more accurate and faster. A counterclaim is also essentially a lawsuit petition and must therefore comply with the regulations on the statute of limitations for filing a lawsuit. Therefore, in cases where there is a counterclaim and a party in the case requests the application of the statute of limitations, the First-instance Court and the Appellate Court must determine whether the counterclaim still has a valid statute of limitations to comply with the law.

[3] Regarding the content: According to the Design Consultancy Contract between the two parties, the condition for the 3rd Payment is: “After submitting the general site plan design documents and architectural options to the Hanoi Department of Architecture and Planning or equivalent competent authorities and the documents are appraised and approved.” The case file materials show that after receiving Official Dispatch No. 99-2008/CV-HĐ/QLDA dated September 3, 2008, from H Joint Stock Company notifying the suspension of printing design drawings due to project scale changes (increasing the number of floors), P Design and Construction Co., Ltd. accepted this notification. Thus, on September 29, 2008, P Design and Construction Co., Ltd. sent Document No. MLS/HD/29/9/08 regarding “Design fee quotation for H high-end hotel project” to adjust the price for the new design option. Due to the failure to agree on the adjustment of the contract value, H Joint Stock Company unilaterally terminated the contract before the term. The two parties disputed the resolution of the consequences of unilateral contract termination. H Joint Stock Company claimed it overpaid P Design and Construction Co., Ltd. by 278,841.8 USD (after offsetting the advance against the paid amount) and sued for a refund. P Design and Construction Co., Ltd. disagreed and counterclaimed to compel H Joint Stock Company to pay the 3rd installment and a violation penalty. It is observed that H Joint Stock Company unilaterally terminated the contract (according to Point g Clause 2.8.1 Part II), so according to Point a Clause 2.8.5 Part II of the Design Consultancy Contract: “Upon termination of the contract under Clause 2.8.1 or Clause 2.8.2 of the General Conditions of the contract, the parties shall agree on the payment to the Consultant as income under Article 6 of the General Conditions based on the portions of Consultancy services performed satisfactorily and approved by the investor prior to the effective date of termination. Additionally, the investor is not required to pay the consultant any other amount, except for Clause 2.8.1.g where the investor will compensate the consultant an amount equivalent to 1% of the contract value.” Therefore, it is necessary to base the payment obligation of H Joint Stock Company on the value of the actual work volume performed by P Design and Construction Co., Ltd. The First-instance Court and the Appellate Court did not require P Design and Construction Co., Ltd. to present documents and evidence proving the actual work volume performed after the 2nd payment of phase 1 as prescribed in Article 6.4 of the Design Consultancy Contract, but partially accepted the defendant’s counterclaim, compelling H Joint Stock Company to pay P Design and Construction Co., Ltd. ½ of the 3rd payment amount (corresponding to 5% of the construction design fee), which is incorrect and affects the plaintiff’s rights.

[5] Therefore, the protest of the Chief Procurator of the High People’s Procuracy in Hanoi is well-founded, and it is necessary to quash the entire appellate and first-instance judgments for a first-instance retrial.

For the reasons stated above,

DECISION:

Pursuant to Point a Clause 1 Article 337, Clause 3 Article 343, Article 345 of the Civil Procedure Code 2015;

1. Accept Protest Decision No. 02/QĐKNGĐT-VC1-KDTM dated March 2, 2021, of the Chief Procurator of the High People’s Procuracy in Hanoi.

2. Quash the entire Appellate Business and Commercial Judgment No. 82/2020/KDTM-PT dated June 15+19, 2020, of the Hanoi People’s Court and quash the entire First-instance Business and Commercial Judgment No. 32/2019/KDTM-ST dated November 25, 2019, of the Hoan Kiem District People’s Court regarding the case “Dispute over design consultancy contract” between the plaintiff, H Joint Stock Company, and the defendant, P Design and Construction Co., Ltd.

3. Transfer the case file to the Hoan Kiem District People’s Court, Hanoi City for re-resolution according to first-instance procedures in compliance with law.

PRECEDENT CONTENT:

“[2] Regarding the counterclaim, the assessment of the Appellate Court in Judgment No. 82/2020/KDTM-PT that the counterclaim is not limited by the statute of limitations for filing a lawsuit (p. 15) is incorrect. According to the provisions of the Civil Procedure Code 2004 and the Civil Procedure Code 2015, a counterclaim is a request that does not fall within the plaintiff’s request and can be resolved in an independent case; resolving the counterclaim in the same case is to ensure the resolution results are more accurate and faster. A counterclaim is also essentially a lawsuit petition and must therefore comply with the regulations on the statute of limitations for filing a lawsuit. Therefore, in cases where there is a counterclaim and a party in the case requests the application of the statute of limitations, the First-instance Court and the Appellate Court must determine whether the counterclaim still has a valid statute of limitations to comply with the law.”