Contract Termination

Contract termination is one of the most important and decisive events of a transaction. Therefore, whenever contract termination is considered, the Contractor in particular and all parties to the contract in general must exercise caution.

In many cases, contract termination doesn’t necessarily lead to unfavorable consequences, but rather helps to minimize damages and has the potential for benefitting the parties to the contract. However, it should also be noted that the termination of contracts must be consistent with the laws and the agreement in the contract while taking into account the best interests and benefits of each party.

See more: CNC assisted Nha Trang Bay Group on the termination of a supervision agreement

Advice on Contract Termination

Knowing the importance of contract termination, the Client – a Contractor of the Urban Area Project in Long Thanh, has requested CNC Counsel for support and legal advice prior to terminating a Construction contract with the Employer.

On October 10^th, 2022, CNC Counsel was appointed as the legal consultant for the Client throughout the process of contract termination, while simultaneously representing the Client in negotiations and amicable settlement of relative issues that emerged from and the termination of the contract.

Some legal issues related to Contract Termination

It is possible that prior to contract termination, the Parties could have encountered legal issues which might have resulted in tension and disputes between the parties. For instance:

1. The Employer claims that the Contractor violated the contract performance schedule and requests to terminate the contract;
2. The Contractor insists that the contract time for completion must be extended due to the Employer’s unpunctual handover of the site and failure to provide the design drawings. Hence, the contract termination made by the Employer is inconsistent with the agreement made by the parties.
3. More importantly, the Employer sent a written request to the bank to perform the guarantee obligation, which requires the Contractor’s bank to disburse the amount of ~ 14 billion VND.

Amicable contract termination

Confronting the Employer’s request for guarantee obligation and termination of the contract, CNC Counsel advised the Client on key legal issues in the dispute between the parties, as well as proposed prioritization of an amicable resolution and represented the Client in implementing appropriate legal action to solve the existing problems between the Contractor and the Employer.

Prior to terminating the contract, CNC Counsel recommends that each party consider:

• Long-term, reciprocal cooperation in the current construction and real estate market;
• The purpose of entering into the contract and the value and benefits that signing of the contract brings to each party;
• Advantages and disadvantages of terminating the contract, and compare them to the advantages and disadvantages to each party in continuing to complete the contract;
• Responsibilities of each party upon contract termination;
• Selection of a new Contractor being an arduous task, which is also accompanied by further delay of the Project’s time for completion, as well as the cost of prolongation and commercial costs incurred by the Employer;
• The request to perform the guarantee obligation, which not only potentially affects the financial capacity and creditworthiness of the Contractor but also fails in its ability to compensate or put the Employer in a more financially advantageous position, while also poses risks accompanying the request for guarantee obligation performance if the contract is breached.

In addition, CNC Counsel also analyzes and advises the Employer and Contractor on the relevant terms of the contract along with the implications and legal consequences upon the invocation of the termination clauses. Thereby allowing the parties to be proactive in either the arrangement of the contract termination or persevere throughout the contract.

Through the process of working with CNC, the Client received not only the optimal solutions to the problems at hand but also gained hard-earned experience, including useful and highly practical knowledge for both ongoing Projects and future business ventures assumed by the Client.

See more: 7 Phương thức giải quyết tranh chấp Hợp đồng

Contact

Forthcoming CNC articles will analyze important content related to the law on commercial arbitration in Vietnam.

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CÔNG TY LUẬT TNHH CNC VIỆT NAM

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Junior Associate Nguyen Huy Nhat Duy Phone: (84) 28 6276 9900 Email: duy.nguyen@cnccounsel.com

Disclaimers:

This article is prepared or used for the purpose of introducing or updating clients on information about matters and/or the developments of legal perspective in Vietnam. The information contained within this article does NOT constitute advice of any kind and could be subjected to changes without prior notice.