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Legal value of text in commercial transactions

In many cases, a document signed by an unauthorized person is still legally valid and binding the parties, but on what basis for us to know so? The following dispute resolved at an arbitration center shows the necessary precautions to be protected by the provisions of laws regulations and, even if the documents cannot be completed as usual or due to a lack of goodwill by one party in providing proper documents.

Legal value of text in commercial transactions

Summary of facts

On November 21, 2018, the Claimant signed a contract of carriage (charter-party) of cement from Nghi Son port to Davao port (Philippines) with a charterer in the Philippines. In this contract, the Respondent was the Shipper and pursuant to Article 9 of the contract, the despatch or demurrage, if any, shall be settled directly between the Claimant and the Respondent (“Two parties”). As a result, the Respondent was entitled to a despatch of USD 4,354.25, the Respondent confirmed to pay the Respondent this amount. The Two parties additionally signed contracts of carriage of cement from Hon Gai to Iloilo (Philippines) as follows: January 11, 2019 (Voyage No. 02); the Two parties agreed on the demurrage amount of USD 37,031; on March 22, 2019 (Voyage No. 04) with the demurrage amount of USD 8,481 confirmed by the Two parties; and on April 8, 2019 (Voyage No. 05), the Two parties accepted the demurrage amount of USD 36,884.

On August 13, 2019, the Two parties signed the Working Minutes (“Minutes”) to agree the amount of the above 03 contracts of carriage that the Respondent had to pay the Claimant VND 1,341,468,683. The Claimant had repeatedly requested payment but the Respondent only promised but did not fulfill. Therefore, the Claimant filed a lawsuit against the Respondent at an arbitration center to request the Arbitral Tribunal to compel the Respondent to pay (i) the principal amount related to the demurrage amount of the aforesaid contracts of carriage which was VND 1,341.246,683 and (ii) the interest amount due to late payment as of May 13, 2020 was VND 99,114,111.

The arbitral award

Regarding the debt of principal amount, in the Minutes, the Respondent confirmed still to pay the Claimant VND 1,341,468,683. The Minutes were signed by the Head of the Department of the Claimant, and the Deputy Director of the Respondent, together with the seal of the Respondent. During the arbitral proceedings, the Claimant cited the Minutes as the basis for its lawsuit claims, therefore, the Claimant was deemed to have recognized the value of the Minutes and the Minutes bound the Claimant under Point a, Clause 1, Article 142 of the 2015 Civil Code (The person being authorized recognized the transaction). On the Respondent’s side, although there was no evidence to prove the signing authority of the Deputy Director, his signature was accompanied by the Respondent’s seal - showing that the Respondent knew the contents of this Minute without any protest. Therefore, the Minutes were valid to bind the Respondent according to Point b, Clause 1, Article 142 of the 2015 Civil Code.

In addition, after signing the Minutes, the Claimant repeatedly sent documents (paper copies) and e-mails requesting the Respondent to pay according to the signed Minutes. On September 30, 2019, the Respondent sent an email to the official address of the Claimant stated in the Contract, requesting to be paid by installments of the debts in accordance with the Minutes. From the abovementioned evidence and analysis, the Arbitral Tribunal had grounds to believe that, between the Two parties, there had been a lawful agreement on debt certification: (i) not violating the prohibition of the law, not contrary to the social ethics, valid for all parties and ought to be respected by other subjects according to Article 3 of the 2015 Civil Code (fundamental principles of civil law), and (ii) ensuring the principle of freedom and voluntariness of agreement in commercial activities under Clause 1, Article 11 of the 2005 Commercial Law. Therefore, based on Clause 1, Article 4 of the 2010 Commercial Arbitration Law, the Arbitral Tribunal respected the agreement of the Two parties on the above-mentioned debt certification. However, in the Request for Arbitration, the Claimant only asked for the principal amount of debt related to the demurrage money in the contracts of carriage being VND 1,341,246,683 but not the amount of VND 1,341,468,683 as the Respondent confirmed in the Minutes. Therefore, based on Point a, Clause 1, Article 142 of the 2015 Civil Code, the Arbitral Tribunal accepted the above request of the Claimant (1,341,246,683 VND).

Regarding the late payment interest, the Claimant requested the Arbitral Tribunal to force the Respondent to pay the estimated amount as of May 13, 2020 of VND 99,114,111. During the Hearing on August 17, 2020, the Claimant only demanded the amount as of May 13, 2020 at an interest rate of 12%/year. However, the Claimant also agreed to any method of calculating interest that the Arbitral Tribunal considered reasonable because the Two parties had not clearly agreed on this issue. According to the Minutes, the Respondent ought to pay the Claimant VND 1,341,468,683 in 3 installments; if overdue, it ought to bear a late payment amount equivalent to the bank loan interest at the time of payment. In fact, the Respondent had not paid any installments to the Claimant. The Arbitral Tribunal did not accept the 12%/year interest rate applied by the Claimant in the Document No. 23 attached to the Request for Arbitration because the basis for calculation was incorrect. The Arbitral Tribunal considered that in this case, it was necessary to apply the interest rate of 10%/year based on Clause 2, Article 468 of the 2015 Civil Code. Therefore, the Arbitral Tribunal partially accepted the Claimant’s request for the interest amount due to late payment which was VND 81,958,068.

Some notes on the legal value of the documents

Clause 1, Article 142 of the 2015 Civil Code). Thus, with documents such as power of attorney, if the person being represented knew without giving an opinion within a reasonable time on not accepting such authorization, the power of attorney was still valid and binding the principal (authorizer). “Parties have the right to freely agree not to contravene the provisions of laws and regulations, fine customs and social ethics to establish the rights and obligations of the parties in commercial activities. The State respects and protects those rights” (Clause 1, Article 11, the 2005 Commercial Law). Accordingly, the parties could agree on all matters such as debt confirmation, discount, extension time of contract, place of arbitration, form of contract, waiver of claims, etc., and so on, when resolving disputes “Arbitrators must respect the agreement of the parties if such agreement does not violate the prohibition and is against social morality” (Clause 1, Article 4 of the 2010 Law on Commercial Arbitration).

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