Currently, according to the laws, the fine level will be different with each kind of contract

Article 418, Vietnam Civil Code 2015 stated that agreements on fines for violations are reached by
the parties to a contract which requires the violating party to pay a fine to the aggrieved party. The
fine levels shall be agreed among the parties, unless otherwise prescribed by relevant laws. The
breaching party (does not execute or execute an invalid performance) are obligated to pay a penalty
to the aggrieved. Due to the fact that the penalties are negotiable, the level is not limited. In case the
parties have an agreement on fines against violation which does not specify that the violating party
has to pay both a find for violations and a compensation for damage, then the violating party has to
pay only the fine for violations.

Each type of contract is governed by different specialized laws. For commercial contracts, the fine
level for violation shall not exceed 8% of the value of the contractual part of the contract breached.
In the construction contract, this penalty shall not exceed 12%.

In general, according to the purpose of the parties, the contract is divided into two types:
commercial contracts and civil contracts. A commercial contract is understood as a contract
between a party with business registration and for profit. The contract is considered "law" for the
parties, if the agreement is not contrary to law. Therefore, it is important to ensure mutual interests.

Penalties are a deterrent measure to increase the sense of respect for the contract and the liability of
the parties. Nevertheless, to avoid the possibility of the parties agreeing a "heavenly" penalty, each
specialized law sets limits on penalties, thereby enabling this form of “punishment” to fulfil its
purpose.

Under a commercial contract, in the absence of an agreement, when any dispute arises, the interest
rate for the overdue debt on the market will be applied. In some cases, according to previous
customs, the court applies average interest rates of overdue debt of 3 banks namely Vietcombank,
BIDV and Agribank.

In fact, in the course of the proceedings, there was a situation: Although initially agreed on the fine,
but when the dispute occurred, the party sought to evade and proposed to reject the agreed interest.
The calculation of debt principal, interest, penalty ... thereby become complicated, causing the long-
term and hard to resolve case.

An example is the case between Phu Thang Company Limited and Song Da Petroleum Investment
and Trading JSC (SDP code, HNX). In the appeal filed to the People's Court of Ho Chi Minh City.
Hanoi in March, Phu Thang mentioned the content of the request to accept a fine for breach of
contract (389 million) for SDP in the contract signed in 2011.

The argument given by Phu Thang is that the contractual basis is mutually agreed, in the case of
delinquent SDP, a penalty of 1% per month on the payment amount (12% per annum). Compared to
the capital amount of over 6 billion, the fine is quite modest; however, this level of penalty yet led
to some serious dispute.

According to Article 301 of the Commercial Law, the fine for breach of contractual obligations or
the total fine for many violations shall be agreed upon by the parties in the contract, but not
exceeding 8% of the value of the breach of contractual obligations. Therefore, SDP thinks that the
interest rate of 12% per year is too high, so they proposed penalty of 8%. However, Phu Thang
disagrees with this fine.