Definition of Damages: Under the Commercial Law of 2005, compensation for damages is one of the remedies for contractual breach. It is defined as the compensation provided by the breaching party for losses caused to the aggrieved party resulting from the breach of the contract. The value of damages includes the value of actual and direct losses sustained by the aggrieved party and the direct profits that the aggrieved party would have earned had the breach not occurred.
1. When can damages be claimed under a commercial contract?
The Commercial Law has specifically codified the grounds for liability for damages under Article 303, which include:
- A breach of contract;
- The occurrence of actual damages;
- The breach of contract being the direct cause of the damages.
Accordingly, a party is entitled to claim damages when all 03 aforementioned elements are satisfied. However, the law also stipulates cases of exemption from liability for damages, including:
- The occurrence of cases for exemption as agreed upon by the parties;
- The occurrence of a force majeure event;
- The breach by one party being entirely due to the fault of the other party;
- The breach being caused by the execution of a decision by a competent state authority that the parties could not have known about at the time of entering into the contract.
2. Responsibilities of each party regarding compensation for damages
When liability for damages arises, each party to the contract bears the following respective obligations:
The Aggrieved Party: This party bears the burden of proof regarding the actual losses, the extent of such losses caused by the breach, and the direct profits that it would have realized had the breach not occurred. Furthermore, the aggrieved party is obligated to mitigate damages by taking reasonable measures to limit any further losses, including those related to potential direct profits resulting from the breach.
The Breaching Party: This party is responsible for proving any applicable grounds for exemption from liability as mentioned above. In cases where the aggrieved party successfully demonstrates the losses and establishes all necessary grounds for liability, the breaching party shall be duty-bound to provide compensation for damages in accordance with the terms agreed upon in the contract.
Regarding the relationship between the remedy of “compensation for damages” and other remedies in commercial contracts, the Commercial Law stipulates that a party shall not lose its right to claim damages for losses resulting from the other party’s breach even if other remedies have been applied. This means that the aggrieved party may concurrently apply for this remedy alongside other remedies agreed upon in the contract, including “the remedy of penalties for violations” remedy.
However, in practice, the aggrieved party is not always successful in claiming damages under a contract. Based on the three grounds for liability, the Court will thoroughly evaluate the contractual terms between the parties as a basis for accepting or rejecting a litigant’s claim for damages in business and commercial disputes.
A case in point is Judgment No. 01/2025/KDTM-ST dated June 23rd, 2025, by the People’s Court of Nghi Loc District, Nghe An Province, in a first-instance trial regarding a ‘Dispute over a service contract and compensation for damages,’ which was published on the Portal for Publication of Judgments and Decisions of the Court. Although the Plaintiff identified all 03 elements as grounds for liability for compensation for damages as stipulated in Article 303 of the Commercial Law 2005, including:
(1) A breach of contract due to the Defendant’s unilateral termination without prior notice as agreed in the Service Contract signed by both parties; (2) Actual damages valued at VND 426,502,000 as determined by the Valuation Council; (3) The Defendant’s act of terminating the Contract without notice was the direct cause of the damages, and the plaintiff filed a lawsuit requesting the Defendant to compensate for the machinery and equipment installed in the plaintiff’s kitchen. However, the Court observed and ruled that the Defendant had no obligation to compensate the plaintiff for the costs of tools and equipment in the plaintiff’s kitchen on the basis that the Defendant’s termination of the contract was lawful. The reasoning that the Defendant terminated the contract legally was clearly expressed by the Court in the Judgment. Accordingly, although two elements were present—’actual damages’ and a ‘causal relationship’—if the ‘breach of contract’ element is not accepted by the adjudicating body, it is not sufficient to give rise to liability for compensation for damages.
In conclusion, liability for damages in commercial contracts only effectively arises when all three elements are fully satisfied: (1) A breach of contract; (2) Actual damages; and (3) The breach of contract is the direct cause of the damages. Proving that the breaching party satisfies these three elements is a crucial obligation for the aggrieved party to exercise its right to claim damages. Therefore, when enterprises intend to take action to demand compensation from the other party, they must ensure that their intended claim meets the aforementioned elements. A careful assessment will help enterprises avoid wasting excessive time and costs during the process of requesting competent authorities to resolve the claim for damages.
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Hotline: (+84) 909 668 216
Time of writing: 02/01/2026
The article contains general information which is of reference value, in case you want to receive legal opinions on issues you need clarification on, please get in touch with our Lawyer at info@cdlaf.vn
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