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Why did the Court declare BIDV Bank lost the lawsuit, and must pay more than 9.5 billion VND?

09:40 | 11/01/2021

(Construction) - The People’s Court of Cau Giay District, based on legal jurisdiction, decided that the Bank for Investment and Development of Vietnam (BIDV) has lost the lawsuit, and as a result, must pay Sao Vang Co., Ltd. total payment that consists of both principal and interest payments of more than 9.5 billion VND.

The judge entered judgment on the verdict of No. 15/2020 / KDTM-ST that is a dispute arising from letters of guarantee between the plaintiff, Sao Vang Co., Ltd. and the defendant, the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV).  A final judgment has just been made by People’s Court of Cau Giay District in paper.

In this case, Sao Vang Co., Ltd. sued BIDV, claiming that BIDV did not fulfil the requirements of its guarantee obligations for an amount of 8 billion VND related to 2 letter of Guarantee for Advance Payment No. 12536000181362 and 12536000182659 that the bank issued.

At the judgment, the People’s Court of Cau Giay District determined that BIDV - Dong Do branch and Thanh Long Investment and Construction Co., Ltd. (Thanh Long Company) signed a Letter of Credit No. 02/2017 / 2591613 / HDTD on November 16, 2017.

Sao Vang Co., Ltd. (investor) and Thanh Long Company (contractor) entered into a contract to implement 2 construction packages in Uong Bi city (Quang Ninh). On May 16, 2018, the two parties signed the contract appendix No. 04 / PLHĐ with the mutual agreement that the investor will advance the contractor an amount of 8 billion VND to implement and accept the completion of the project premises before June 30, 2018. The advance requirement is that the contractor must provide a bank’s irrevocable or unconditional advance guarantee.

Based on the Thanh Long Company’s request for the Letter of Credit, and the Appendix 04 of the Construction Contract between Sao Vang Co., Ltd. and Thanh Long Company, BIDV - Dong Do branch issued 2 letter of Guarantee for Advance Payment No. 12536000181362 dated May 17, 2018 and No. 12536000182659 dated June 14, 2018.

The People’s Court of Cau Giay District confirmed that the 2 letters of Guarantee for Advance Payment meet all the legal requirements as prescribed in Clause 1, Article 15 of Circular 07/2015 / TT-NHNN issued by the State Bank of Vietnam on banking guarantee.

The court, therefore, confirmed the legality and authority of the 2 letters issued by BIDV - Dong Do branch.

At the trial, Thanh Long Company laid its opinions that the letter No. 12536000182659 dated June 14, 2018 had expired due to that the investor failed to transfer the advance payment on time, requesting for the court’s legal cancellation of this guarantee letter. Thanh Long Company also presented the Official Letter No. 52 / TL-KHKT dated July 10, 2018 to confirm its notification to Sao Vang Co., Ltd. about its withdrawal of advance guarantee for both phases based on Appendix 04 and its request for the Bank not to perform guarantee obligations. However, in fact, on July 27, 2018, Thanh Long Company continued to receive and use the amount of 4 billion VND in advance for the second phase of Sao Vang Company. At the same time, Thanh Long Company did not make any written request for the BIDV- Dong Do branch to terminate the performance of guarantee obligations.

At the court session, BIDV did not deny its guarantee obligations for advance payment. During the trial preparation process, the legal representative of Thanh Long Company was not physically present, had no independent request as described in Clause 2, Article 201 of the Civil Procedure Code, but only made a request at the trial court. The court, hence, decided that the Thanh Long Company’s request was not accepted for consideration.

The People’s Court of Cau Giay District held that the basis for the bank issuing a letter of guarantee is the terms of advance payment described in Appendix 04, including advance payment amount, contract period, payment guarantee agreements, etc. Therefore, the court denied BIDV’s opinion that the bank should only guarantee for the advance payment used by the contractor during the construction time frame.

why did the court declare bidv bank lost the lawsuit and must pay more than 95 billion vnd
The first-instance court session of the lawsuit at the The People’s Court of Cau Giay District.

The court based on the guarantee conditions described in the letters of Guarantee for Advance Payment No. 12536000181362 dated May 17, 2018 and No. 12536000182659 dated June 14, 2018 to confirm that the advance payment must be used for the contractor to execute on time, not to considered as a payment guarantee. In the letters, BIDV "unconditionally agrees that it will not terminate the contract and will not require the contractor to review in advance and pay the investor immediately when the investor requests in writing". Therefore, the court concluded that when the contractor fails to comply with the deadline obligation, it is obliged to repay the advance and the guarantor, BIDV, must be obliged to make payment in accordance with the guarantee commitment and the Article 21 of Circular 07/2015 / TT-NHNN issued by the State Bank of Vietnam.

The court heard the argument of BIDV and Thanh Long Company that Sao Vang Co., Ltd. did not take over the contract. The court decided that the party whose interests are violated is Thanh Long Company. The court legally summoned the company’s representative for several times, but the representative was not physically present, had no independent request, but only invited the lawyers to copy records.

BIDV refusal to make a payment due to that Thanh Long Company has not yet been finalized the contract is not in accordance with its committed content and fails to comply with the provisions of Clause 1 and Point A Clause 2 Article 21 Circular 07/2015 / TT-NHNN dated June 25, 2015 issued by the State Bank of Vietnam.

The People’s Court of Cau Giay District emphasized the legality and authority of the 2 letter of Guarantee for Advance Payment No. 12536000181362 dated May 17, 2018 and No. 12536000182659 dated June 14, 2018, enforcing BIDV to pay the amount of 8 billion VND to Sao Vang Co., Ltd.

Regarding the request of late payment interest, The People’s Court of Cau Giay District held that BIDV failed to fulfill its guarantee obligation, and thus, must pay a fee on late payments of 8 billion VND with the interest rate of 10% per year for Sao Vang Co., Ltd.

The court determined that BIDV violated its guarantee obligations on September 12, 2018. As a result, a fee on late payments is calculated from this date to the court date. The total amount of interest payable is 1.548.456.000 VND.

The court decided to force BIDV Bank to pay over 9.5 billion VND, including 8 billion VND under 2 letters of guarantee and more than 1.5 billion VND as an interest payment.

The court also required BIDV to pay a court fee of 117.548.456 VND.

The representative of Sao Vang Co., Ltd. expressed his gratitude for the court’s fair and legal decision. "If the BIDV Bank appeals the court’s decision, we are completely ready to present at the appellate court session. We strongly believe that with the People’s Court of Hanoi will continue to declare a fair, objective and legal judgment".

By To Anh

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