Cassation judgment No. 07/2007/KDTM-GDT dated August 7, 2007 regarding dispute over contract for sale of goods

COUNCIL OF JUSTICES OF THE SUPREME PEOPLE’S COURT

CASSATION JUDGMENT NO. 07/2007/KDTM-GDT DATED AUGUST 7, 2007 REGARDING DISPUTE OVER CONTRACT FOR SALE OF GOODS 

On August 7, 2007, the cassation trial was conducted at the office of the Supreme People’s Court to adjudicate the dispute over contract for sale of goods between:

Plaintiff: Dong Hoa manufacturing and trade sole proprietorship headquartered at 39/17A Luy Ban Bich, ward 20, Tan Binh district, Ho Chi Minh City as determined by the first instance court and the appellate court.

Represented by Mr. Bui Quoc Thanh, with the Power of Attorney dated November 28, 2005 made by Mrs. Duong Thiet Hon who is the owner of the company.

Defendant: Lien Hoa Co., Ltd, headquartered at Lot 4, Street 5, CN4 Group, Tan Binh industrial zone, Ho Chi Minh City.

Represented by Mrs. Nguyen Thanh Van, with the Power of Attorney dated June 6, 2005 made by Mr. Yang Hui Sheng who is the Director of the company.

DEEMING THAT

According to the lawsuit petition dated May 5, 2005 filed by Mrs. Duong Thiet Hon (owner of Dong Hoa enterprise):

Dong Hoa manufacturing and trade sole proprietorship (hereinafter referred to as Dong Hoa enterprise) owned by Mrs. Duong Thiet Hon was issued with a business registration certificate No. 006716 dated December 6, 1996 by the Department of Planning and Investment of Ho Chi Minh City with initial investment capital of VND 340.000.000 and lines of the business: manufacturing and assembly of machine tools, motorbike spare parts, trade and trade-related services.

On December 24, 1999, Dong Hoa enterprise and Mr. Yand Hui Sheng, nationality: Taiwan and 5 other Taiwaneses established Lien Hoa limited liability company to manufacture motorbike spare parts and obtain the Investment License No. 44/GP-HCN-HCM dated December 24, 1999 issued by the Management Board of export processing and industrial zone of Ho Chi Minh City with the investment capital and legal capital of USD 7.000.000, in which:

Vietnamese party: Dong Hoa enterprise contributed USD 120.000, accounting for 30% of legal capital, including USD 150.000 in cash and USD 600.000 in kind (machinery and equipment).

Foreign party:

- Mr. Yand Hui Sheng contributed USD 81.677 in cash, accounting for 11,66% of legal capital.

- Mr. Yand Hui Tai contributed USD 81.677 in cash, accounting for 11,66% of legal capital.

- Mr. Yand Hui Che contributed USD 81.677 in cash, accounting for 11,66% of legal capital.

- Mr. Yand Hui Chi contributed USD 81.677 in cash, accounting for 11,66% of legal capital.

- Mr. Yand Hui Chiang contributed USD 81.677 in cash, accounting for 11,66% of legal capital.

- Mr. Yand Hui Feng contributed USD 81.677 in cash, accounting for 11,66% of legal capital.

On November 1, 2000, Mrs. Duong Thiet Hon (owner of Dong Hoa enterprise) entered into an agreement to assign her investment capital in Lien Hoa Co., Ltd of USD 70.000to Mr. Yang Hui Chiang for USD 1.500 of commission and of USD 140.000  to Mr. Yand Hui Sheng for USD 3.000 of commission (because Dong Hoa enterprise had not contributed capital to Lien Hoa Co., Ltd).

On November 1, 2000, the Board of Directors of Lien Hoa Co., Ltd made a Resolution on conversion of investment and capital assignment, in specific Vietnamese party-Dong Hoa enterprise assigned its total subscribed capital of USD 210.000 to two investors:

- Mr. Yang Hui Chiang: USD 70.000

- Mr. Yand Hui Sheng: USD 140.000

and was unanimous in appointing Mr. Yand Hui Sheng as General Director of Lien Hoa Co., Ltd and completing paperwork to convert the joint venture to a wholly foreign-owned company called Lien Hoa Co., Ltd.

On November 1, 2001 the Management Board of export processing and industrial zone of Ho Chi Minh City issued the Investment License No. 44A/GP-KCN-HCM to wholly foreign-owned company Lien Hoa Co., Ltd  Before, on September 26, 2000, Mrs. Duong Thiet Hon (owner of Dong Hoa enterprise) and Lien Hoa Co., Ltd entered into an Arrangement Minutes as follows:  Dong Hoa enterprise would assign its subscribed capital in the Lien Hoa Co., Ltd to Mr. Yand Hui Sheng and Mr. Yang Hui Chiang for the following conditions: When Lien Hoa Co., Ltd commenced operation, it would had to re-purchase all machinery and equipment and all existing stocks of Dong Hoa enterprise.

Based on this arrangement, Dong Hoa enterprise transferred all machinery and equipment, vehicles to Lien Hoa Co., Ltd, as stated in 21 VAT invoices below.

- Invoice No. 002063 dated August 31, 2001 with an amount of VND 89.985.000.

- Invoice No. 002064 dated August 31, 2001 with an amount of VND 87.675.000.

- Invoice No. 002066 dated August 31, 2001 with an amount of VND 262.500.000.

- Invoice No. 002067 (no date mentioned) with an amount of VND 87.570.000.

- Invoice No. 002068 dated August 31, 2001 with an amount of VND 35.875.500.

- Invoice No. 002069 dated August 31, 2001 with an amount of VND 435.750.000.

- Invoice No. 002077 dated August 31, 2001 with an amount of VND 5.500.000.

- Invoice No. 002078 dated August 31, 2001 with an amount of VND 6.300.000.

- Invoice No. 002080 dated September 1, 2001 with an amount of VND 130.152.000.

- Invoice No. 002081 dated September 1, 2001 with an amount of VND 4.928.000.

- Invoice No. 002086 dated September 7, 2001 with an amount of VND 76.972.000.

- Invoice No. 002087 dated September 7, 2001 with an amount of VND 195.689.000.

- Invoice No. 002090 dated September 7, 2001 with an amount of VND 556.412.800.

- Invoice No. 002091 dated September 7, 2001 with an amount of VND 232.168.000.

- Invoice No. 002097 dated October 13, 2001 with an amount of VND 241.178.850.000.

 - Invoice No. 0020103 dated October 20, 2001 with an amount of VND 638.550.

- Invoice No. 002092 dated September 21, 2001 with an amount of VND 859.056.

- Invoice No. 002093 dated September 21, 2001 with an amount of VND 27.068.250.

- Invoice No. 002094 dated September 21, 2001 with an amount of VND 39.725.400.

- Invoice No. 002104 dated November 29, 2001 with an amount of VND 30.576.150.

- Invoice No. 001205 dated November 29, 2001 with an amount of VND 34.600.000.Total: VND 2.582.106.780

Dong Hoa enterprise requests People’s Court of Ho Chi Minh City to enforce Lien Hoa Co., Ltd to reimburse the above amount and interests.

Representation of the defendant-Lien Hoa Co., Ltd: Lien Hoa Co., Ltd received goods as mentioned in 21 invoices with total value of VND 2.582.106.780. However, Lien Hoa Co., Ltd had paid already and incurs no debt to Dong Hoa enterprise. Alternatively, this debt claim was filed after periods of prescription to file a lawsuit as per the law.

In the first instance trade judgment No. 245/2005/KDTM-ST dated August 29, 2005, People’s Court of Ho Chi Minh City judged:

1- Accept a part of plaintiff’s request for compelling Lien Hoa Co., Ltd to pay Dong Hoa enterprise the outstanding debt mentioned in the 21 financial contracts of VND 3.257.856.030, including VND 2.319.616.786 of principal and VND 938.249.244 of interest.

2- Dismiss the plaintiff’s request for compelling Lien Hoa Co., Ltd to pay the amount of VND 262.500.000 according to the invoice No. 002066 dated August 31, 2001.

In addition, the court also decided the court fee and announced the right to appeal as per the law.

On September 8, 2005, Lien Hoa Co., Ltd filed an entire appeal against the first instance judgment.

On September 9, 2005, Dong Hoa enterprise made an appeal against the decision related to invoice No. 002066 dated August 31, 2001 regarding purchase of automobiles of VND 262.500.000.

In the appellate instance trade judgment No. 91/2005/KDTM-PT dated November 29, 2005, the Appellate Court of People’s Court of Ho Chi Minh City decided to uphold the first instance judgment.

After the appellate trial, Mr. Yand Hui Sheng-Director of Lien Hoa Co., Ltd lodged many claims, requesting re-consideration of the case under cassation trial and filed a petition to Investigation Authority affiliated to the Ministry of Public Security, denunciating that Mr. Yang Hui Shiang (Duong Quoc Cuong) colluded with his full sister-Mrs. Duong Thiet Hon to dispossess property of Lien Hoa Co., Ltd.                                                                                                                                                                                                            

On May 18, 2006, Investigation Authority affiliated to the Ministry of Public Security sent the Official Dispatch No. 296/C16B(P5) to the Chief Justice of the Supreme People’s Court enclosed with the case file and request the Chief Justice of the Supreme People’s Court to re-consider the case under cassation trial.

In the Appeal No. 04/2007/KT-KT dated March 2, 2007, the Chief Justice of the Supreme People’s Court appealed the Appellate Judgment No. 91/2005/KDTM-PT dated November 29, 2005 of the Appellate Court of the Supreme People’s Court of Ho Chi Minh City and requested the Council of Judges of the Supreme People’s Court in charge of cassation trial to quash the above Appellate Judgment and the First Instance Judgment No. 245/2005/KDTM-ST dated August 29, 2005 of People’s Court of Ho Chi Minh City, refer the case to People’s Court of Ho Chi Minh City for re-conduct the first instance trial as per the law.

In the Conclusion No. 11/KLGDT-KDTM dated June 15, 2007, the Chief Procurator of the Supreme People’s Procuracy unanimously concurred the appeal made by the Chief Justice of the Supreme People’s Court.

At the cassation hearing session, the designated representative of the Supreme People’s Procuracy uphold opinion in the Conclusion No. 11/KLGDT-KDTM dated June 15, 2007 of the Chief Procurator of the Supreme People’s Procuracy.

CONSIDERING THAT

1. [1] In terms of court procedures:

 Pursuant to Clause 3 Article 101 of Law on Enterprises 1999 (Clause 3 Article 143 of Law on Enterprises 2005), the owner of sole proprietorship acts as a plaintiff, defendant or person with relevant rights and obligations before an arbitrator or a court in disputes in connection with the enterprise. The first instance court and appellate court was wrong when determining Dong Hoa sole proprietorship as the plaintiff in the case.

Pursuant to Article 45 of the Law on Commerce 1997, the agreement on sale of machinery and equipment dated September 26, 2000 entered into by Dong Hoa enterprise and Lien Hoa Co., Ltd is deemed commercial acts; therefore, the right to sue and prescriptive period for filing lawsuit must be conformable with Article 241 and Article 242 of the Law on Commerce 1997.

Clause 1 Article 241 of the Law on Commerce 1997 governs: “Claim period is the time limit within which the infringed party has the right to bring a claim against the infringing party. Upon expiry of such claim period, the infringed party loses the right to file a lawsuit with a duly authorized arbitrator or court”.

Pursuant to Point c, Clause 2, Article 241 of the Law on Commerce 1997 and Resolution No. 746/2005/NQ-UBTVQH11 dated January 28, 2005 of the Standing Committee of National Assembly on guidance on Point c, Clause 2, Article 241 of the Law on Commerce 1997: “The claim period as to payment obligation is 3 months from the date on which the infringing party is obliged to fulfill the obligation based on the contract”.

Abiding by the Arrangement Minutes between two parties dated September 26, 2000, Dong Hoa enterprise made 21 VAT invoices from August 3, 2001 to November 29, 2001 due in 30 days. In the lawsuit petition, at the first-instance court hearing and appellate court hearing, Dong Hoa enterprise reclaimed VND 2.582.106.780 of principal and VND 938.249.244 of interests (from December 2001) from Lien Hoa Co., Ltd; Dong Hoa enterprise claimed that Lien Hoa Co., Ltd were expected to make the payment within 30 days as specified in VAT invoices but they failed to do so, therefore, the interests must be charged. Lien Hoa Co., Ltd did not raise an objection to that invoice payment term but they claimed that they paid Dong Hoa enterprise in full. However, no item of evidence in the case file proves that whether Dong Hoa enterprise brought a claim to reclaim money from Lien Hoa Co., Ltd within the period from the last invoice date (November 29, 2001) to the date of lawsuit.

 On May 5, 2005, Mrs. Duong Thiet Hon (owner of new Dong Hoa enterprise) filed a lawsuit with People’s Court of Ho Chi Minh City. Therefore, Dong Hoa enterprise lost their right to sue at the court as prescribed in Clause 1 Article 241 of the Law on Commerce 1997 from April 1, 2002; furthermore, the prescriptive period for filing lawsuit was also expired. Alternatively, Dong Hoa enterprise was dissolved from February 1, 2002; therefore, this enterprise lacked capacity to participate in the proceedings.

The first instance court was supposed to return the petition to the litigant as prescribed in Point a Clause 1 Article 168 of the Civil Procedure Code. However, the court accepted the lawsuit petition dated May 5, 2005 filed by Dong Hoa enterprise, which is considered a serious breach of proceedings. The appellate court failing to discover mistakes of the first instance court and upholding the first instance judgment is also considered a serious breach of proceedings.

[2-] In terms of content:

Where the prescriptive period for filing lawsuit possibly remains unexpired, the content of the case is taken into account based on documents and evidence in the case file taken by the Investigation Authority affiliated to the Ministry of Public Security from the ChinFon bank; Vietcombank (Tan Thuan branch of Ho Chi Minh City); Department of Taxation of Ho Chi Minh City and depositions of litigants at the Investigation Authority as follows:

When incorporating Lien Hoa Co., Ltd, Dong Hoa enterprise subscribed a capital contribution to the joint venture of USD 210.000 in cash and machinery and equipment, accounting for 30% of legal capital. Mrs. Duong Thiet Hon (owner of Dong Hoa enterprise) had no money for capital contribution, the machinery and equipment were originally transferred from StartTrading company of Mr. Yand Hui Sheng. On November 1, 2000, Mrs. Duong Thiet Hon made a document establishing the transfer of Dong Hoa enterprise’s subscribed capital to Mr. Yang Hui Chiang (Duong Quoc Cuong)-Mrs. Hon’s full brother and Mr. Yand Hui Sheng for receiving USD 4.500 of commission (case file p.83). This document specifies that Dong Hoa enterprise had not paid up capital to Lien Hoa Co., Ltd. On November 1, 2000, Mr. Yand Hui Sheng applies to the Management Board of export processing zones and industrial zones of Ho Chi Minh City for conversion of Lien Hoa joint venture to wholly foreign-owned Lien Hoa Co., Ltd (case file p.85). On January 1, 2001, the Management Board issued an Investment License No. 44A/GP-KCN-HCM, approving the transfer of interests and duties to wholly foreign-owned Lien Hoa Co., Ltd (case file p. 90).

On February 1, 2002, Dong Hoa enterprise was dissolved according to the Decision No. 01-02-QD (case file p.203).

While completing the paperwork for incorporation of Lien Hoa Co., Ltd and conversion to wholly foreign-owned Lien Hoa Co., Ltd, Dong Hoa enterprise and Mr. Yand Hui Sheng mutually made an Arrange Minutes dated September 26, 2000 as follows:  When Lien Hoa Co., Ltd commences operation, it must re-purchase all machinery and equipment and all existing stocks of Dong Hoa enterprise. Based on that, Dong Hoa enterprise made 21 VAT invoices of sale of machinery, equipment and stocks due in 30 days to Lien Hoa Co., Ltd.

On September 10, 1001, Mrs. Ong Bich Du, the Cashier of Dong Hoa enterprise (cum Cashier of Lien Hoa Co., Ltd) withdrew USD 120.000 from the account of Lien Hoa Co., Ltd opened at the ChinFon bank (case file p.370) and the bank pay them VND 1.800.480.000 in cash; on the same date, she deposited that sum of money to the account of Dong Hoa enterprise opened at Vietcombank (Tan Thuan branch) (case file p. 379). On September 24, 2001, she kept withdrawing USD 100.000 from the account of Lien Hoa Co., Ltd  and deposited that sum of money to the account of Dong Hoa enterprise. Furthermore, on September 24, 2001, the Chief Accountant Pham Thi Thuy Oanh and Cashier Ong Bich Du bought USD 167,000 of Vietcombank (Tan Thuan branch) (equivalent to VND 2.507.543.000) to pay StartTrading company of Mr. Yand Hui Sheng.

The bookkeeping and debt repayment of Dong Hoa enterprise are also presented in the cashbook of Dong Hoa enterprise (case file p.303). Upon Dong Hoa enterprise’s dissolution, the accounting records and inspection results given by the Department of Taxation of Ho Chi Minh City both show that Dong Hoa enterprise incurs no debt to Lien Hoa Co., Ltd.

While the first instance court and appellate court were supposed to make comprehensive verification of the origin of machinery and equipment: from above 21 contracts to transfer to Lien Hoa Co., Ltd, along with the payment method: withdrawing money from account of Lien Hoa Co., Ltd at ChinFon bank and then depositing money to account of Dong Hoa enterprise at Vietcombank (Tan Thuan branch), and then transferring money to Start Trading (Taiwan), they only considered the stage that two parties concluded sales contract and issuance of sales invoices. Therefore, the judgments compelling Lien Hoa Co., Ltd to repay Dong Hoa enterprise VND 3.257.856.030 (including VND 2.319.616.786  principal and VND 938.249.244 interest) mentioned in 21 VAT invoices have no substantial grounds.

According to facts and matters, pursuant to Clause 3 Article 297 and Article 299 of the Civil Procedure Code;

HEREBY DECIDES

1. Quash the Appellate Judgment No. 91/2005/KDTM-PT dated November 29, 2005 of Appellate Court of the Supreme People’s Court of Ho Chi Minh City and the First Instance Judgment No. 245/KDTM-ST dated August 29, 2005 of People’s Court of Ho Chi Minh City on dispute over business and trade between plaintiff-Dong Hoa enterprise and defendant-Lien Hoa Co., Ltd.

2. Refer the case file to People’s Court of Ho Chi Minh City for re-conducting the first-instance trial as per the law.

Grounds for quashing the first instance judgment and appellate judgment:

The prescriptive period for filing lawsuit was expired but the courts still accepted and heard the case.