A Fidal litigation team won an arbitral award at the Vietnam International Arbitration Center (“VIAC”) for our client, involved as a Claimant in a lawsuit against its lessor, to recollect full amount of the deposit retained by the lessor by arguing the lack of grounds for liability to compensate damages.
Summary of context:
Establishment of contractual relationship
– At the beginning of 2012, our client rented from XYZ Co., Ltd a premises to serve as an office. The lease term was until August 31, 2019. Since the structure of the leased premises has half of its exterior-facing wall made of window frames with large glass panels installed, at the time of handing over the leased premises, representatives of the lessee and the lessor have jointly made a record on the glass panels’ status quo. Accordingly, most of the window glass panels in the rented office area have many existing scratches at the time the tenant was handed-over the premises from the lessor.
– By September 1, 2019, our client decided to extend the lease of the premises. Therefore, both parties signed a new lease contract bearing the principal components as follows:
a) Lease term: from 01/9/2019 to 31/8/2021
b) Deposit: The lessee must pay the lessor an additional deposit amount equivalent to 03 months of rents (“Deposit”) and management fees.
c) Both parties continued to use the Record on the glass panels’ status quo made in 2012 without making a new one since the lessee remains unchanged.
Expiry and liquidation of the lease contract
– On August 31, 2021, the lease expired, the lessee was “to return to the lessor the empty premises in good condition, clean, rentable (reasonable wear and tear accepted) after having removed all their equipment and fixtures” but due to “social distancing” order of the Municipal People’s Committee, the lessee was unable to return the leased premises to XYZ Co., Ltd.
– In early October 2021, after the “social distancing” order was removed, our client’s construction unit was able to finalize the renovation of the leased premises and made an official return of the premises “in good condition, clean and rentable” to the lessor on October 4, 2021.
– On the same day, October 4, 2021, the representative of XYZ Co., Ltd. sent to our client a set of documents to be signed for certifying the return of the leased premises including a Reinstatement report. Accordingly, the lessor recorded the appearance of new scratches on 02 glass panels at the rented premises compared to the Record on the glass panels’ status quo made in 2012. Therefore, the lessor required our client to be liable for this damage and must pay a total value of the two glass panels or to replace them. The lessor will only refund the deposit to our client after being accepted the above compensation to be deducted from the deposit.
Our client did not agree to compensate for the scratches with full value of the glass panels because they believed that such scratches do not damage to the rental property and that the lessor lacked legal and contractual basis for such claim from the lessor and wished to claim the refund of the full amount of the office rental deposit.
Award by the arbitral tribunal:
The award was issued in favor of our client. The VIAC arbitral tribunal has agreed with our arguments and followed the evidence to conclude that our client is not liable for scratches on the glass panels as allegedly claimed by the lessor because the latter failed to prove that there is a breach of contract committed by our client nor the scratches on the glass panels do cause a material loss which is not demonstrated. Accordingly, the tribunal decides to order the Respondent to reimburse our client the following amounts:
a) Total amount of the Deposit retained by the lessor as per the lease contract;
b) Late payment interest accrued on the deposit at the rate of 10%/year;
c) Arbitration fee which our client had paid to VIAC.
About Fidal Asiattorneys’ Litigation and Arbitration Practice
Our litigation team has extensive experience and a proven record for commercial disputes of all kinds. We represent clients on both the plaintiff and defense side, at the trial and appeal level. Our lawyers are always encouraged to devise creative and novel solutions for clients’ difficulties.
In addition, our Managing Partner, Mr. Albert Franceskinj remains a listed foreign international arbitrator at VIAC.
It is noted that this article does not constitute a legal advice and only constitutes a public information on a general matter. Feel free to contact us for further detailed information for any specific case.
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