No table of contents available
In practice, this is no longer an uncommon situation for foreign businesses working with partners in Vietnam. Goods have not been delivered, services have been halted midway, but deposits or advance payments have already been transferred.
So what actually happens in these cases? And more importantly, what can businesses do to avoid being caught off guard? It's crucial to thoroughly understand the laws and legal validity of their own contracts.
According to Vietnamese law, a legally signed contract remains binding between the parties. However, legal validity is only a necessary condition, not a sufficient one, to protect rights in practice.
When a partner company ceases operations, no longer has a representative, no assets, or has disposed of its assets, demanding that they fulfill their obligations becomes virtually meaningless. Even if the contract clearly stipulates penalties for breach of contract or compensation for damages, these clauses are difficult to enforce if the breaching party lacks the financial capacity.
This leads to a rather unacceptable reality: your company may be completely in the right legally, but still unable to recover the money.
Many foreign businesses assume that disputes can be resolved through litigation. However, in Vietnam, this process is often longer and more costly than expected. Beyond legal fees and court costs, businesses also face lengthy processing times, disruptions to business operations, and internal management pressures. More importantly, even with a favorable ruling, the enforcement phase is the crucial stage.
One common problem is that contracts are drafted to list obligations but lack mechanisms to ensure their fulfillment. Businesses often clearly define delivery times, schedules, or liability for breaches, but fail to design control points during execution.
When all or most of the contract value has been paid early, the other party is almost free from pressure to continue fulfilling their obligations. At this point, the contract exists only on paper, but there is no longer a strong enough tool to compel the partner to comply.
Another risk arises from businesses signing contracts without thoroughly vetting their partners. In reality, many cases involve newly established businesses with little or no significant assets or internal problems.
This lack of due diligence results in contracts being signed with entities that have very limited capacity to fulfill their obligations. When problems arise, the business has virtually no leverage to protect its interests.
Some contracts opt for dispute resolution mechanisms abroad or the application of foreign law with the expectation of increased protection. However, when both the assets and the parties are located in Vietnam, enforcing these judgments becomes much more difficult.
The process of recognizing and enforcing foreign judgments in Vietnam can be time-consuming and not always successful. This renders the initial legal strategy less effective in practice.
In most cases, the cost of prevention is far lower than the cost of dispute resolution. Checking the legal status of partners, verifying representatives, and assessing their capacity to perform are fundamental but highly valuable steps in mitigating risk.
Furthermore, contracts should be designed to control cash flow and project progress. Instead of a single lump-sum payment, businesses should link payment obligations to specific project milestones, thereby creating a balance of interests between all parties.
An effective contract must not only be legally sound but also suitable for its enforcement environment. This includes selecting a reasonable dispute resolution mechanism, establishing penalty clauses for breaches that comply with Vietnamese law (typically not exceeding 8% of the value of the breached obligation), and anticipating potential scenarios.
More importantly, the contract needs to answer the question: if the other party fails to fulfill its obligations, what tools do you have to control the situation?
This is the biggest differentiating factor. Lawyers not only help review the terms, but also look at the overall picture of the transaction to identify risks.
In many cases, serious problems don't lie in the wording of the contract, but in how the transaction is structured or how risks are allocated between the parties. Having a lawyer involved from the beginning helps businesses avoid loopholes that are only discovered when disputes arise.
From a practical perspective, no contract can completely eliminate risk. Similarly, no legal solution guarantees the recovery of money in every case. Each case depends on many factors such as the financial situation of the counterparty, evidence, the timing of the case, and the ability to enforce judgments. Therefore, the most reasonable approach is not to seek "absolute safety," but to minimize risk as much as possible.
Meanwhile, much of this risk can be controlled right from the contract preparation stage. Investing in initial legal advice not only helps protect your rights but also helps your business operate more stably and sustainably when working in Vietnam.
Are you facing a similar situation or preparing to sign a contract with a partner in Vietnam? Contact DEDICA immediately for legal strategy advice tailored to your business model.
📞 Hotline: (+84) 39 969 0012 (Support available via WhatsApp, WeChat, and Zalo)
🕒 Opening hours: Monday – Friday (8:30 AM – 6:00 PM)
Contact us today for a free initial consultation with our team of professional lawyers!
Select a platform to view details
