David (name changed), a Singaporean citizen and commercial company director, asked DEDICA:
"My company is about to sign a high-value purchase contract with a supplier in Vietnam. The partner wants to apply Vietnamese law and resolve disputes in Vietnamese courts, while my lawyer suggests choosing Singapore law and Singaporean courts. Which law should I choose, and if a dispute arises later, should I settle it in court or via arbitration to ensure the ruling is enforceable in Vietnam?"
DEDICA ADVISES Vietnamese law allows parties to mutually agree on the law applicable to contracts with foreign elements, so the question of "which law" is often not the critical point. The deciding factor lies in enforcement. A foreign court judgment is very difficult to enforce in Vietnam, while an arbitral award is enforceable thanks to the New York Convention, to which Vietnam is a signatory. Therefore, when the partner and assets are located in Vietnam, the safer choice is typically arbitration rather than a foreign court. Below is the rationale and how to draft the clause.
Rights to Choose Applicable Law and Dispute Resolution Forum
The good news is that the right to mutual agreement is legally recognized. For contracts with foreign elements, parties may choose the law of a specific country to govern the contract, with a few exceptions regarding real estate and minimum protection levels for employees and consumers.
What does this mean for you? If a contract leaves the choice-of-law clause blank, it does not mean "no law applies"; rather, the law will automatically default to that of the country with the closest connection to the contract. For sales contracts, this is usually the country where the seller is headquartered. In other words, silence is also a choice, but one you do not control.
Specifically for international sales of goods, there is another layer of rules to be aware of. Since January 1, 2017, Vietnam has been a member of the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG). When your partner is also headquartered in a member country, this Convention automatically applies to the contract unless both parties explicitly exclude it. Therefore, it is advisable to state clearly in the contract whether or not the CISG applies, rather than leaving it to default and facing surprises later.
Regarding the dispute resolution forum, parties are also free to choose courts or arbitration. When parties have agreed to choose arbitration or a foreign court, Vietnamese courts will return the petition or suspend the case, respecting that agreement (Article 472, Civil Procedure Code 2015). The positive aspect is that the clause you sign will be respected. The point to note is that choosing incorrectly from the beginning is almost impossible to fix once a dispute has erupted.
Why Winning a Foreign Court Case Does Not Guarantee Recovery in Vietnam
Suppose you choose a Singaporean court and win the case later. To collect money from the partner's assets located in Vietnam, the Singaporean judgment must first be recognized and allowed for enforcement by a Vietnamese court. However, a foreign court judgment is only considered for recognition if there is an international treaty between that country and Vietnam, or on the basis of the principle of reciprocity (Article 423, Civil Procedure Code 2015). Vietnam has only signed judicial assistance treaties on civil matters with a small number of countries, and many major trading partners are not yet included. In the absence of a treaty, recognition depends on the principle of reciprocity on a case-by-case basis, and the risk of refusal is real. The outcome could be that you hold a winning judgment that is unenforceable where the assets are located.
Arbitration follows a completely different mechanism. Foreign arbitral awards are recognized and allowed for enforcement in Vietnam when that country and Vietnam are both members of a treaty on the recognition of arbitral awards. That treaty is the 1958 New York Convention, which Vietnam joined in 1995, with over 170 member countries including Singapore, the US, EU countries, Japan, South Korea, and China.
When placed side-by-side, the difference in enforceability is very clear:
| Criteria | Foreign Court | Arbitration (New York Convention) |
|---|---|---|
| Basis for recognition in Vietnam | Must have a bilateral treaty or reciprocity principle | 1958 New York Convention |
| Number of countries joining with Vietnam | Very limited | Over 170 countries |
| Risk of unenforceable ruling in Vietnam | High | Much lower |
To ensure the clause truly protects you, you should follow this sequence when drafting the contract:
- Clearly state a single applicable law for the contract, and specify whether the CISG applies if it is a sale of goods.
- Choose arbitration instead of a foreign court when the partner and assets are in Vietnam: domestic arbitration like VIAC, or an international organization like SIAC or ICC with the seat located in a New York Convention member country.
- Draft a complete arbitration agreement: the correct name of the arbitration organization or set of rules, location, language, number of arbitrators, and applicable law.
- Designate a priority language and prepare a bilingual version to avoid arguments over interpretation when a dispute occurs.
Conclusion
In summary, you have full rights to agree on the law applicable to the contract, but the deciding factor is not "which law" but the ability to enforce the results where the partner's assets are located. With a supplier and assets in Vietnam, you should: (1) clearly state the applicable law and consider the CISG if it is a sale of goods; (2) prioritize arbitration, such as VIAC or an international organization based in a New York Convention member country, rather than a foreign court; (3) draft the arbitration agreement strictly to avoid invalidation. A clause of only a few lines, if drafted correctly from the start, will determine whether you recover your money when a dispute occurs.
DEDICA Law Firm is ready to support you with drafting and reviewing international contracts with Vietnamese partners, designing choice-of-law clauses and dispute resolution mechanisms linked to practical enforceability in Vietnam, and representing clients in arbitration proceedings, in court, and in procedures for recognition and enforcement of awards. If you are preparing to sign or want to review a contract, contact DEDICA Law Firm for in-depth legal consultation.
This content is for reference purposes; each transaction has its own specificities regarding industry, value, and partner status. Please consult with DEDICA lawyers for accurate advice.
