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What should foreign businesses consider when signing contracts in Vietnam to avoid legal risks and protect their rights? This question is often only asked after problems have already arisen, such as a partner failing to deliver goods, falling behind schedule, or not making payments.
In reality, in Vietnam, contracts are not an "absolute shield" if they are not properly designed. Most risks don't lie in the lack of a contract, but in contracts that are not strong enough to handle breaches.
Many foreign businesses use contracts based on international standards or sign contracts using templates provided by Vietnamese partners without modification. This is where the risk begins.
Vietnamese law (Civil Code 2015, Commercial Law 2005) clearly stipulates contract validity, penalties for breach of contract, and compensation for damages. However, the issue is not about "having regulations," but about the ability to enforce them.
A contract may be legally valid but still not help you recover your money if:
In reality, there are cases where Vietnamese businesses:
This leads to an important fact: winning a lawsuit does not guarantee the recovery of the money.
Before signing, businesses need to view the contract from the perspective of "what if a dispute arises," rather than just focusing on closing the deal.
A good contract cannot compensate for choosing the wrong partner. Businesses need to verify the legal status, operational capabilities, and reputation of the partner before signing.
One of the common causes of disputes is overly vague clauses. The clearer the obligations, the lower the likelihood of disputes.
This includes specifically defining the product/service, completion criteria, timeline, and responsibilities of each party.
In most disputes, the biggest issue isn't "who's right and who's wrong," but where the money went and whether it can be recovered.
Businesses need to pay particular attention to how they design payment terms. Instead of simple agreements, payments should be linked to progress or performance results. This creates real pressure on the partner to fulfill their obligations.
Additionally, retaining a portion of the contract value or establishing clear payment conditions will help minimize the risk of losing money if problems arise.
This is often overlooked but has a significant impact when problems arise. Businesses need to clearly define from the outset whether they will choose court proceedings or commercial arbitration. Each option has its own advantages and disadvantages in terms of time, cost, and enforceability. Without clear definition, you could waste a lot of time just determining where to resolve disputes.
If you are preparing to sign a contract with a partner in Vietnam, this is the best time to review and adjust it. DEDICA regularly assists foreign businesses in contract review, clause design, and dispute resolution, aiming to help clients control risks from the outset rather than dealing with them after they have occurred.
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