Are you about to sign a contract with a Vietnamese supplier but unsure whether it is truly safe? Not understanding Vietnamese law, lacking control over risks, or having already paid a deposit without proper protection—these are common concerns among foreign businesses operating in Vietnam. This article will help you identify key risks and, more importantly, how to prevent them from the very beginning.
Why Foreign Businesses Face Contract Risks in Vietnam
When working with Vietnamese suppliers, many foreign companies rely on “commercial trust” or international experience. However, Vietnam has its own legal framework and enforcement realities that differ significantly.
Risks Start from the Contract Terms
Under the Vietnamese Civil Code 2015 and Commercial Law 2005, a contract is valid when it meets requirements on parties, content, and form. However:
- Not all contract terms are enforceable if they violate Vietnamese law
- Some internationally common clauses may be partially invalid or unenforceable
- Unclear provisions on governing law, language, or dispute resolution can create serious disadvantages
Many foreign businesses use international contract templates without adapting them to Vietnamese law, which creates significant risks when disputes arise.
Lack of Protection When the Supplier Breaches
A very common scenario:
- You have paid a deposit
- The supplier fails to deliver goods or delivers substandard products
- There are no clear clauses on penalties, damages, or refund mechanisms
Under Vietnamese law:
- Contractual penalties are often capped (e.g., up to 8% of the breached obligation value in certain commercial cases)
- Damages claims require proof of actual loss, which is often difficult to establish
If the contract is not properly drafted from the beginning, enforcing your rights later becomes extremely challenging.
Contract Disputes in Vietnam: Can You Sue and Recover Your Money?
This is a question almost every foreign client of DEDICA Law asks.
The answer is: You can sue, but recovery is not always guaranteed.
Litigation Costs vs. Practical Outcomes
In case of disputes, businesses may choose:
- Vietnamese courts
- Commercial arbitration
However, in practice:
- Proceedings may take 6 months to several years
- Costs include legal fees, court fees, translation, and administrative expenses
- Even if you win, enforcement is a separate challenge
The Biggest Risk: The Counterparty Cannot Pay
In Vietnam, it is not uncommon that:
- Small companies cease operations, disappear, or have no remaining assets
- Enforcement proceedings take considerable time
- Recovery may be unsuccessful, even with a valid judgment
This leads to an important conclusion:
Litigation is not always economically efficient.
What to Check Before Signing a Contract with a Vietnamese Supplier
This is the most critical stage—where you can eliminate up to 80% of risks before they occur.
Verify Legal Status and Capacity of the Supplier
Before signing, you should:
- Verify the company’s legal status (active or not)
- Confirm the signatory’s authority
- Assess actual capacity (factory, workforce, track record)
This step is often overlooked but extremely important.
Draft Contracts with “Real Protection” Clauses
A good contract is not just legally sound—it must protect you in worst-case scenarios.
Key clauses to focus on:
1. Payment Terms
- Avoid 100% upfront payment
- Use milestone-based payment structures
- Link payments to inspection or performance
2. Penalties and Damages
- Clearly define penalty levels
- Specify how damages are calculated
- Consider including liquidated damages where appropriate
3. Delivery / Service Performance
- Clearly define quality standards
- Set specific delivery timelines
- Include inspection and rejection mechanisms
4. Dispute Resolution
- Clearly choose: Court or Arbitration
- Specify location, language, and governing law
- Consider reputable arbitration centers if necessary
Why Prevention Is Always Cheaper Than Dispute Resolution
Many businesses only seek legal advice after a dispute arises. By then:
- The money has already been paid
- The goods or services have failed
- The relationship has broken down
At that stage, costs are not limited to legal fees—they also include:
- Operational disruption
- Lost business opportunities
- Reputational damage
In contrast, the cost of:
- Contract review
- Transaction structuring
- Risk assessment
…is often only a fraction of dispute resolution costs.
Practical Solutions for Foreign Businesses in Vietnam
Based on practical experience, DEDICA Law recommends a strategy that includes:
Pre-signing Contract Review
Lawyers will:
- Identify unfavorable clauses
- Align the contract with Vietnamese law
- Propose risk mitigation structures
Structuring Safer Transactions
Not just contract drafting, but also:
- Payment structures
- Progress control mechanisms
- Maintaining negotiation leverage
Support When Issues Arise
If disputes occur:
- Assess realistic recovery chances
- Recommend negotiation or litigation strategies
- Optimize legal costs
An Important Legal Disclaimer
Each transaction and contract has its own specific characteristics. There is no “one-size-fits-all” contract that guarantees absolute safety.
Therefore:
- Avoid using generic templates found online
- Do not blindly apply contracts from other jurisdictions
- Seek legal advice tailored to your specific transaction
Conclusion: The Real Risk Lies in the Contract, Not Just the Partner
Many businesses believe the risk comes from “unreliable partners.” In reality:
The biggest risk lies in contracts that fail to protect you.
Once you sign a poorly structured contract, you are likely to:
- Lose leverage in disputes
- Increase legal costs
- Reduce chances of recovery
On the other hand, a well-prepared contract helps you:
- Control risks from the outset
- Maintain leverage in all situations
- Minimize long-term legal costs
📞 Hotline: (+84) 39 969 0012 (Available via WhatsApp, WeChat, Zalo)
🕒 Working Hours: Monday – Friday (8:30 – 18:00)
Contact us today for a free initial consultation with our experienced lawyers!
