When drafting sales contracts with Vietnamese partners, many foreign businesses make seemingly minor mistakes that can lead to significant financial and legal risks. In practice, most disputes do not arise from complex situations, but from contracts that were not properly prepared from the outset.
If you are preparing to sign a contract, concerned about losing your deposit, or unsure whether your contract will adequately protect you in case of a dispute, this article will help you identify the most common mistakes—and more importantly, how to avoid them.
Why do foreign businesses face higher risks when contracting in Vietnam?
One of the key reasons lies in differences in legal systems and business practices.
Many businesses:
- Use international contract templates without adapting them to Vietnamese law
- Are unfamiliar with enforcement procedures in Vietnam
- Underestimate the practical risks when a partner breaches the contract
As a result, a contract may appear “formally correct” but fail to effectively protect your interests when needed.
Common mistakes when drafting sales contracts
Failing to clearly define penalties and damages
This is one of the most critical mistakes.
Under the Commercial Law 2005 of Vietnam, parties may agree on contractual penalties. However, if the contract does not clearly specify:
- When penalties apply
- The specific penalty amount
- Triggering conditions
then enforcing such penalties becomes extremely difficult in practice.
Similarly, unclear damage clauses can make it challenging to prove and claim compensation.
Poor control over deposit arrangements
Many businesses transfer deposits without clearly regulating:
- Conditions for refund
- Circumstances under which the deposit is forfeited
- Obligations of each party relating to the deposit
Under the Civil Code 2015, deposits serve as a security mechanism. However, without clear contractual provisions, their effectiveness in practice is limited.
When disputes arise, the receiving party may delay or refuse repayment, and your ability to recover funds will depend heavily on how the contract is drafted.
Using template contracts without localization
This is a very common mistake among foreign businesses.
Contracts are often copied from:
- International templates
- Contracts used in other jurisdictions
- Online templates
without being adapted to Vietnamese law.
Consequences include:
- Certain provisions being unenforceable
- Misalignment with dispute resolution practices in Vietnam
- Inability to rely on the contract when disputes occur
Lack of clear dispute resolution mechanisms
Many contracts either vaguely state or completely omit:
- Whether disputes will be resolved by courts or arbitration
- Governing law
- Contract language
This can lead to:
- Disputes over jurisdiction
- Delays in initiating legal proceedings
- Increased legal costs
Ignoring real-world enforceability
This is a “strategic” mistake often overlooked.
In Vietnam:
- Litigation can take significant time
- Enforcement depends on the breaching party’s assets
- If the partner ceases operations or has no assets, recovery may be nearly impossible
In other words, a good contract should not only help you “win a case” but also increase your chances of actually recovering your money.
Overly general clauses lacking operational clarity
Some contracts are drafted in a “safe” but overly vague manner:
- No clear delivery deadlines
- No quality benchmarks
- No defined responsibilities for delays
These gaps make it difficult to prove breaches when disputes arise.
Dispute costs vs. contract drafting costs
This is something many businesses only realize after problems occur.
A contract dispute may:
- Last months or even years
- Incur substantial legal and court costs
- Disrupt business operations
In contrast:
- The cost of drafting or reviewing a contract upfront is significantly lower
- Yet it can substantially reduce the likelihood of disputes
More importantly, even if you win a case, you may still fail to recover funds if the other party lacks financial capacity.
From a practical perspective, prevention is always more effective.
How to avoid these mistakes?
Do not sign contracts you do not fully understand
If you are unsure about:
- Payment terms
- Penalty clauses
- Dispute handling mechanisms
then the risk is already high.
Conduct legal review before signing
A proper legal review can help:
- Identify unfavorable clauses
- Strengthen protection mechanisms
- Ensure compliance with Vietnamese law
Engage a lawyer early
This is often the deciding factor.
A lawyer will not only:
- Draft or revise your contract
- But also identify risks you may overlook
- And structure the contract to fit Vietnam’s legal and business environment
The biggest mistake: underestimating the importance of contracts
A properly drafted contract can:
- Significantly reduce legal risks
- Strengthen your ability to protect your interests
- Help manage financial exposure
On the other hand, mistakes in contract drafting can lead to:
- Loss of deposits
- Lack of remedies in case of breach
- Inability to recover funds—even after winning a case
This article is based on practical experience and current Vietnamese law. However, each transaction and dispute has its own specific characteristics, and legal strategies should be tailored accordingly.
If you are preparing to sign a contract or have already encountered issues, seeking legal advice early can significantly reduce your risks.
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