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Contractual risks faced by foreign businesses in Vietnam don't always stem from clear breaches by their partners. In fact, many risks arise from very "technical" aspects of contracts – things that are difficult for businesses unfamiliar with Vietnam's legal environment to recognize.
Signing Authority Lacks Legal Representation
A frequently overlooked issue is that the person signing the contract may not be legally authorized to represent the client or may not have valid authorization.
In this case, the contract's validity may be disputed. The entire transaction could then become legally ambiguous.
Signing with the Wrong Legal Entity
Some businesses sign contracts with one company, but the actual execution is handled by another company within the same system. This creates risks when determining legal liability.
Contracts that Do Not Accurately Reflect the Nature of the Transaction
For example, a contract labeled as a “service contract” may actually be a sales or processing contract. In this case, the applicable legal regulations may differ from the business's expectations.
Lack of Control over Conditional Business Conditions
Some sectors in Vietnam require specific licenses or business conditions. If a contract relates to a conditional industry but the partner does not meet these requirements, the transaction may be legally affected.
Unwritten but Applicable Provisions
Vietnamese law contains many “default” provisions. This means that even if the contract doesn't explicitly state them, the law automatically applies.
If businesses fail to recognize these provisions, the contract may be adjusted in an unfavorable way without them realizing it.
Legal Limitations of Agreements
Some agreements in international contracts, such as limitations on liability or penalties, may have restrictions when applied in Vietnam. This can lead businesses to misunderstand the level of protection offered by the contract.
Conflicts Between Language Versions
Many contracts are bilingual. However, if the two versions do not perfectly match, determining which version takes precedence becomes problematic in disputes.
Different Interpretations Between Parties
Even with identical content, interpretations of legal terminology may differ between parties, especially when one party is unfamiliar with the Vietnamese legal system.
Undefined Ownership Rights
In service or outsourcing contracts, ownership of products, data, or documents may not be clearly defined. This is particularly important for technology or creative businesses.
Risk of Loss of Control Over Information
Without appropriate data confidentiality and control clauses, businesses may face risks to their business information.
Off-Contract Agreements
In many cases, parties agree on additional conditions outside of the contract via email or verbal exchange. When disputes arise, these agreements are difficult to recognize if they are not clearly documented.
Conflicts Between Contract and Reality
If the actual content differs from the contract, determining which takes precedence becomes a complex legal issue.
Foreign businesses often focus on the major clauses, but the real risks lie in the small details and their practical application. Understanding and controlling these risks is crucial to protecting their interests in Vietnam.
DEDICA Law provides comprehensive contract drafting and consulting services, helping foreign businesses not only sign contracts safely but also control the entire cooperation process.
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