Contract Drafting in Vietnam: Avoid Costly Legal Risks

Proper contract drafting is one of the most important factors helping foreign businesses minimize risks when working with partners in Vietnam. In practice, most disputes we handle do not arise from overly complex situations, but from poorly drafted contracts that lack protective mechanisms or fail to comply with Vietnamese law.

This article will help you understand how a well-drafted contract reduces risk—and why investing in contract drafting is always far more cost-effective than dealing with disputes afterward.

Why do many businesses still face risks even after signing a contract?

A common misconception is that “having a contract means being safe.” In reality, not all contracts provide the same level of protection.

Based on practical experience, common issues include:

• No clear penalty clauses or overly vague provisions
• No clear mechanism for handling deposits in case of breach
• Insufficiently detailed compensation clauses
• No clear dispute resolution mechanism (court vs. arbitration, governing law, etc.)
• Contract terms that are not aligned with Vietnamese law, making enforcement difficult

In such cases, even if you are “legally right,” protecting your interests in practice can still be extremely challenging.

How does proper contract drafting reduce risks?

Establishing preventive mechanisms from the outset

A well-drafted contract does not only record agreements—it anticipates potential risks and disputes.

For example:

• If the seller fails to deliver goods: Is there a penalty? How much?
• If the buyer delays payment: Is there late payment interest?
• If the contract is terminated: How is the deposit handled?

Under the Civil Code 2015 and the Commercial Law 2005 of Vietnam, parties have the right to agree on penalties and damages. However, if these are not clearly specified, their enforcement becomes significantly limited.

In other words: if the contract does not address these issues in advance, you may have very limited tools to protect yourself when disputes arise.

Controlling risks related to deposits

This is one of the most common issues foreign businesses face in Vietnam.

Many contracts simply state that a “deposit has been paid” without clearly defining:

• Conditions for refund
• Circumstances under which the deposit is forfeited
• How performance of obligations is verified

When disputes arise, the receiving party may rely on various arguments to refuse repayment. Without clear contractual terms, the chances of recovery are often low.

A properly drafted contract should:

• Clearly define the nature of the payment (deposit, advance payment, partial payment, etc.)
• Specify refund conditions
• Include clear remedies in case of breach

Improving enforceability in case of disputes

One critical but often overlooked point is: winning a case does not necessarily mean recovering your money.

In Vietnam:

• Legal proceedings can be time-consuming
• Legal fees and internal resources can be substantial
• Enforcement depends on the assets of the breaching party
• If the company has ceased operations or has no assets, recovery may be nearly impossible

Therefore, a good contract should aim to:

• Create pressure for compliance from the beginning
• Reduce the likelihood of breach
• Provide clear legal advantages if a dispute occurs

Choosing the right dispute resolution mechanism

A properly drafted contract should clearly specify:

• Dispute resolution authority (Vietnamese courts or arbitration)
• Governing law
• Contract language

Unclear or inappropriate choices can result in:

• Delays in determining jurisdiction
• Difficulties in initiating legal proceedings
• Increased and unnecessary legal costs

Ensuring compliance with Vietnamese law

Some contracts are based on foreign templates without adapting to Vietnamese legal requirements.

This may lead to:

• Certain provisions being unenforceable
• Inability to apply the contract in practice
• Disadvantages in dispute resolution

For example, Vietnamese law may regulate:

• Caps on penalty clauses
• Conditions for contract validity
• Burden of proof for damages

Without proper localization, a contract may appear “well-drafted” on paper but become ineffective when needed.

Litigation costs vs. contract drafting costs: A practical perspective

This is something many businesses only realize after problems arise.

A contract dispute may last months or even years, involving:

• Legal fees
• Court or arbitration costs
• Travel and evidence collection expenses
• Opportunity costs due to business disruption

In contrast, the cost of having a lawyer:

• Draft a contract from the beginning, or
• Review and revise a contract before signing

is typically only a fraction of dispute-related costs.

More importantly, even if you win, you may still face the risk of non-recovery if the other party lacks financial capacity.

From a practical standpoint, prevention is always the more effective approach.

When should you engage a lawyer?

Based on practical experience, you should consider legal support when:

• Working with a Vietnamese partner for the first time
• The contract value is significant or involves deposits
• The contract relates to manufacturing, sourcing, or logistics
• It is a long-term service agreement
• You do not have an in-house legal team in Vietnam

A lawyer does not just “rewrite your contract,” but also:

• Identifies risks you may not see
• Structures clauses suitable for the Vietnamese context
• Advises on strategies to minimize disputes

Practical insights from Vietnam

At DEDICA, we frequently encounter cases where:

• Payments have been made without adequate contractual protection
• Contracts lack sufficient legal basis for claiming damages
• Dispute resolution mechanisms are unclear
• Contracts are copied from templates but not properly adapted

The common issue is not the complexity of disputes—but the lack of proper preparation at the contract stage.

A contract is not just paperwork—it is a risk management tool

A properly drafted contract can:

• Significantly reduce the likelihood of disputes
• Strengthen your position in case of breach
• Help control financial risks

On the other hand, a poorly drafted contract may result in:

• Loss of deposits
• Lack of remedies for breach
• Significant difficulties in legal enforcement

This article is based on practical experience and current Vietnamese laws. However, each transaction and dispute has its own specific circumstances, and legal strategies should be tailored accordingly.

If you are preparing to sign a contract or have already encountered issues, consulting a lawyer at an early stage can significantly reduce your risks.

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