Why Poorly Drafted Contracts Put Foreign Businesses at Risk in Vietnam

Many foreign businesses sign contracts in Vietnam without realizing the legal risks until a dispute actually occurs. A poorly drafted contract can lead to lost deposits, difficulties claiming damages, or even the inability to recover money in practice.

In many cases handled by the lawyers at DEDICA Law, the issue was not that the client had no legal grounds, but that the contract lacked proper protection mechanisms from the beginning. When the Vietnamese partner delayed delivery, stopped performing obligations, or refused payment, businesses suddenly realized that legal action in Vietnam was far more complicated than expected.

So, what should foreign businesses carefully review before signing a contract with a Vietnamese partner?

Poorly Drafted Contracts: A Major Risk Many Foreign Businesses Underestimate

When working with Vietnamese partners, foreign companies often focus heavily on pricing, production capacity, and timelines while overlooking the legal structure of the contract itself. This is one of the main reasons why commercial disputes later become difficult to resolve.

Limited Understanding of Vietnamese Law Can Lead Businesses Into Unfavorable Agreements

A common issue is that many foreign companies use international contract templates or simply sign agreements prepared by the Vietnamese side without adapting them to Vietnamese law.

For example, many contracts contain vague clauses such as:

• “The parties shall amicably resolve disputes.”
• “The breaching party shall bear responsibility.”
• “Payment shall be made according to schedule.”

While these terms may appear sufficient, they are often inadequate when disputes arise.

Under the 2015 Civil Code and the 2005 Commercial Law of Vietnam, important matters should be clearly specified, including:

• Payment conditions
• Acceptance and inspection standards
• Performance deadlines
• Penalty clauses
• Compensation for damages
• Contract termination mechanisms
• Governing law and dispute resolution forum

If these provisions are unclear, proving damages or enforcing liability becomes significantly more difficult.

This is especially challenging for foreign businesses that do not have an in-house legal team in Vietnam and therefore cannot easily assess whether the contract truly protects their interests.

Losing Deposits Without Adequate Protection Mechanisms

One of the most common risks involves foreign businesses transferring deposits or advance payments to Vietnamese suppliers or service providers without sufficient contractual safeguards.

Many agreements fail to include:

• Deposit refund conditions
• Performance security obligations
• Rights to suspend payment
• Retention clauses
• Clear milestone commitments

When the supplier delays delivery, provides defective products, or suddenly becomes unresponsive, businesses often seek legal advice only after the damage has already occurred.

At that stage, the possibility of recovering funds depends heavily on practical factors such as:

• Whether the Vietnamese company is still operating
• Whether it has assets available for enforcement
• Whether the legal representative remains in Vietnam
• Whether there is sufficient evidence of breach

This is why many businesses may technically “win” a dispute but still face serious difficulties recovering money in reality.

Why Litigation in Vietnam Is Not Always an Effective Solution

Many foreign businesses assume that filing a lawsuit is the obvious solution when a dispute arises. In practice, however, litigation in Vietnam can be more time-consuming and costly than expected.

Litigation Costs May Exceed the Actual Amount Recoverable

A contractual dispute in Vietnam may last months or even years, especially when it involves:

• Companies that have ceased operations
• Disputes over evidence
• Deliberate delays by the counterparty
• Difficulty identifying assets
• Foreign-related elements

In addition to court fees, businesses must also consider:

• Legal fees
• Translation and legalization costs
• Internal management time
• Business opportunity costs
• Risks to the supply chain

In many cases, even after obtaining a favorable judgment, the counterparty may no longer have assets or sufficient financial capacity to satisfy the judgment.

As a result, winning a case does not necessarily mean recovering the money.

This is a very practical reality that many foreign businesses only discover after a dispute has already escalated.

Enforcement in Vietnam Often Depends on the Counterparty’s Actual Financial Situation

Another critical but often overlooked issue is civil judgment enforcement in Vietnam.

Even if a court or arbitral tribunal issues a favorable decision, actual recovery still depends on:

• Whether the counterparty still owns assets
• Who legally owns those assets
• Whether there are competing creditors
• Whether the company is dissolving or abandoning its registered address

In practice, many small or medium-sized suppliers and service providers in Vietnam operate with relatively flexible corporate structures. Some businesses can cease operations quickly or shift activities to another legal entity once disputes arise.

Without proper contractual safeguards from the beginning, foreign businesses may find themselves facing a long and expensive legal process with uncertain results.

This is why experienced commercial lawyers often emphasize that:

“Preventing legal risks through proper contracts is always less expensive than resolving disputes afterward.”

What Should Foreign Businesses Review Before Signing Contracts in Vietnam?

A well-drafted contract is not merely a document to be signed. It is a practical risk management tool designed to protect the business if problems occur.

Legal Review Before Signing Is a Necessary Investment, Not an Extra Cost

Many businesses hesitate to engage lawyers to review contracts because they want to reduce expenses. In reality, however, the cost of legal review is usually far lower than the losses caused by a major contractual dispute.

When reviewing contracts in Vietnam, lawyers typically assess issues such as:

Legal Status of the Counterparty

• Is the company legally operating?
• Does the signatory have proper authority?
• Is the business line appropriate for the transaction?
• Are there warning signs of financial risk?

Payment and Security Mechanisms

• Should payment be divided into milestones?
• Should part of the payment be retained?
• Is performance security or a guarantee necessary?

Breach and Liability Clauses

Under Vietnamese Commercial Law, contractual penalties in commercial transactions may be subject to statutory limitations depending on the circumstances. Therefore, penalty clauses should be carefully drafted to avoid unenforceability.

The contract should also clearly define:

• How damages are calculated
• Obligations to remedy breaches
• Rights to terminate the contract
• Mechanisms for handling delays

Dispute Resolution Clauses

Businesses should clearly determine:

• Whether disputes will be resolved through courts or arbitration
• Whether Vietnamese law or foreign law applies
• The governing language of proceedings
• The dispute resolution venue

Without clear provisions, businesses may face procedural disadvantages and significantly higher costs if disputes arise.

A Strong Contract Is Not Only for Litigation — It Helps Prevent Disputes

Many people assume contracts only matter when a case reaches court. In reality, the greatest value of a well-drafted contract is that it encourages compliance before disputes escalate.

A strong contract can:

• Clarify responsibilities for all parties
• Reduce legal ambiguities
• Strengthen negotiation leverage
• Minimize escalation risks
• Create advantages if legal action becomes necessary

For foreign businesses unfamiliar with Vietnam’s legal environment, having lawyers involved from the negotiation and contract review stage can significantly reduce commercial risks.

At DEDICA Law, our lawyers regularly support foreign businesses in:

• Manufacturing and sourcing agreements in Vietnam
• Outsourcing and consulting contracts
• Logistics and commercial service agreements
• Contracts with freelancers and remote workers in Vietnam
• Contract review and negotiation before signing
• Commercial dispute resolution

Every transaction has unique characteristics depending on the industry, counterparty, and payment structure. There is no universal contract template suitable for every business situation.

Conclusion: Do Not Wait Until You Lose Money to Review Your Contract

In many commercial disputes in Vietnam, the core issue is not that the business lacks legal rights, but that the contract is not strong enough to effectively protect those rights in practice.

Once disputes arise, businesses often face:

• Lengthy litigation costs
• Difficulty proving breaches
• Enforcement risks
• Counterparties ceasing operations
• Challenges recovering money in reality

This is why foreign businesses should treat contract review as part of their overall risk management strategy rather than a mere administrative formality.

A properly structured contract from the beginning can help businesses avoid substantial financial, operational, and reputational losses in the future.

Contact DEDICA Law Firm for Professional Legal Support

📞 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!