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Many foreign businesses operating in Vietnam believe that simply signing a contract provides "security." However, reality shows that in many cases, when disputes arise, the contract fails to protect the rights as expected. This leaves businesses in a situation where they have transferred money and fulfilled their obligations, yet still cannot recover their losses.
So why does a seemingly complete contract become "useless" when problems arise? The answer doesn't lie in whether or not there is a contract, but in how that contract is constructed from the outset.
According to the 2015 Civil Code, a contract is valid when it meets the conditions regarding parties, intent, and content. However, the law does not guarantee that this content is sufficiently rigorous to protect the rights of the parties.
In practice, many contracts only record general agreements. Obligations are not specifically described, deadlines are unclear, and payment conditions lack detail. When a breach occurs, it is very difficult for businesses to prove where and how their partner was at fault.
This is particularly risky in goods sales or outsourcing transactions, where deadlines, quality, and acceptance conditions are crucial.
Many foreign businesses skip the basic due diligence step. They don't thoroughly check the legal status, financial capacity, or whether the contract signatories have sufficient authority. This leads to signing contracts with partners who lack the capacity to fulfill their obligations.
This is the major difference between businesses with good risk management and those prone to disputes. Without legal counsel reviewing contracts, businesses have virtually no preventative mechanisms and only react after the event has occurred.
An effective contract should be designed based on operational realities, not just legal theory. The terms need to be clear, specific, and enforceable in case of disputes.
Businesses should pay particular attention to:
A good contract is one that, upon reading, both parties clearly understand what will happen if a problem arises.
In addition to the contract, the payment structure is also a crucial factor. Breaking payments down into installments or requiring performance guarantees can help minimize losses if the partner fails to fulfill their commitments.
A lawyer knowledgeable in local law and practices can help businesses identify risks they might otherwise overlook. More importantly, a lawyer can design contracts that are "enforceable," rather than just "theoretically correct."
From practical experience, it's clear that there's no single "perfect contract template" that applies to every situation. Each transaction has its own unique characteristics regarding partners, industry, and risk level. Therefore, businesses shouldn't expect that simply having a contract guarantees recovery in case of disputes. The key is to minimize risk from the outset and position oneself in the best possible position should problems arise.
A contract is not just an administrative procedure, but the most important risk management tool in any transaction. If a contract is properly drafted, businesses can avoid most disputes or at least minimize losses. Conversely, a poorly drafted contract can lead to financial losses with no effective way to resolve the situation.
Are you preparing to sign a contract with a partner in Vietnam? Or have you encountered a problem and don't know where to start? Contact DEDICA Law for the most suitable legal strategy advice.
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