How to Handle Contract Breaches by Vietnamese Partners in Agreements with Foreign Investors
When a Vietnamese partner breaches a contract with a foreign investor, it can lead to significant risks regarding rights, reputation, and legal costs. This article clarifies when and how to handle a contract breach in Vietnam, providing practical steps and key legal insights to help foreign investors proactively protect their interests.
Keywords: Vietnamese partner, in Vietnam, contract with foreign investor.
1. Identifying the Issue and Causes When a Vietnamese Partner Breaches the Contract
When a foreign investor signs a contract with a Vietnamese partner—whether for capital contribution, share acquisition, business cooperation (BCC), or project implementation—but the Vietnamese party fails to fulfill its contractual obligations, the first step in resolution is to identify the nature of the breach, the violated contract terms, and the resulting risks.
1.1. Identifying the Breach and Legal Grounds in Vietnam
Contract breaches in Vietnam can take various forms: delayed delivery, non-payment, failure to provide services, improper capital transfer, etc. Under Vietnamese law, when a contract is breached, the non-breaching party has the right to: require proper performance, impose penalties, claim damages, suspend or terminate the contract.
Specifically:
Under the Commercial Law 2005 (Article 292), possible remedies include: performance enforcement, penalty for breach, compensation for damages, suspension, termination, or cancellation of the contract.
Under the Civil Code 2015 (Article 360), the breaching party must compensate for all damages unless otherwise agreed or provided by law.
In contracts involving a foreign investor and a Vietnamese partner, the relationship is deemed to have a foreign element. Therefore, the choice of governing law and dispute resolution forum plays a decisive role in determining how effectively the breach can be addressed.
1.2. Causes of Breach and Risks in Contracts Between Foreign Investors and Vietnamese Partners
Breaches by Vietnamese partners may arise from several causes:
Lack of performance capability (capital, personnel, technology)
Market fluctuations or sudden cost increases
Regulatory changes in Vietnam (e.g., foreign investment, tax, land use)
Deliberate non-performance due to conflicting interests or poor risk management
When such breaches occur, foreign investors may face risks such as: capital loss or delayed profit recovery, reputational damage, difficulties in enforcing rights in Vietnam, and high legal expenses. Especially as foreign investment in Vietnam grows, disputes between local partners and foreign investors have become increasingly common.
2. Solutions for Handling Contract Breaches by Vietnamese Partners
Once the issue is identified, the investor should implement a structured approach—from reviewing the contract and gathering evidence to choosing the appropriate dispute resolution mechanism and enforcing judgments. Below are recommended steps when a Vietnamese partner breaches a contract in Vietnam.
2.1. Reviewing the Contract and Collecting Evidence of Breach
Start by reviewing the signed contract: What provisions exist regarding applicable law, dispute resolution, liability for breach, penalties, and damages? If the contract involves foreign elements, ensure that the governing law and jurisdiction are clearly defined.
Next, gather and preserve evidence, including the contract itself, appendices, email communications, notices of breach, proof of performance or non-performance, and documentation of damages. Proper preservation, authentication, and notarized translation (if required) in Vietnam are crucial for later proceedings.
2.2. Notice of Breach, Negotiation, and Mediation in Vietnam
Upon discovering a breach, send a Notice of Default to the Vietnamese partner, clearly identifying the breach, requesting remediation within a specific timeframe, and warning of further actions if unresolved. This step lays the foundation for negotiation or for later legal proceedings in court or arbitration.
Afterward, initiate negotiation or mediation to remedy the breach without resorting to litigation. This approach saves time and costs while preserving business relationships. In practice, most legal professionals in Vietnam recommend negotiation as the first response when a breach occurs.
2.3. Litigation in Vietnam: Arbitration or Court
If negotiation or mediation fails, the foreign investor may pursue arbitration or litigation in Vietnam. Current regulations allow the parties in foreign-related contracts to choose either arbitration (domestic or international) or Vietnamese courts for dispute resolution.
Arbitration: Faster, more flexible, and allows choice of venue, but usually more expensive.
Court: Clear procedural framework and lower costs, but the process may take longer.
When initiating proceedings in Vietnam, ensure that all prior procedural steps (notice of breach, evidence collection) have been properly documented.
2.4. Enforcement of Judgments and Compensation in Vietnam
Once a decision or award (from an arbitral tribunal or a Vietnamese court) is obtained, enforcement becomes the next crucial step. In Vietnam, enforcing judgments can be challenging if the Vietnamese partner fails to comply voluntarily—requiring enforcement through the Civil Judgment Enforcement Agency.
If the foreign investor is the claimant and the Vietnamese partner is the debtor, it is essential to determine whether the partner has sufficient assets in Vietnam to satisfy the judgment. If assets are located abroad, international enforcement may be necessary.
Additionally, contracts may include penalty clauses—under Vietnamese Commercial Law, penalties cannot exceed 8% of the value of the breached obligation.
Finally, the breaching party must compensate for actual damages, regardless of whether a penalty clause exists. Under Article 360 of the Civil Code 2015, any party that violates contractual obligations and causes loss must fully compensate the injured party unless otherwise agreed or provided by law.
3. Conclusion
When a Vietnamese partner breaches a contract with a foreign investor in Vietnam, the issue extends beyond mere legal procedure—it poses serious financial, reputational, and operational risks. Therefore, from the contract drafting stage, investors should prepare carefully: define governing law, choose a dispute resolution body, and specify clear penalty and compensation clauses.
Once a breach occurs, act promptly: collect evidence, send a notice of breach, negotiate where possible, and, if necessary, pursue arbitration or court proceedings—ensuring proper enforcement of the final decision.
A proactive legal strategy can help foreign investors protect their rights, minimize losses, and maintain credibility while operating in Vietnam’s dynamic business environment.
Contact DEDICA Law Firm for expert legal consultation!
📞 Hotline: (+84) 39 969 0012 (Available on WhatsApp, WeChat, and Zalo)
🏢 Head Office: 144 Vo Van Tan Street, Xuan Hoa Ward, Ho Chi Minh City (144 Vo Van Tan Street, Vo Thi Sau Ward, District 3, Ho Chi Minh City)
🕒 Business Hours: Monday – Friday (8:30 AM – 6:00 PM)
Reach out today for a free initial consultation with our team of professional lawyers!
