Resolving Disputes in Industrial Construction Contracts with Foreign Contractors in Vietnam

Sep 24

When a domestic enterprise signs an industrial construction contract with a foreign contractor, disputes can easily arise due to legal differences, language barriers, construction conditions, or changes in costs, timelines, and acceptance procedures. Resolving disputes in an international context requires meticulous planning, a strong grasp of Vietnamese laws, and the ability to coordinate with foreign legal frameworks. Below is a “question-and-answer” approach to help you navigate the resolution process effectively.

1. What should be considered from the start if a contract involves foreign elements?

1.1. When is a construction contract considered to have foreign elements?

A construction contract is deemed to involve foreign elements if:

At least one party is a foreign contractor or investor with a foreign nationality or overseas headquarters;
The contract is signed, performed, or terminated outside of Vietnam;
The contract specifies foreign governing law or foreign dispute resolution authorities.

When such elements are present, parties must carefully consider the applicable law and appropriate dispute resolution mechanism (international arbitration, domestic arbitration, or Vietnamese courts).

1.2. How to choose applicable law and dispute resolution authority?

Under Vietnam’s Law on Commercial Arbitration, for contracts involving foreign elements, parties may mutually agree on the applicable law. If no agreement exists, the arbitral tribunal will decide on the most appropriate law.

When choosing a dispute resolution mechanism (arbitration or court), contracts should clearly outline a multi-tier dispute resolution clause: for instance, negotiation first, then mediation, and finally arbitration or litigation.

In disputes with international elements, arbitration is often preferred for its flexibility, confidentiality, expertise, and detachment from national court systems.

However, if the contract chooses Vietnamese courts or involves real estate in Vietnam, Vietnamese courts retain jurisdiction over foreign-related commercial disputes.

2. Common disputes and challenges with foreign contractors

2.1. Typical disputes include:

Delayed or incorrect payments: After completing a project phase or milestone, the contractor is faced with late payments or refusal from the investor.
Delays in progress: Caused by design changes, late site handover, or force majeure. Contractors may request time extensions, which, if denied, can lead to disputes.
Quality and acceptance of works: The investor may allege non-compliance with technical standards or defects post-acceptance, leading to disputes over remedies or warranties.
Unilateral contract termination: If a party unilaterally terminates the contract early, compensation claims may follow.
Claims and event notifications: If the contractor fails to notify claims in time (e.g., within 28 days), they may forfeit the right to adjustments or compensation.

2.2. Challenges when dealing with foreign contractors

Legal and customary differences: International practices, technical standards, and contract language often differ, leading to misinterpretations.
Language and evidence issues: Emails, drawings, and site records in foreign languages require certified translations or notarization.
Jurisdiction and international process: For foreign contractors, serving legal documents, collecting foreign evidence, or enforcing international judgments can be legally and procedurally complex.
Enforcement of awards or judgments: International arbitral awards require recognition and enforcement either in Vietnam or in the contractor’s country of assets, often involving lengthy legal steps.

3. Recommended practical steps when disputes arise

Step 1: Send a timely claim notice and reserve rights

As soon as an event arises that may impact the contract (e.g., delayed site handover, design changes, increased costs), the contractor should issue a claim notice within the contractual deadline (e.g., 28 days). Failure to do so may lead to loss of entitlements.

The claim notice should:

Clearly identify the event and its impact on schedule/cost;
Propose remedies or contract adjustments;
Reserve the right to seek damages if losses materialize later.

Step 2: Negotiate and mediate internally

If negotiations are still feasible, this step is preferred for saving time and costs. The parties may also involve a local mediation center (e.g., under Decree 22/2017/ND-CP for commercial mediation).

Contracts should contain a "multi-tier dispute resolution clause": negotiation → mediation → arbitration or litigation.

Step 3: Initiate arbitration or court proceedings

If negotiation or mediation fails:

Arbitration is usually preferred, especially for contracts with international elements, for its speed, expertise, and global enforceability.
If the contract designates Vietnamese courts or the dispute involves real estate in Vietnam, you may file a claim with a competent commercial court in Vietnam.

In arbitration, prepare a full evidentiary file: contracts, annexes, drawings, acceptance records, correspondence, cost records, supervision reports, delivery documents, etc.

Step 4: Pursue enforcement and international recognition

For foreign arbitral awards, you must seek recognition in Vietnam or the jurisdiction where the contractor holds assets to enforce the decision.
For Vietnamese court judgments, you may enforce them under Vietnam’s Civil Judgment Enforcement Law.
International judicial cooperation may be needed for document service and evidence collection.

4. Strategic tips to minimize risks and improve outcomes

Draft robust contracts from the beginning
- Clear multi-tier dispute resolution clauses;
- Specify applicable law (Vietnamese or foreign);
- Include clauses for penalties, interest on late payments, cost adjustments, currency risks;
- Set precise claim notification deadlines (e.g., 28 days).
Maintain strong document and evidence management
- Record all notices, emails, supervision logs, photos, and construction diaries;
- Foreign documents should be translated and notarized for use in Vietnamese proceedings.
Consider arbitration forum selection wisely
- For large, internationally linked contracts, choose reputable international arbitration bodies (e.g., ICC, SIAC);
- For domestic investors, local arbitration may suffice if foreign elements are still accounted for in applicable law and jurisdiction.
Budget for time and legal expenses
- International disputes often take longer and cost more;
- Factor in translation, international proceedings, and award recognition costs.
Engage construction and international law experts early
- During contract negotiation, involve a lawyer specializing in international contracts to mitigate legal risks;
- When a dispute arises, legal experts can guide you through the best resolution route (arbitration, court, or mediation).