5 Common Contract Mistakes When Doing Business in Vietnam

Contracts are central to doing business in Vietnam, providing the legal and operational framework for relationships with suppliers, customers, distributors, service providers, and other commercial partners. However, a signed agreement does not always produce the protection a foreign business expects.

The signatory may lack authority, imported terms may conflict with Vietnamese law, or vague performance standards may be difficult to enforce. Even where a business obtains a favourable judgment or arbitral award, recovery may remain challenging if payment risks were not addressed before performance began.

An effective business contract in Vietnam should establish valid and enforceable obligations, define how performance will be measured and documented, and provide practical remedies if the commercial relationship breaks down. This article examines five common contract mistakes in Vietnam and the steps foreign businesses can take to reduce their exposure.

What makes a contract valid and commercially effective in Vietnam?

Business contracts in Vietnam are principally governed by the Civil Code 2015, the Commercial Law 2005, as consolidated in 2025, and any specialised legislation applicable to the transaction or industry.

Under Article 117 of the Civil Code, a civil transaction generally takes effect when:

• The parties have the legal personality and capacity required for the transaction;
• The parties participate voluntarily; and
• Its purpose and content do not violate legal prohibitions or social ethics.

Contractual form can also be a condition of validity where the law imposes a specific requirement. Under Article 119 of the Civil Code, transactions may generally be expressed orally, in writing, or through specific conduct. Electronic data messages can be recognised as written transactions where they comply with Vietnam’s electronic-transactions legislation.

For domestic sales of goods, contracts may generally be oral, written, or established through conduct. International sales of goods, however, must be documented in writing or another form with equivalent legal validity under Article 27 of the Commercial Law.

Legal validity is only the starting point. A commercially effective contract should also answer the following questions:

Area	Questions the contract should answer
Parties and authority	Which legal entities are bound? Who may sign, approve changes, and issue instructions? Are corporate approvals, powers of attorney, or licences required?
Scope and performance	What goods, services, specifications, standards, milestones, dependencies, and change controls apply?
Price and payment	What currency, taxes, invoicing requirements, due dates, bank charges, interest provisions, and payment protections apply?
Delivery and acceptance	When do delivery, inspection, acceptance, title, and risk occur? What evidence will record each event?
Risk and remedies	What warranties, security arrangements, penalties, damages, cure rights, indemnities, and liability limits apply?
Disruption and exit	How will force majeure, changes in law, suspension, termination, notices, and surviving obligations operate?
Law and disputes	Which governing law, contractual language, dispute forum, procedural rules, and enforcement route apply?

Mistake 1: Failing to verify the counterparty and signing authority

A familiar trading name does not necessarily identify the legal entity responsible for performing the contract. A parent company, subsidiary, branch, representative office, and other related entities may operate under the same commercial brand, but they are not interchangeable contracting parties.

Foreign businesses should use the National Business Registration Portal and appropriate due-diligence procedures to verify the counterparty’s:

• Registered legal name, enterprise code, and address;
• Current legal status and licensed business activities;
• Legal representative or authorised representative;
• Ownership and corporate structure;
• Required internal approvals; and
• Ability to perform and meet its financial obligations.

The registered legal representative is not necessarily the only person who can sign. Authority may arise from the company charter, legislation, a corporate decision, or a valid power of attorney. Conversely, a legal representative’s authority may be subject to transaction-specific requirements or internal approval procedures.

A contract signed without proper authority is not automatically invalid. Under Articles 142 and 143 of the Civil Code, an agreement entered into by an unauthorised person generally does not create rights and obligations for the purported principal—or does so only within the authorised scope.

Exceptions may apply where the principal:

• Subsequently recognises the transaction;
• Knows about it and does not object within an appropriate period; or
• Is responsible for the counterparty being unaware of the lack or limitation of authority.

The unauthorised signatory may also incur obligations or liability in certain circumstances.

Before signing, businesses should therefore obtain and retain the counterparty’s registration information, charter or relevant extracts, power of attorney, corporate approval, and identification of the signatory. Representative offices require particular attention because they generally cannot enter into contracts on behalf of their foreign trader unless their chief representative has valid authorisation or another legal exception applies.

Mistake 2: Failing to localise the contract

Using a global template can accelerate negotiations, but imported provisions may not reflect Vietnam’s contract law, licensing rules, tax requirements, foreign-exchange controls, or enforcement procedures.

Localisation requires more than translating the document. The commercial and legal operation of each important clause should be reviewed against the nature of the transaction and the parties involved.

Three areas deserve particular attention.

Confusing governing law with dispute resolution

Article 683 of the Civil Code generally permits parties to choose the law governing a contract involving a foreign element. This freedom is subject to statutory qualifications, including rules concerning immovable property, minimum protections for employees and consumers, and existing third-party rights.

The governing-law clause does not, by itself, establish how or where a dispute will be resolved. A dispute-resolution clause should separately address:

• Whether disputes will be heard by a court or through arbitration;
• The chosen court or arbitral institution;
• The seat of arbitration;
• The applicable procedural or arbitration rules;
• The language of proceedings;
• The number and method of appointing arbitrators; and
• The process for recognising and enforcing the resulting judgment or award.

Ambiguous or incomplete dispute clauses can generate preliminary disputes before the substantive claim is considered.

Leaving the CISG unaddressed

The United Nations Convention on Contracts for the International Sale of Goods, or CISG, entered into force for Vietnam on 1 January 2017. It may automatically govern a qualifying sale of goods between businesses located in different contracting states unless the parties validly exclude it.

Contracts should state whether the CISG applies. If the parties intend to exclude it, the exclusion should be explicit rather than assumed from a general governing-law clause.

Vietnam has also made a declaration under Articles 12 and 96 of the CISG concerning the Convention’s freedom-of-form provisions. Businesses should therefore ensure that international sales involving a Vietnamese party, together with material amendments and termination arrangements, are properly recorded in writing or another legally recognised equivalent form.

Assuming standard terms are automatically incorporated

Under Articles 405 and 406 of the Civil Code, standard-form contracts and general trading conditions must be made available so that the other party knows or should know their content.

Unclear provisions in a standard-form contract may be interpreted in favour of the accepting party. Provisions that exclude the drafter’s liability, increase the other party’s liability, or remove the other party’s legitimate interests may also be ineffective unless otherwise agreed.

Businesses should attach or clearly identify all documents incorporated into the agreement, including specifications, policies, pricing schedules, purchase orders, and general conditions. Unusual exclusions or limitations should be brought to the counterparty’s attention and expressly agreed.

Mistake 3: Leaving performance and acceptance open to interpretation

Phrases such as “acceptable quality”, “best efforts”, “industry standard”, or “delivery as soon as possible” may appear commercially convenient, but they provide no objective answer to whether the contract has been performed.

Unclear obligations increase the likelihood of disagreement and make it more difficult to establish breach, loss, and causation in later proceedings.

Businesses should use measurable and verifiable performance criteria.

For goods, the contract should specify:

• Product descriptions and technical specifications;
• Approved samples or reference standards;
• Manufacturing and packaging requirements;
• Quantity and quality tolerances;
• Delivery terms and applicable Incoterms;
• Inspection and testing procedures;
• Acceptance or rejection deadlines; and
• Warranty periods and corrective obligations.

For services, the contract should define:

• Deliverables and completion milestones;
• Timelines and reporting requirements;
• Client inputs and dependencies;
• Personnel or qualification requirements;
• Acceptance tests and approval procedures;
• Treatment of delayed or deemed acceptance; and
• Consequences of defective or late performance.

An order-of-precedence clause should establish which document controls if the main agreement, schedules, specifications, quotations, and purchase orders conflict.

The contract should also establish who can approve changes, the form in which approval must be given, and how variations affect price, scope, and the delivery timetable. Informal instructions exchanged through email or messaging applications can otherwise create uncertainty over whether a binding variation occurred.

Evidence should be retained throughout the contractual relationship. Inspection reports, delivery records, meeting minutes, acceptance certificates, correspondence, invoices, and notices can be decisive when proving whether an obligation was performed or breached.

Mistake 4: Treating remedies as a substitute for payment protection

Contractual remedies apply after a breach. Payment protection reduces the business’s exposure before or during performance.

A supplier may obtain a favourable judgment or arbitral award and still struggle to recover the amount owed if the counterparty lacks assets, becomes insolvent, or moves funds beyond an accessible enforcement jurisdiction.

Vietnam’s Ministry of Industry and Trade has warned about increasingly sophisticated international trade fraud. Its 2024 report noted that Vietnamese businesses had suffered losses ranging from tens of thousands to millions of US dollars and that recovering goods or money could be difficult and expensive.

Depending on the transaction and counterparty risk, payment protections may include:

• Advance or staged payments;
• Deposits or retention arrangements;
• Documentary credits;
• Parent-company guarantees;
• Bank or performance guarantees;
• Escrow arrangements;
• Credit insurance;
• Security over assets;
• Suspension rights for non-payment; and
• Retention-of-title provisions, where legally effective and operationally practical.

The distinction between contractual penalties and damages should also be understood.

Under Articles 300 and 301 of the Commercial Law, a penalty for breach must be agreed in the contract. For commercial contracts, the penalty is generally capped at 8 percent of the value of the breached portion of the contractual obligation, subject to specific statutory exceptions.

Commercial damages are governed separately. Under Articles 302 to 305, recoverable damages generally cover direct material loss and the direct profit the injured party would have earned without the breach. The claimant must establish:

• A contractual breach;
• Actual loss;
• A direct causal relationship between the breach and the loss; and
• The amount being claimed.

The claimant must also take reasonable steps to mitigate its loss. A high penalty figure or broadly drafted damages clause cannot compensate for weak documentation, insufficient evidence, or the counterparty’s inability to pay.

Mistake 5: Failing to establish a workable termination right

When a counterparty underperforms, the other party may want to end the relationship immediately. However, commercial dissatisfaction does not automatically create a right to terminate.

Vietnam’s Commercial Law distinguishes between suspension, stoppage of performance, and cancellation. These remedies generally require:

• The occurrence of a breach expressly agreed by the parties as a trigger for the relevant remedy; or
• A substantial breach that prevents the other party from achieving the purpose for which it entered into the contract.

Under Article 428 of the Civil Code, unilateral termination may be based on a serious breach, an agreed termination right, or another basis provided by law. The terminating party must notify the other party, and failure to give notice may result in liability for resulting damage. A party that terminates without sufficient legal or contractual grounds may itself be treated as the breaching party.

The importance of a properly drafted termination mechanism is illustrated by Supreme People’s Court Precedent No. 21/2018/AL. In that case, a company leasing two vessels for towing operations gave only three days’ notice that it no longer required them. The fixed-term agreement contained no applicable early-termination right.

The court found the lessee at fault because the notice provided insufficient time for the lessor to secure replacement work. Rent associated with the remaining contractual period could therefore be considered when determining the lessor’s loss, although recoverable damages remained subject to the applicable evidential and legal requirements.

A well-drafted termination clause should address:

• The breaches or events that permit termination;
• Whether the breach must be material or substantial;
• Any cure period and how it begins;
• Insolvency, prolonged force majeure, or regulatory triggers;
• Termination for convenience, where commercially agreed;
• The form and delivery of notices;
• When termination becomes effective;
• Payment for work already performed;
• Return of property and confidential information;
• Transition or handover obligations; and
• Provisions that survive termination.

Before terminating, businesses should confirm that the relevant trigger has occurred, gather supporting evidence, issue any required cure notice, and follow the contractual procedure precisely.

A strategic approach to contract management in Vietnam

Contract risk should be managed throughout the transaction rather than addressed only when a dispute emerges.

Before negotiation

Assess the transaction’s commercial value, regulatory requirements, tax implications, and counterparty risk. Determine whether the proposed payment structure and security arrangements reflect the level of exposure.

Before signature

Confirm the applicable contract form, licences, approvals, tax treatment, currency and payment rules, and signing authority. Ensure that the main agreement and all incorporated documents are complete and consistent.

Review how the contract addresses non-payment, changes in law, operational disruption, force majeure, variations, liability, dispute resolution, and termination.

At signing

Reconfirm the identity and authority of every signatory. Ensure that guarantees and other security documents have been validly executed. Retain complete signed copies and evidence of the signing process.

During performance

Assign responsibility for monitoring deadlines, deliverables, approvals, notices, renewals, payment, and record-keeping. Document variations and early warning signs, and seek advice before suspending performance, terminating the contract, or beginning formal proceedings.

This approach treats the contract as a framework for managing the transaction. Its effectiveness depends on connecting legal rights with clear responsibilities, reliable records, appropriate financial protections, and timely commercial decisions.