Commercial Contracts in Vietnam: Preventing Hidden Risks with These Key Considerations

In today’s high-stakes business environment, even a seemingly minor oversight in commercial contracts can trigger significant repercussions, leading to substantial losses for businesses. Legal disputes, financial damages, or adverse impacts on reputation are common pitfalls when contracts are not meticulously drafted. To ensure seamless transactions and safeguard the interests of all stakeholders, the execution of a commercial contract demands prudence and essential legal acumen.

Let Inter Justice Law Firm illuminate the prevalent categories of commercial contracts in Vietnam and underscore critical considerations before their execution.

Commercial Contracts Under Vietnamese Law

Vietnamese law currently does not define commercial contracts or “commercial activities” with a single clear-cut concept. However, to understand the nature of these contracts, we can refer to the definition of commercial activities under the Commercial Law 2005.

According to Clauses 1 and 2, Article 3 of the Commercial Law 2005 of Vietnam, commercial activities are activities conducted for profit purposes, including the sale of goods, the provision of services, investment, trade promotion, and other profit-oriented activities. “Goods” here refer to movables, including those to be formed in the future, and things attached to land.

Based on this, commercial contracts are defined as an agreement between traders or between a trader and another party, aiming to establish, modify, or terminate rights and obligations in the course of commercial activities.

Common Types of Commercial Contracts in Vietnam

Sales of Goods Contract

This is the most common type of commercial contract, as defined in the Commercial Law 2005. It specifies that the seller is responsible for transferring ownership of goods, while the buyer must pay the agreed price.

Key elements include:

• Description of goods

• Pricing and payment method

• Delivery and receipt terms

• Legal liability and compensation for damages in case of disputes

Sales of Goods Contract can be broadly classified into two principal types:

• Domestic sales contract: Executed between Vietnamese parties, governed by the Commercial Law 2005 and the Civil Code 2015.

• International sales contract: Executed between parties from different countries, subject to international treaties and relevant national laws.

Service Provision Contract

According to Articles 513 and 514 of the Civil Code 2015 of Vietnam, a service provision contract represents a mutual undertaking between parties concerning the provision and utilization of services. Critical clauses warranting attention include:

• Scope of work and service requirements

• Performance timeline

• Cost and payment terms

• Liability for failure to meet service standards

Common types of Service Provision Contract: Software services, financial services, insurance contracts.

Trade Promotion Contract

A trade promotion contract is a formal written agreement to promote business activities through marketing, trade fairs, or promotional campaigns.

Common types of Trade Promotion Contract:

• Advertising service contracts

• Commercial exhibition contracts

• Promotion activity contracts

Commercial Intermediary Contract

A commercial intermediary contract is a legal agreement where one party (a trader) performs intermediary services at the behest of the principal. Common forms:

• Agency contract: The agent acts in the name and on behalf of the principal.

• Commercial brokerage contract: The broker connects potential partners for transactions.

• Entrusted goods trading contract: One trader assigns another to buy/sell goods on their behalf for a fee.

• Commercial distribution contract (agency): The agent distributes goods or services under the principal’s authorization.

Other contract types exist, such as processing contracts, franchise agreements, and goods auction organization contracts.

Forms of Commercial Contracts

According to Article 119 of the Civil Code 2015, a commercial contract can be entered into in the following forms:

1. Oral: Via direct conversation or phone. Quick, but high legal risk.

2. Written: Most common form; provides strong legal proof and is easy to archive.

3. Implied by conduct: Based on parties’ actions. Riskier and harder to prove in disputes.

Important Notes Before Signing Commercial Contracts

To protect their interests and reduce legal risks, businesses should:

• Review all content carefully: Ensure terms reflect the parties’ intent and comply with Vietnamese law.

• Seek legal advice: Especially for high-value or complex contracts, consult legal experts or commercial lawyers.

• Maintain documentation: Keep signed copies and relevant documents to use as evidence if needed.

The proper execution of commercial contracts not only aids businesses in minimizing risks but also establishes a robust legal framework for growth and development within a dynamic and challenging business landscape.