When I first started practicing in Vietnam over ten years ago, it was assumed that the law governing the contract would–if at all possible–be foreign law. Vietnamese law was little developed, then, and foreign law was deemed more likely to contemplate potential issues arising. This, of course, neglected issues of dispute resolution and enforcement which would have to happen through the courts of Vietnam, courts that were–and still are–woefully incapable of applying foreign law.
Today, Vietnam is no longer considered a frontier market and has a legal system that is fairly well developed, enough so as to be able to deal with most commercial issues. That said, however, many foreign investors remain insistent on applying foreign law to contracts in Vietnam if at all possible. And in some instances, like contracts for the international sale of goods which I discussed last week (here), an alternative law is automatically applied to govern a contract.
And though it is important to understand that choice of foreign law may create a clearer framework for enforcement in theory, as I mentioned, if a party to the contract is resident in Vietnam, at some point the Vietnamese courts will have to get involved. And they are notoriously good at ignoring foreign law. In general, therefore, unless there is a specific reason to apply a foreign law besides the fact that the foreign party is more “comfortable” with it, I would suggest the application of Vietnamese law.
That said, the rest of this article will examine the choice of law rules for contracts in Vietnam and set out the limits of the parties autonomy in selecting the choice of law for contracts in Vietnam.
Choice of Law Rules for Contracts in Vietnam
The first choice of law rule for contracts in Vietnam is that the parties to a contract are free to choose the law that governs the contract except for in certain enumerated cases. So long as the contract includes an article which states, unequivocally, that the parties to the contract select a certain law, and so long as that law is not prohibited by those enumerated exceptions, then the courts in Vietnam or elsewhere (depending on the forum for dispute resolution) should theoretically apply that choice. Again, I caution the use of Vietnamese law unless there is a specific reason to do otherwise as there have been instances of the first instance courts in Vietnam ignoring choice of law provisions and applying Vietnamese law. While this may be remedied at the appellate level, you don’t want to take the risk.
The first exception to the broad autonomy granted to the parties involves immovable property, but only in three aspects. One, if the contract is related to the transfer of ownership rights or other property related rights. Two, if the contract is related to the lease of immovable property. And three, if the contract is for the use of immovable property as a guarantee in a separate matter. While allowing that a contract in Vietnam may relate to immovable property in another country, the law simply states that the law where such immovable property is located will apply to such transactions.
The second exception relates to labor contracts. For contracts dealing with labor that “affects adversely the minimum interests of employees” under the laws of Vietnam, Vietnamese law will apply. What “minimum interests” or “affects adversely” actually mean is unclear as undefined, but given the plain meaning of the words, and according to some experts, foreign law may be applied so long as the contract is at least as advantageous to the employee as if it were written under Vietnamese law. Therefore, a foreign law that adds protections and benefits for the employees above and beyond what Vietnamese law provides would theoretically be allowed to govern a labor contract in Vietnam.
The third exception relates to consumer contracts. Again, we see the “affects adversely the minimum interests” qualification. Thus, in contracts with consumers in Vietnam, if the foreign law provides greater benefit than Vietnamese law, it will be allowed to apply. Otherwise, Vietnamese law will be required in application.
Changing the Choice of Law
If, after the initial choice of law is made in the contract, the parties can change their minds and wish to designate a different choice of law, they may so long as such a change does not adversely affect the rights of third parties. If the change would do so, they may still move forward in making such a change so long as they obtain the permission of the adversely affected third parties.
This is a difficult provision to consider as identifying relevant third parties at any given time may be difficult and there is no guidance or limitation on how far reaching the adverse affect is considered. Again, another reason to take the time and consider carefully the applicable law before signing the contract so as to avoid potentially significant burdens of identifying and contracting third parties.
When the Contract is Silent on Choice of Law
So far, the rules discussed have assumed that the parties made a choice and made that choice plain on the face of their contract. But, and unfortunately, many times parties fail to make such a choice and leave the choice of law to the forum for dispute resolution. It is worth looking at those rules briefly as a warning. If you don’t decide and state your choice of law in your contract, this is how the courts in Vietnam will go about decided that, ultimately, Vietnamese law applies.
While these rules are written in such a way as to allow for the possibility of another country’s law applying, one can assume that they will be used by Vietnamese courts to apply Vietnamese law to a contract under dispute and thus I am going to operate with that assumption moving forward.
- The law of Vietnam will apply for sales contracts where the seller, a natural person, resides in Vietnam or where the seller, an enterprise, is established in Vietnam.
- The law of Vietnam will apply for service contracts where the provider, a natural person, resides in Vietnam or where the provider, an enterprise, is established in Vietnam.
- The law of Vietnam will apply for contracts transferring use rights or intellectual property rights where the transferee resides or is established in Vietnam.
- The law of Vietnam will apply to labor contracts if the employee “frequently performs work” in Vietnam. If the employee performs work in multiple countries or if the country of performance is unidentifiable, then the law of Vietnam will apply if the employer resides or is established in Vietnam.
- The law of Vietnam will apply to consumer contracts if the consumer resides in Vietnam.
Remember, these rules only apply in the instance where the contract is silent on the matter of choice of law. Remember, too, that other areas of law provide for different provisions. In the instance of cross-border sales contracts, where Vietnamese law applies the Vietnamese law will apply the Vienna Convention on Contracts for the International Sale of Goods. Maritime laws have their own rules, as do Vietnamese arbitration centers. But in all cases, the way forward is to make a choice and clearly state it in the contract.
While the choice of law rules for contracts in Vietnam are fairly straightforward, they lead inexorably to Vietnamese law. Whether the law, or even the contract, provides for the application of foreign law, the courts–at least at first instance–tend to apply Vietnamese law regardless. Thus, unless you have a specific reason for choosing a foreign law over Vietnamese law, and your contract is related to Vietnam, then choose Vietnamese law. It’s simply simpler.