General Clauses in Vietnamese Business Contracts

Foreign lawyer admitted in Japan and Vietnam

Kazuya Mori, Senior Advisor to the firm (Japanese law)

NEXORA Law Firm — Managing Attorney
Attorney admitted in Vietnam
Mediator, Bankruptcy Trustee, Outside Statutory Auditor

Table of Contents

NEXORA Law Firm has supported numerous Japanese companies in drafting, reviewing, and negotiating a wide range of business contracts — sale and purchase agreements, service agreements, joint venture agreements, and more — in connection with their entry into and dealings in Vietnam. We are particularly skilled at structuring contract clauses that address the practical issues arising from differences in business customs and legal systems between Japan and Vietnam. This article is written for readers interested in "Vietnamese contract practice," "points to watch in Vietnamese contract clauses," "essential items in drafting a contract," "damages and penalty clauses under Vietnamese law," and "the risks of translating Japanese-language contracts into Vietnamese." It provides an accessible overview of typical contract clause types, points for caution, and negotiation tips.

The specific clauses and conditions required will vary depending on the type of contract, but at minimum, it is common practice to include the following general clauses.

No.

Clause

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1

Information on the contracting parties

Information identifying the contracting parties: company name, address, and documentation evidencing the parties' legal capacity
The person authorized to sign the contract (for a corporate party, its legal representative)

2

Background

The background leading up to the conclusion of the contract
A statement of each party's internal decision-making process leading up to signing

3

Definitions clause

A definitions clause is necessary so that both parties share a common understanding of the terms used and their interpretation.

There are two common approaches: setting out definitions as a standalone clause, or defining terms within the body of the contract (typically for shorter contracts).

4

Term clause

Contract term

"Points to note"

Whether the term is for a fixed period or indefinite
The signing date and the effective date should be distinguished as separate dates
Whether to include an automatic renewal clause, and clearly stating the conditions for renewal (e.g., renewal by mutual agreement, automatic renewal upon achieving certain performance thresholds, or renewal at one party's discretion)
A clear statement of the expiration date (either a specific date, or termination upon the occurrence of certain conditions/events)
Early termination of the contract

5

Notice clause

The method of notice (whether to specify a particular method or leave it unrestricted, etc.), the contact information of the person designated to receive notices and the process for notifying any change thereto, and how receipt of notice is to be interpreted

6

Entire agreement / amendment clause

There is often a history preceding the contract (MOUs, agreed memoranda, exchanges of drafts, etc.), but all pre-contractual understandings must be reflected in the final contract, which should be stated to represent the entire and final agreement between the parties.

The method for amending or modifying the contract should also be specified, since it is not uncommon for personnel on the ground to orally agree to terms that differ from the contract after signing.

7

Assignment restriction clause

After signing a contract in Vietnam, parties not infrequently wish, for various reasons, to assign their contractual rights and obligations to a third party or an affiliate. In preparing for that possibility, it is important to establish in advance a mechanism for reviewing the proposed assignee's qualifications and reaching agreement.

"Common patterns seen in contracts"

Prohibition of assignment
Requiring prior written consent
Providing an exception permitting assignment to a limited category of persons (such as group companies or affiliates)

8

Termination clause

It is advisable to address at least the following three points:

The grounds for termination
The procedure for termination
The legal consequences of termination and the resulting obligations/liabilities of the parties

9

Force majeure clause

It is advisable to address the following points:

The events that qualify as force majeure (if the parties agree to include events not defined by law, these must be explicitly stated)
Non-application to monetary obligations
The duty to give notice
The right to terminate if the force majeure event persists for an extended period

10

Clauses applicable to international contracts

Governing law (in principle, the parties are free to choose)
Dispute resolution clause (in principle, the parties are free to choose — Vietnamese courts or arbitration, Japanese courts or arbitration, or the courts or arbitration of a third country. However, two points warrant particular attention:
If litigation is chosen, the jurisdiction of the relevant court should be confirmed in advance.
To enforce a judgment or award rendered outside Vietnam within Vietnam, recognition and enforcement proceedings before a Vietnamese court are required. In the course of such proceedings, the judgment or award may be set aside on the ground that it "violates the fundamental principles of Vietnamese law."
If arbitration is chosen, a valid arbitration agreement must be documented (please refer to sample arbitration clauses for each relevant jurisdiction).
Contract language: a governing language should also be specified in case of discrepancy.

11

Severability clause

A provision of a contract may, whether intentionally or as a result of a subsequent change in law or policy, come to violate a mandatory provision of law currently in force. It is advisable to include a clause providing that such a provision may be severed, and that the remaining provisions continue in effect unaffected, so long as severance does not affect the other provisions.

12

Confidentiality clause

In many contracts, one party is required to disclose confidential information to the other, both during the negotiation stage and during performance. A confidentiality clause is needed to prevent such information from being leaked to third parties. We recommend that a confidentiality clause address the following:

A definition of what constitutes confidential information
The scope of the confidentiality obligation and any exceptions to it
The consequences of breaching the confidentiality obligation (this should also address liability for consequential and punitive-type damages)
The duration of the confidentiality obligation (it is permissible for this to extend beyond the term of the underlying transactional contract)

13

Tax clause

Following discussion between the parties, the contract should specify the allocation of tax burdens, tax filing obligations, the taxpayer (or the party acting as withholding/filing agent), the timing of tax payment, and any obligation to furnish tax payment certificates.

14

Other general clauses

Representations and warranties
Change of circumstances (hardship) clause
Anti-bribery clause
Personal data protection clause
Set-off clause
Headings clause (clause titles)
Counterparts clause
Survival clause