Points to Note in Vietnamese Contract Practice — Differences Between Japanese and Vietnamese Contracts and Keys to Success in the Vietnamese Market

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
01 - How Are Contracts Drafted in Vietnam?
02 - What Are the Differences Between Japanese and Vietnamese Contracts?

This article compares the fundamentals of contract practice in Vietnam with differences in business customs and legal systems compared to Japan, and explains points to bear in mind to prevent disputes. It introduces matters Japanese companies should be careful about when concluding contracts in the Vietnamese market, along with practical approaches — through negotiation and contract-clause design — to minimize risk. NEXORA Law Firm has handled numerous contract drafting, review, and negotiation matters in cross-border transactions between Japan and Vietnam, and has extensive practical experience across a wide range of industries. We bring particular strength in practical advice aimed at preventing contract disputes and resolving them at an early stage.

Contract drafting in Vietnam raises a variety of issues depending on a company's size and the importance of the contract in question. This article provides an overview of the challenges faced by both large corporations and SMEs, the risks arising from the introduction of concepts or provisions unfamiliar under Vietnamese law, and the differences in contract culture and law between Japan and Vietnam. It further offers concrete solutions for ensuring the transparency and enforceability of a contract.

01 - How Are Contracts Drafted in Vietnam?

The process of drafting a contract differs somewhat between large companies operating in Vietnam — including Japanese-affiliated companies — and SMEs.

The following issues can arise with contracts drafted through the process described above.

① For large companies (with a legal department) or contracts involving a large amount or of particular importance (asset transfer agreements, EPC contracts, joint venture agreements, business cooperation agreements, distributorship agreements, etc.), the following issues arise:

The contract becomes excessively long and complex

A common pattern is to include in the contract everything conceivable, whether or not it is already addressed by law. This kind of drafting inflates the volume of the contract, which we believe can be detrimental — for example, by consuming excessive time for anyone who has to read it.

"Comment"

Two measures can be considered to address this:

Delete provisions that need not, in principle, be included in the contract (matters already governed by statute, etc.) — though as a precondition, both parties must be aware of the existence and purpose of the relevant law.
Where content that should not, strictly speaking, be included in a contract is nonetheless retained, hold a contract briefing session or accompanying discussion to properly ensure that both parties fully understand and are aware of the entire content of the contract.
The introduction of concepts that do not exist in Vietnam

Where a contract is drafted based on the advice of a foreign (non-Vietnamese) in-house legal officer at a foreign-invested company, or a lawyer who studied abroad, it is not uncommon for concepts unfamiliar to Vietnamese law to be introduced. Beyond the difficulty of the language itself, the substance of such a clause may simply be unfamiliar under Vietnamese law. Of course, if both parties agree, the clause can be implemented as written. However, if a dispute later arises, there is a risk that a court will not recognize the effect of such a provision.

"Comment"

If the body with jurisdiction over dispute resolution is a court, the problem noted above may arise; using arbitration instead increases the likelihood that provisions or concepts unfamiliar under Vietnamese law will nonetheless be given effect.

② For SMEs (without a legal department) or contracts of low value or limited importance (routine purchase contracts, employment contracts, service contracts, etc.), a great many more problems tend to arise, including the following:

Doubts as to the contract's validity (e.g., regarding the signatory's authority or the company's business scope)
The absence of clauses that should ordinarily be included
The presence of clauses unrelated to the transaction
The presence of clauses that violate the law
A clause exists but is not actually performed (e.g., in accounting treatment or in performance of obligations)

02 - What Are the Differences Between Japanese and Vietnamese Contracts?

Based on the author's (a Vietnamese attorney's) experience reviewing contracts drafted by Japanese professionals, the following issues can generally be pointed out in such contracts:

① Provisions Unfamiliar Under Vietnamese Law or Culture Are Included

Contracts are often seen with clauses on acceleration of maturity (loss of the benefit of time), exclusion of antisocial forces, or human rights protection. Vietnam has no equivalent concept to such provisions, so their meaning is often not understood merely from context. There is presumably a background in Japan that gave rise to these provisions, but because no similar background exists in Vietnam, it is preferable, for a contract to be performed solely within Vietnam, to remove such provisions wherever possible.

② The Sentence Structure Is Overly Complex

Contract clauses drafted by Japanese practitioners tend not only to be excessively long, but also to have an overly complex structure. This requires extra effort even simply to translate the text, and there is a risk that the original meaning will not be fully conveyed. Where translation is anticipated, it is preferable to draft the text in simple, short sentences.

③ Content Cannot Be Understood Without Understanding the Background Behind the Clause

Naturally, a contract is a promise between the parties, drafted based on their mutual agreement. In principle, therefore, it is sufficient if only the parties themselves understand it. However, should a dispute arise, the contract may need to be disclosed to a court or arbitral tribunal. In that case, unless the background behind the drafting is also explained, the meaning of the text cannot be properly interpreted. Whether the party who drafted the contract can even be summoned as a witness in the event of a dispute is itself a significant question.

Even where no dispute ever arises, a successor in charge or other stakeholders reviewing the contract later must be able to readily understand its meaning, so the contract should be drafted with an eye toward transparency and specificity.