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Legal Challenges of Cross-Border Electronic Contracts in the Technological Era in Vietnam

In the era of rapid electronic technology development, Vietnamese businesses have been exposed to new opportunities while also facing challenges in applying technology to their operations. As society gradually transitions to a digital society, cross-border electronic contracts, with their high convenience and simplification, have become an essential part of the socio-economic landscape. However, the application of electronic contracts still carries significant legal risks, particularly when cross-border transactions extend beyond national borders and encompass the globe.

In Vietnam, despite lagging behind Western countries in technology, the primary obstacle to the widespread and robust development of electronic contracts is not due to technological backwardness but rather to inconsistencies or inadequacies in the legal system governing electronic contracts.

Due to unclear legal factors, according to the 2021 E-commerce White Paper by the Ministry of Industry and Trade, only one-third of surveyed enterprises have explored the application of electronic contracts in international trade. Notably, this figure only reflects transactions between Vietnamese enterprises and foreign partners, which are often particularly challenging due to geographical obstacles, but does not include statistics on internal transactions between Vietnamese enterprises.

At the beginning of 2023, the Ministry of Information and Communications issued Decision 466/QD-BTTTT, setting a target that by 2025, over 80% of enterprises in Vietnam will use electronic contracts to promote the development of a high-tech electronic economy, while also achieving objectives such as environmental protection, labor savings, and enhanced information security.

Faced with increasing legal challenges of cross-border electronic contracts, Vietnam must consider and evaluate legal aspects, from the validation and proof of legitimacy of transactions, including aspects like the subject, form, and intent of the electronic contract, to aspects such as dispute resolution methods and the improvement of laws governing electronic contracts.

This article will explore the complex legal aspects of these challenges and propose some new approaches for the Vietnamese legal system to adapt to the continuous innovation of technology and international trade.

Legal Regulations on Electronic Contracts

Apart from being represented as data messages in cyberspace, electronic contracts are similar to ordinary sales or service contracts in civil transactions.

In the era of technological development, electronic contracts in e-commerce offer many advantages over traditional paper contracts, such as enhanced transparency, convenience, and safety in electronic transactions.

Although there have been regulations on electronic transactions and electronic contracts for nearly 20 years, the implementation and resolution of issues related to electronic contracts are still primarily applied according to the provisions of the 2015 Civil Code No. 91/2015/QH13 (“2015 Civil Code“).

Specifically, Clause 1, Article 34 of the 2023 Electronic Transactions Law No. 20/2023/QH15 (“2023 Electronic Transactions Law“) stipulates that an electronic contract concluded or executed through the interaction between an automated information system and a person or between automated information systems shall not be denied legal validity solely because of the absence of human review or intervention in specific actions performed by the automated information systems or in the contract.

Furthermore, the conclusion of electronic contracts involves the use of data messages to conduct part or all of the transactions in the process of forming electronic contracts based on the provisions of Clause 1, Article 35 of the 2023 Electronic Transactions Law.

However, due to the lack of detailed regulations beyond the concepts and legal validity, resolving some issues related to the application of electronic contracts in commerce has become difficult. For instance, the 2023 Electronic Transactions Law does not have provisions on the effectiveness of electronic contracts, which is one of the most critical factors for establishing civil transactions.

Therefore, when necessary, authorities often refer to the ‘fundamental law’ of legal issues in Vietnam, the 2015 Civil Code. For example, Article 385 of the 2015 Civil Code stipulates that a contract is an agreement between parties to establish, change, or terminate civil rights and obligations.

If an electronic contract involves the sale of products or goods, it must refer to the concepts and regulations in the 2015 Civil Code governing asset sale contracts. If the electronic contract involves service transactions, it must refer to the provisions from Article 513 to Article 521 of the 2015 Civil Code.

Regarding the validity of electronic contracts, as in the above example, the provisions of Article 401 of the 2015 Civil Code on the validity of contracts will apply.

Challenges in Establishing Relationships through Electronic Contracts

In the current legal context in Vietnam, establishing relationships through electronic contracts encompasses three main issues: the difficulty in identifying parties in electronic commerce contracts, meeting the requirements for the form of electronic contracts, and ensuring the intent of the parties entering into electronic contracts.

Identifying Parties in Electronic Commerce Contracts

Identifying parties in electronic contracts differs significantly from traditional physical contracts. Typically, electronic contracts are applied when parties are distant and hard to access, making it difficult to verify the legal capacity of the parties involved.

It is nearly impossible to verify whether the contracting parties possess full civil act capacity and voluntarily enter into the contract when they only interact via the Internet. Similarly, the quality of products, goods, and services is often based on trust and the reputation of the parties, without verification by competent authorities or a third party capable of appraisal and legal consultation.

Moreover, if electronic contracts are used to establish relationships on e-commerce platforms, which is the current trend in Vietnam, these contracts may involve third parties as intermediaries, providing e-commerce services to connect sellers and buyers.

Due to this complexity, confusion among contracting parties has occurred. A feasible solution to help parties clearly identify the participants in the contract is to review the legal status of individuals/entities supplying goods or services on the e-commerce platform. If it is determined that these entities allow others to use the platform by charging management fees, they are intermediaries, not the buying or selling parties in the electronic contract.

The application of electronic contracts with the participation of intermediaries helps ensure that the party suffering a loss in transactions has recourse, as intermediaries would bear joint responsibility in case of errors or fraudulent actions.

Meeting the Requirements for the Form of Electronic Contracts in Vietnam

Clause 1, Article 119 of the 2015 Civil Code stipulates the form of civil transactions as follows: “A civil transaction may be expressed verbally, in writing, or by specific acts. Civil transactions conducted through electronic means in the form of data messages as prescribed by the law on electronic transactions shall be considered as written transactions.”

This corresponds with Clause 1, Article 7 of the 2023 Electronic Transactions Law, which states that data messages are expressed in the form of electronic documents, electronic records, electronic certificates, electronic invoices, electronic contracts, emails, telegrams, telexes, faxes, and other forms of electronic data exchange as prescribed by law. Therefore, electronic contracts are recognized as written contracts in the form of data messages, and their legal validity cannot be denied. Thus, the legal form of electronic contracts can be identified similarly to contracts in civil transactions.

For instance, instead of parties ‘wet-signing’ to authenticate the legality of the contract, contracting parties can use digital signatures to establish contractual relationships in cases where signatures are legally required. However, due to the lack of direct contact, the process of authentication and signing before a notary or the Ministry of Justice cannot be performed.

Instead, the parties will apply Decree 130/2018/ND-CP, replacing Decree 26/2007/ND-CP on digital signatures and digital signature authentication services.

Digital signature authentication is the process of verifying the integrity of information in an electronic environment. Widely used in electronic transactions, electronic contracts, banking transactions, etc., digital signature authentication ensures information remains unaltered post-signature and is confirmed by the individual or organization creating the signature.

If not authenticated when the parties have agreed upon using digital signatures, or in cases where documents are mandatory electronic contracts requiring authenticated digital signatures, the electronic contract will be invalid in form.

Notably, in the 4.0 technological era, a new concept of electronic contracts—smart contracts—has been gradually tested in developed countries and is making its way into Vietnam. This type of electronic contract applies advanced blockchain technology, offering high security and many advantages such as anonymity, stability, auditing, and traceability.

However, since blockchain is not yet regulated in any legal documents in Vietnam, the application of this technology or the use of related assets like Bitcoin in payments remains limited, residing in a legal grey area. Therefore, despite having superior advantages over traditional electronic contracts, businesses must carefully consider the risks when applying smart contracts in transactions.

Meeting the Intent Conditions of Parties in Electronic Contracts

For a standard contract, proving that the parties involved have the capacity to perform civil acts, including establishing, performing, and terminating civil rights and obligations, and have complete control over their decisions, is understood as the intent of the parties when entering into the contract.

Voluntary intent is the most crucial factor in civil relations. Parties must not be coerced, threatened, or forced to sign a contract. This principle also applies to electronic contracts. However, determining that parties fully and freely consent to electronic contracts is more challenging than with traditional contracts, as the parties do not meet directly, and there is no authoritative body overseeing their capabilities.

If an electronic contract is determined to have been signed under deceit, coercion, or duress, it will be void under Article 127 of the 2015 Civil Code.

Similarly, identifying whether parties fully understand other aspects of the electronic contract becomes a challenging issue, potentially leading to the court declaring the contract void.

This is a concerning issue that needs to be addressed to spread and popularize the convenience and other benefits of electronic contracts in Vietnam.

Proposal to Develop Separate Legislation on the Legal Validity of Electronic Contracts

A notable legal issue regarding electronic contracts is the absence of regulations on notarizing electronic contracts. Notarizing electronic contracts differs from authenticating digital signatures.

Notarizing contracts and civil transactions is performed by notaries according to Clause 1, Article 2 of the 2014 Notary Law No. 53/2014/QH13 (“2014 Notary Law“) to determine the accuracy, legality, and social morality of document translations from Vietnamese to foreign languages or vice versa.

Therefore, electronic contracts, with legal value similar to written contracts, need to be notarized to ensure the accuracy of their content. This verification is particularly crucial in commercial transactions with foreign enterprises.

Decree 85/2021/ND-CP, supplementing Decree 52/2013/ND-CP on e-commerce, has provisions on authenticating electronic contracts. However, the 2014 Notary Law does not address the notarization of electronic contracts.

This creates inconsistencies in legal documents, leading to competent authorities being unable to proactively apply laws to resolve issues related to electronic contracts.

This is just one of the prominent issues arising from the lack of a detailed legal framework for electronic contracts or online transactions. Drawing lessons from many developed countries worldwide, it is evident that Vietnam cannot deeply develop or broadly apply electronic contracts in commerce without a solid legal corridor.

Both individuals and businesses are cautious, uncertain, and fearful of legal consequences when applying new technology. This approach has caused Vietnam to miss out on many rapid development opportunities, saving time, costs, and the ability to respond to risks that make physical contract signing difficult, such as during the Covid-19 pandemic.

In June 2023, the Vietnamese National Assembly passed the amended 2023 Electronic Transactions Law, consisting of 7 chapters and 54 articles, with some new points compared to the 2005 Electronic Transactions Law No. 51/2005/QH11, mainly regulating the conduct of transactions by electronic means.

Notably, the 2023 Electronic Transactions Law only regulates the conduct of transactions by electronic means, without stipulating the content, conditions, or methods of transactions, nor providing specific regulations if the electronic contract belongs to a particular field. In case of overlap, the resolution will follow the relevant laws.

Recommendations for Developing a Robust Legal Framework for Electronic Contracts

To overcome these challenges and facilitate the widespread adoption of electronic contracts in Vietnam, several recommendations can be proposed:

  1. Developing Specific Legislation for Electronic Contracts: Create detailed laws that specifically address the legal aspects of electronic contracts, including their form, validation, and the processes for dispute resolution.
  2. Standardizing Digital Signatures and Notarization Processes: Implement clear guidelines and procedures for the use of digital signatures and the notarization of electronic contracts to ensure their legal validity and enforceability.
  3. Enhancing Legal Education and Awareness: Increase awareness and understanding of electronic contracts among businesses and individuals to build trust and confidence in their use.
  4. Establishing a Regulatory Body for Electronic Transactions: Create a dedicated regulatory body to oversee and regulate electronic transactions, ensuring compliance with legal standards and resolving disputes efficiently.
  5. Adopting International Best Practices: Learn from the experiences of developed countries and incorporate international best practices in the legal framework for electronic contracts to ensure alignment with global standards and facilitate cross-border commerce.

By addressing these issues and implementing these recommendations, Vietnam can create a robust legal environment that supports the growth and development of electronic contracts, driving economic progress and integration into the global digital economy.

ASL Law is a leading full-service and independent Vietnamese law firm made up of experienced and talented lawyers. ASL Law is ranked as the top tier Law Firm in Vietnam by Legal500, Asia Law, WTR, and Asia Business Law Journal. Based in both Hanoi and Ho Chi Minh City in Vietnam, the firm’s main purpose is to provide the most practical, efficient and lawful advice to its domestic and international clients. If we can be of assistance, please email to [email protected].

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