In the current economic landscape, international trade has opened up promising opportunities alongside legal challenges. Faced with the continuous development of the global economy, Vietnamese businesses increasingly focus on negotiating and maintaining commercial contracts with foreign partners. However, with deepening international integration, dealing with disputes related to commercial contracts with foreign partners becomes inevitable. To protect their legitimate interests, finding solutions to resolve disputes in a spirit of goodwill, amicability, and mutual development is crucial.
This article will analyze the current legal regulations in Vietnam regarding contracts, contracts with foreign elements, the applicable laws in the case of disputes in international contracts, and key considerations when determining disputes in contracts with foreign elements. Additionally, proposed solutions and optimal strategies for effectively resolving these disputes will be discussed.
Distinguishing Contracts from Civil Contracts with Foreign Elements
Article 385 of the Civil Code 2015, Law No. 91/2015/QH13, defines a contract as an agreement between parties regarding the establishment, modification, or termination of civil rights and obligations.
Various types of contracts in Vietnam are outlined in the Civil Code 2015, including contracts for the sale of property, cooperation contracts, transportation contracts, and power of attorney contracts.
Currently, the definition of civil contracts with foreign elements is not provided in the Civil Code 2015. However, based on the contract definition, it can be understood that civil contracts with foreign elements involve agreements to exercise rights and obligations, mutually agreed upon by the parties, to meet the interests of each party, establishing a civil relationship with foreign elements.
Article 7 of Article 683 of the Civil Code 2015 regulates civil contracts with foreign elements, stating that the form of the contract is determined by the law applicable to that contract. If the form of the contract is not suitable under the law of the country where the contract is concluded or Vietnamese law, that form is recognized in Vietnam.
According to Article 2 of the Commercial Law 2005, Law No. 36/2005/QH11, international sale contracts must be executed based on a written contract or other forms with equivalent legal validity. Therefore, when entering into contracts, compliance with the form regulations of the Civil Code 2015, Commercial Law 2005, and related legal documents is necessary.
Thus, depending on the agreement of the parties in the civil contract with foreign elements, the chosen applicable law will determine the specific form of each contract. The form of civil contracts with foreign elements may be made orally, in writing, or through conduct. According to Article 11 of the 1980 Vienna Convention (CISG), international sales contracts do not need to be signed or confirmed in writing or comply with any other form requirements. Contracts can be proved in any way, including witness statements.
Determining Foreign Elements in Civil Contracts
To determine foreign elements in civil contracts, Article 663(2) of the Civil Code 2015 stipulates that foreign elements are manifested in three cases:
- At least one of the parties involved is a foreign individual or legal entity.
- All parties are Vietnamese citizens, Vietnamese legal entities, but the establishment, modification, execution, or termination of the relationship occurs abroad.
- All parties are Vietnamese citizens, Vietnamese legal entities, but the subject of the civil relationship is located abroad.
These three indicators of foreign elements can be examined from the perspectives of subject conditions, legal events, and corresponding legal entities. A civil relationship is considered to have foreign elements when it satisfies at least one of these three foreign elements.
Determining through Subject Conditions
Regarding the first condition, where “at least one of the parties involved is a foreign individual or legal entity,” it requires that one of the parties involved in the civil relationship be a foreign individual or legal entity, without obligating all parties in the civil relationship to be foreign individuals or legal entities.
Once this criterion is met, the civil relationship is considered to have foreign elements.
For example, a contract for the sale of agricultural products is signed between the seller, Mr. A (an individual) with Vietnamese nationality, and the buyer, a company (a legal entity) registered in the United States (with U.S. nationality).
To determine whether an individual is a foreigner, the most common method is to consider the nationality of the participating parties. A foreign individual may include someone with a foreign nationality, someone with multiple foreign nationalities, someone without a nationality, or someone whose nationality is not Vietnamese.
Unlike individuals, legal entities do not have a stateless or multiple nationality status. However, determining the nationality of a legal entity in international trade can be challenging when countries have different definitions of the nationality of a legal entity.
Some countries base it on the place of establishment of the legal entity, its principal office, or the location where its main business activities are conducted. This difference complicates the identification of the nationality of a legal entity, making it more difficult to determine whether the relationship with other parties qualifies as having foreign elements.
Determining through Legal Events
Civil relationships are considered to have foreign elements in the case of “All parties are Vietnamese citizens, Vietnamese legal entities,” but legal events such as “establishment, modification, execution, or termination of the relationship in the contract occurs abroad.”
Unlike examining foreign elements based on subjects and the nationality of the participating parties, this scenario focuses on the location where the legal events take place as the basis for determination.
For example, in a case where two entities, one Vietnamese legal entity and one Vietnamese individual, both attend the IBA Paris 2023 workshop in France and sign a cooperation agreement in Paris, the contract is identified as a commercial contract with foreign elements based on the fact that the civil relationship occurred abroad.
Determining through Legal Entities
In cases where all parties in the dispute have Vietnamese nationality, and legal events such as termination, cancellation, or the establishment of a contract are also carried out in Vietnam, but the subject of the civil relationship is located abroad, the relationship is considered to have foreign elements.
For example, two businesses in Vietnam sign a contract for the purchase of automobile components produced in Germany; in this case, the legal entity is determined to be the automobile components manufactured in Germany.
Nonetheless, this scenario is usually applied primarily to disputes over fixed assets abroad, such as real estate.
Dispute Resolution for Civil Contracts with Foreign Elements
As outlined in the previous analyses, resolving disputes related to civil contracts with foreign elements requires at least one of three defining factors: participating subjects, legal events, and legal entities. These elements collectively determine a civil contract as having foreign elements.
Similar to disputes arising from regular contracts, disputes involving civil contracts with foreign elements occur when one of the parties fails to fulfill or inadequately performs the obligations stipulated in the contract with foreign elements.
Non-compliance with contractual obligations leads to disharmony, and disputes that cannot be resolved through conventional methods, disrupting the operation and execution of the contract for the remaining parties in the contractual relationship.
To address disputes in contracts with foreign elements, parties can choose from three main resolution methods: mediation, arbitration, or litigation.
However, before selecting a dispute resolution method, parties need to determine the applicable national law to resolve disputes arising from civil contracts with foreign elements. This is the most apparent distinction between resolving disputes in regular contracts within Vietnamese territory and resolving disputes in civil contracts with foreign elements.
Determining the Applicable National Law for Resolving Disputes in Civil Contracts with Foreign Elements
When disputes arise in civil contracts with foreign elements, determining the jurisdiction for dispute resolution is one of the first and most crucial steps. Each dispute will involve at least two legal systems or legal frameworks from two countries that regulate the resolution method.
In some cases, the competent authority for dispute resolution must also identify the applicable law between the laws of the countries of the disputing parties with international conventions that the Socialist Republic of Vietnam is a member of or Vietnamese law. If the international conventions or Vietnamese law provide for the parties’ choice, the law applicable to the civil relationship with foreign elements is determined by the parties’ agreement. In cases where the law applicable cannot be determined according to Article 644, the law applicable is the law of the country most closely related to the civil relationship with foreign elements.
In addition to the provisions in the Civil Code regarding dispute resolution in court, the respect for the freedom of agreement between parties in civil relationships in the legal system of the Socialist Republic of Vietnam is also expressed in other legal codes. For instance, Article 14(2) of the Law on Commercial Arbitration 2010, No. 54/2010/QH12, stipulates: “For disputes with foreign elements, the arbitration council applies the law chosen by the parties; if the parties do not agree on the applicable law, the arbitration council decides to apply the law that it considers most appropriate.”
In cases where the parties do not agree on the applicable law, the law of the country most closely related to the contract is applied. In international trade, this term is also known as the Law of the country with which it is most closely connected. This is one of the peculiarities in international jurisprudence applied to determine the law governing issues under the contract.
Article 2 of Article 683 of the Civil Code of 2015 explains in detail the method of determining the ‘country most closely connected with the contract’ based on five criteria, including:
- “The law of the country where the seller resides if an individual or where it is established if a legal entity for contracts for the sale of goods;”
- “The law of the country where the person providing the service resides if an individual or where it is established if a legal entity for service contracts;”
- “The law of the country where the person receiving the right resides if an individual or where it is established if a legal entity for contracts transferring or assigning intellectual property rights;”
- “The law of the country where the worker regularly performs work for labor contracts.”
- “The law of the country where the consumer resides for consumer contracts.”
One common case where the Vietnamese court determined the applicable law based on the law of the country most closely connected to the contract was the Judgment dated April 5, 1996, of the Supreme People’s Court in Ho Chi Minh City, which adjudicated a dispute over a sales contract between a Singaporean company and a Vietnamese company. In this case, the court applied the Economic Contract Law of 1989 of Vietnam and related international conventions on dispute resolution because the parties did not agree on the applicable law for the contract.
Note on Resolving Disputes in Civil Contracts with Foreign Elements
In the resolution of disputes in civil contracts with foreign elements, certain circumstances may lead to issues hindering the parties from reaching an agreement to continue contract execution. Resolving disputes in contracts with foreign elements primarily relies on respecting the will of the parties, as manifested through the dispute resolution methods specified in the contract.
From the perspective of the adjudicating body, resolving disputes in contracts with foreign elements is based on the principle of equality among disputing parties and the respect for the legal rights and interests of each party.
In Vietnam, the methods for resolving disputes in civil contracts with foreign elements include three main approaches: mediation, arbitration, and court litigation.
Resolution through Mediation
To resolve disputes in civil contracts with foreign elements, parties can opt for mediation. For this method to be implemented, there must be agreement among the parties, and commercial mediators must be involved.
Mediation is conducted following the procedures outlined in Decree No. 22/2017/ND-CP on commercial mediation.
A dispute can be settled through mediation if the parties agree to commercial mediation. The agreement can be reached before, after the dispute arises, or at any point during the dispute resolution process, as stipulated in Article 6 of Decree No. 22/2017/ND-CP.
Resolution through Court Litigation
In Vietnam, the majority of current disputes are being handled and resolved by the court. This exerts significant pressure on the judicial system, leading to prolonged resolution times for certain cases, adversely affecting the interests of the parties involved.
The court is a public adjudicative institution within the legal system of each country, and the trial process must always comply with the laws established by the state. When opting for dispute resolution through this judicial body, the court must select the applicable law to resolve the dispute, as analyzed earlier.
The court always adheres to this principle, resulting in many cases becoming difficult to resolve, especially when the parties have not agreed in advance on the applicable law, and multiple countries are involved in the dispute.
Resolution through Arbitration
In contrast to the constraints imposed by national laws under the procedural rules when resolving disputes in civil contracts through the court, resolving disputes in civil contracts with foreign elements through commercial arbitration is becoming increasingly popular. This method exhibits several advantages due to its flexibility and high efficiency.
Recently, including an arbitration clause in civil contracts with foreign elements regarding dispute resolution through commercial arbitration is becoming common in Vietnam, especially in international trade collaborations.
As an alternative dispute resolution mechanism, arbitration is not bound by the legal systems of any specific country, providing flexibility and independence from the legal frameworks of the involved nations. This can result in more effective and impartial solutions compared to national court litigation, particularly when parties have not predetermined the applicable law and multiple countries are relevant to the dispute.