UNIT 11 VIETNAMESE CONTRACTS INVOLVING FOREIGN PARTNERS

UNIT 11 VIETNAMESE CONTRACTS INVOLVING FOREIGN PARTNERS

Words & Expressions:
Be sure you know all these words & expressions. Click to learn how each word or expression is pronounced:

commodity [n]	: hàng hoá, sản phẩm
comprise [v]	: gồm có, bao gồm
contravene [v]	: vi phạm, làm trái
discretion [n]	: sự thận trọng, suy xét chín chắn
dissolve [v]	: huỷ bỏ, giải thể
endeavour [v]	: sự cố gắng, nỗ lực
exempt (from s.t) [adj]	: được miễn (thuế)
expiry [n]	: sự mãn hạn, sự kết thúc
implementation [n]	: sự thi hành, thực hiện đầy đủ
infrastructure [n]	: cơ sở hạ tầng
judicial [adj]	: (liên quan đến) toà án, việc xét xử
pursuant (to) [adj]	: chiếu theo, y theo
stipulate [v]	: quy định
treaty [n]	: hiệp ước, hợp đồng
in accordance with	: phù hợp với, theo đúng

11.1 Introduction

      In the previous two units, we looked mostly at the type of contracts that would be drafted by foreign companies. We will now look at some of the requirements for the contents of typical contracts that might be drafted by a Vietnamese company which intends to enter into a contractual agreement with a foreign company.

11.1.1 Jurisdiction / Applicable law 

Regardless of the type of contract, there are normally three sources of law which govern agreements involving foreign trading partners or foreign investors. These are as follows:

International treaties: Vietnamese Trade Law allows the parties to apply the provisions of an international treaty to which Vietnam is a signatory. As we saw in unit 10, although, Vietnam is not yet a signatory to the United Nations Convention on the International Sale of Goods (CISG), Vietnamese law allows the provisions of the CISG to apply if the treaty is referred to in the contract, except those provisions which are contrary to the basic principles of the country's social and legal systems.

National laws: The parties may agree to apply Vietnamese laws or foreign laws to their contract provided that the foreign laws are not inconsistent with Vietnamese laws, or where an international treaty to which Vietnam is a signatory provides for the application of such foreign laws. If a contract does not refer to a particular governing law, Vietnamese laws governing foreign trade, including the Trade Law and other relevant laws such as the Civil Code, the Ordinance on Economic Contracts, etc., applies in cases where the dispute is settled by a Vietnamese court.

International Commercial Practices: The parties may agree to apply international commercial practices if they do not contravene Vietnamese laws. As Vietnamese Trade Law, and other relevant laws governing trade have only been established recently, Incoterms are frequently applied in foreign trade contracts. There are a number of versions of Incoterms, and a new version does not necessarily supersede previous versions. The relevant year of the Incoterms referred to in the contracts should therefore be specified.

11.1.2 Dispute Resolution 

     Parties are encouraged to resolve disputes through negotiation or conciliation. Where negotiation or conciliation fail, disputes may be resolved by a Vietnamese, or foreign or international arbitration body, or a Vietnamese or foreign court as agreed upon in the contract, or by the parties.

     There must be mutual agreement on arbitration if disputes are to be resolved by this means. Agreement on arbitration can be in the form of a provision for arbitration in the contract or a separate agreement signed by the parties, should a dispute arise. When there is a mutual agreement on arbitration between the parties, courts will no longer resolve the dispute even if either of the parties endeavours to commence litigation.

11.2 Foreign trade contracts

11.2.1 What is a foreign contract in accordance with Vietnamese laws? 

     In accordance with the Trade Law, a foreign trade contract (FTC) is a contract for sale and purchase of goods signed between a Vietnamese party and a foreign party. Contracts for the exchange of goods between export processing zones or duty free shops located in Vietnam and local businesses are also considered export or import contracts and subject to the legislation governing foreign trade, except that Vietnamese individuals may sell to buyers located in export processing zones.

11.2.2 Who can sign a foreign trade contract? 

     Vietnamese Trade Law does not concern itself with the legal status of the foreign party; it is assumed that foreign signatories will have complied with laws of their own country in completing the contract. With regard to the Vietnamese party, the Trade Law stipulates that only Vietnamese legal entities authorised to perform export and import transactions are permitted to sign FTCs. A contract signed by a Vietnamese individual or company who has no trading rights for the contracted product(s) would be considered invalid. Further information regarding trading rights should be obtained from a government source, or you should seek professional advice.

11.2.3 What makes a foreign trade contract valid? 

     Although the contracting parties are permitted to determine the terms and conditions of FTCs, they must include the main contents of a sale and purchase contract stipulated in the Trade Law if they are to be considered legally valid. The contents should include:

• a full description of the goods, including any trade names
• quantity
• specifications and/or quality
• price and method of payment
• location and time for delivery and receipt of goods

     A typical FTC would also normally include other details, such as packing, marking, mode of transportation, insurance, quality inspection, dispute settlement, etc. It would then be considered legally valid if:

i) it is signed by parties who have full legal status or, in other words, are legally permitted to export and/or import the contracted product(s)
ii) the contracted goods are legally tradable in the countries of the parties
iii) it is made in written form (telegram, telex, e-mail and other electronic communications are also considered written form)

     Although the Trade Law does not require modifications to FTCs to be made in written form, accepted business practice in Vietnam calls for such changes to be made in writing, and the contract should therefore contain this provision.

11.2.4 What do the provisions of the Trade Law require? 

     In addition to the main contents listed above, a FTC must also comply with other relevant provisions of the Trade Law, and/or other relevant laws governing contracts for sale and purchase of goods before it can be valid and effective. There many are similarities with contracts we examined previously in units 10 and 11. Here are some guidelines about the required provisions:

Offers and acceptance of offers: The Trade Law defines an offer as a proposal to enter into a contract for sale and purchase of goods within a certain time limit, which is made to one or more designated persons and includes the main contents of a FTC. An offer can either be an offer to sell or an offer to buy.

Effectiveness: A FTC is considered as having been entered into at the time when it is signed by the relevant parties, or at the time when the party making the offer (the offeror) receives the full acceptance in writing from the party accepting the offer (the offeree), within the specified period.

Precedence: A FTC will supersede any correspondence and negotiations in relation to the contract made prior to its conclusion, unless otherwise agreed by the parties.

Review of section 11.1 & 11.2 

     When dealing with a contract between a Vietnamese party and a foreign party, which of these statements is True, and which is False? Mark T or F in the box.

 1. In the event of a dispute, the parties must mutually agree to arbitration as the means of resolution
 2. If either party is not satisfied with the result of arbitration, they can commence litigation
 3. Any legal Vietnamese entity can sign the contract
 4. In order to be valid, the contract must be in written form
 5. The contract does not have to contain details of price and method of payment
 6. Vietnamese Trade Law recognises the validity of Incoterms

Answer Key 

1. T
2. F
3. F
4. T
5. F
6. T

11.3 Example sales contract 

    Carefully read the extract from an authentic sales contract, and then answer the questions below.

a) In which country is the Buyer located?

b) To which country must the goods be shipped?

c) Which document contains a description of the commodity?

d) How will the Buyer pay for the goods?

e) How will disputes be resolved?

f) Which version of Incoterms are specified?

g) Which words or phrases in the document have these meanings?

1. A product or raw material that can be bought and sold
2. A document sent in advance which gives details and prices of goods being sent
3. Not sent on a direct service (by air or sea)
4. A place where goods entering a country are offloaded
5. Done or achieved in a polite or friendly way

SALES CONTRACT

Contract Number: CS             800/2006       Dated: March 24th, 2006

This contract is made by and between:

Party A: HUNKIN COMPANY (The Seller)
Address: Tan Thuan Industrial Zone, Tan Thuan Dong Ward, District 7, Ho Chi Minh City, Vietnam.
Tel:             +84 8 77012930 begin_of_the_skype_highlighting            +84 8 77012930      end_of_the_skype_highlighting           Fax: +84 8 77012931
Represented by: Mr Tran Hong Son - Director

Party B: NEW CENTURY INTERNATIONAL CORPORATION (The Buyer)
Address: Central Building, 10F-4, No. 20, Ta Lung Road, Taichung, Taiwan, R.O.C.
Tel: +04-23241239         Fax: +04-23241230
Represented by: Mr George Chang - President

After friendly discussions, the parties have agreed to sign this contract with the following terms and conditions:

Article I: COMMODITY, QUANTITY AND PRICEThe Seller agrees to sell and the Buyer agrees to buy the commodities hereunder:
Commodity: Various styles of shoe. Details as per proforma invoice no. CHPS-060331 dated March 24th, 2006.
Amount: USD 49,418.00 (US dollars forty nine thousand, four hundred and eighteen).
Prices are agreed to be FOB HCMC, as per Incoterms 2000.

Article II: SPECIFICATIONAs per samples provided to the Buyer by the Seller.

Article III: PACKINGAll goods to be packed according to the Buyer’s instructions.

Article IV: DELIVERY
Partial shipment and transhipment are acceptable.
Port of loading: Any port or airport in Vietnam.
Port of discharge: Any port or airport in Germany.
Shipment date: Not later than July 30th, 2006.

Article V: PAYMENTBy Letter of Credit at sight.
Banking information as per proforma invoice no. CHPS-060331 dated March 24th, 2006.

Article VI: VALIDITY
From the date of signing to August 30th, 2006.

Article VII: GENERAL PROVISIONS     Neither party shall be responsible for delays in shipment of goods, nor for any risks occasioned by any situation comprehended under the terms of force majeure. In this event, the parties shall fax to each other a certificate of force majeure issued by the competent government authorities where the situation took place.

     Both parties will strictly comply with the above mentioned articles. Disputes, if any, will firstly be resolved through amicable negotiation or conciliation. If amicable negotiation or conciliation fail, disputes shall be resolved under the rules of the The Vietnam International Arbitration Center, 9 Dao Duy Anh, Dong Da City, Ha Noi, Viet Nam. The decision of The Vietnam International Arbitration Center shall be final and binding on both parties. All costs relating to arbitration will be paid by the unsuccessful party.

For and on behalf of
HUNKIN COMPANY (Party B)

............... (signed) ..................
Tran Hong Son, Director


For and on behalf of
NEW CENTURY INTERNATIONAL CORPORATION (Party B)

............... (signed) ..................
George Chang, President

Answer Key  



a) Taiwan, R.O.C.
b) Germany
c) proforma invoice no. CHPS-060331
d) Letter of Credit at sight
e) By arbitration
f) Incoterms 2000
g) 
1. commodity
2. proforma invoice
3. transhipment
4. port of discharge
5. amicable


11.4 Export processing contracts 

     Foreign companies may sign export processing contracts (EPC) with a Vietnamese company to manufacture export goods with materials and input provided by the foreign party. The Vietnamese party may lease and/or borrow equipment and machinery from the foreign party for the purpose of performing the contract. Equipment, machinery, materials, etc., which are temporarily imported for export processing, are exempt from import tax. The goods produced under an EPC must be those legally permitted for trade.

What should an export processing contract contain?

     Similar to foreign trade contracts, EPCs must be in writing. To be legally valid, an EPC must include, but is not limited to, the following:

• Names and addresses of contracting parties
• Name(s) and quantity(ies) of product(s) to be produced
• Processing price; time and mode of payment
• List with names, quantities and values of materials and inputs to be imported and/or to be supplied locally (if any)
• Norms for consumption of materials and inputs, and percentages of material and input waste in processing
• A list of names and values of equipment and machines to be leased, loaned or donated by the foreign party (if any) to the Vietnamese party
• Measures to deal with waste materials and discarded products, and principles for dealing with leased and/or borrowed machinery and equipment, surplus materials and inputs after termination of the contract
• Trademark and origin of products to be processed
• Place and time of delivery
• Time of contract validity

11.5 BOT, BTO & BT Contracts 

     In order to encourage foreign investment in the construction and development of infrastructure facilities in Vietnam, the Government introduced some special projects named Build-Operate-Transfer Contracts (BOT), Build-Transfer-Operate Contracts (BTO) and Build-Transfer Contracts (BT).

     These contracts can only be entered into in writing with an authorised state body of Vietnam. The other party(ies) can either be a Joint Venture Company (JV) formed by a Vietnamese party and a foreign investment company, or an Enterprise with 100% Foreign Capital (EFOC). In most respects a JV and an EFOC are the same in terms of structure, rights and obligations, but do note that there are restrictions on the sectors in which an EFOC may invest. Further information in this respect should be obtained from a government source.

     The essence of the contracts is similar, but there are differences between the rights of the investor, a JV or EFOC, in each case. For the purposes of this unit it is sufficient to describe BOT, BOT and BT contracts as agreements which permit foreign investors to recover invested capital and earn reasonable profits. Again, precise information in this respect should be obtained from a government source.

What should BOT, BTO and BT contracts contain?

The Law on Foreign Investment in Vietnam requires these contracts to contain the following:

• Nationalities, addresses and authorised representatives of the parties
• Objectives and scope of operation
• Investment capital, schedule of implementation
• Capacity, technology and equipment for designs and technical standards of the project; quality standards and control and supervision of the quality of the project
• Provision regarding environment protection
• Terms and conditions relating to the use of land, infrastructure and support facilities necessary for construction and operation
• Rights and obligations of the parties; undertakings to provide guarantees and to share risks between the parties
• Provisions regarding prices, fees and other charges
• Obligation to maintain normal operations of the project
• Consultancy and evaluation of design, equipment, construction, acceptance, operation, and maintenance
• Technical conditions, status of operation, quality of the project upon transfer; principles used for determination of the value of the project
• Validity of the contract; provisions regarding assignment
• Body and method of resolution of disputes between parties
• Sharing of risks between the BOT/BTO/BT and Government bodies
• Process for dealing with breaches by the parties causing failure to perform the terms and conditions of the contract
• Events of Force Majeure and principles of remedy
• Provisions regarding the assistance and undertakings of the Government
• In the case of a BT contract, conditions for the implementation of other projects

Review of section 11.4 & 11.5 

     When dealing with export processing contracts (EPC) and BOT, BTO, BT contracts, which of these statements is True, and which is False? Mark T or F in the box.

 1. Materials imported for export processing are subject to import tax
 2.  An EPC only allows the purchase of imported goods
 3. EFOCs are permitted to invest in any sector of business in Vietnam
 4.  BOT, BTO, BT contracts must be completed with a government body
 5. BOT, BTO, BT contracts must contain details of investment capital
 6. BOT, BTO, BT contracts allow foreign investors to recover their capital investment
 7. BOT, BTO, BT contracts do not cover environmental protection
 8. Disputes arising from BOT, BTO, BT contracts must be settled by arbitration

Answer Key 



1. F
2. F
3. F
4. T
5. T
6. T
7. F
8. F 



11.6 Example joint venture contract 

     Please note that this example contract is not a complete document; for the purposes of this unit, it is not necessary to examine the articles below marked N/A. Additional notes for guidance are given in brackets in italics.

JOINT VENTURE CONTRACT

     Based on the Law on Foreign Investment in Vietnam and other relevant legal documents, the parties mentioned hereinafter have signed a joint venture contract to establish in the Socialist Republic of Vietnam a joint venture enterprise with the following contents and on the following terms:

A. Vietnamese party(ies)
1. Name of company:
2. Authorized representative:                             Title:
3. Head office:
    Telephone:                                                 Fax:
4. Main line of business:
5. Certificate of incorporation no:
    Registered at:                                             Date:

B. Foreign party(ies):
1. Name of company:
2. Authorized representative:                             Title:
3. Head office:
    Telephone:                                                  Fax:
4. Main line of business:
5. Certificate of incorporation no:
    Registered at:                                              Date:

(If any of the JV parties comprises more than one member, each member must provide full details.)

Article 1
1. The parties agree to establish the joint venture enterprise in the Socialist Republic of Vietnam with the purpose of: (full description of the objectives of production and business of the joint venture enterprise.)

2 The name of the joint venture enterprise is : …………. (in Vietnamese); the transaction name of the joint venture enterprise in a common foreign language is: ……..................

Article 21. Address of the joint venture enterprise:
Head office:
Main production factory/workshop:
Branch(es):
Representative office(s):

2. Production capacity: goods/services in the year in which the production becomes stable. Split into main and auxiliary products (if necessary).

3. Products of the joint venture enterprise shall be marketed as follows:
Vietnamese market: …………% of products
Foreign markets: …………% of products.

4. N/A

Article 3
1. The total invested capital of the enterprise is ………

2. The legal capital of the enterprise is ……….., to which:

a) The Vietnamese party contributes …. accounting for ….% of legal capital, comprising:
Cash: ………..
Value of equipment, machinery: ……..
Value of technology transfer (if any): ……… (enclose technology transfer contract)
Value of the land use right, factory, or other contributions in accordance with the Law on Foreign Investment: ……….
b) The foreign party contributes ……, accounting for ……% of legal capital, comprising:
Cash: ………..
Value of equipment, machinery: ……..
Value of technology transfer (if any): ……… (enclose technology transfer contract)
Other contributions in accordance with the Law on Foreign Investment: ………..

(If any of the JV parties comprises more than one member, each member must describe in detail the capital contribution percentage and method of contribution.)

3. Loans: (Describe in detail the sum, the party responsible for arranging the loans, the conditions of the loans, repayment, guarantee, and so forth.)

Article 4
     The parties undertake to contribute their respective capital contributions fully and on time as follows: (Describe in detail the schedule for legal capital contribution by each party.)

Article 5     N/A

Article 6
     The duration of this joint venture contract is …. years, commencing from the date of issuance of the investment license. Any changes to this duration must be agreed by all parties and reported to the investment license issuing body for consideration and approval.

Article 7     N/A

Article 8
     Other responsibilities of joint venture parties are stipulated as follows: (Describe the responsibilities of each party in the application for the investment license, entry visas, land rent, supply of electric power and water, finance, building materials, equipment, technology, markets, management, training, and so forth)

Article 9     N/A

Article 10
     Any disputes between the parties related to or arising from the contract shall be resolved first through negotiation and conciliation. In cases where the parties in dispute cannot agree with each other, the dispute shall be referred to ….. (state name and address of the court or arbitration organisation).....................

The decision of … (above organisation) … shall be final and binding on the parties.

Article 11
     The joint venture enterprise may terminate its operations or dissolve the enterprise in the following cases: (Describe in detail the cases in accordance with the provisions in Article 52 of the Law on Foreign Investment.)

Article 12, Article 13     N/A

Article 14
     All other related terms that are not stipulated in this joint venture contract shall be implemented by the parties in accordance with the law of Vietnam and the investment license.

Article 15
     The joint venture contract may be supplemented and/or amended in accordance with the resolution of the board of management and subject to approval by the investment license issuing body prior to the implementation (of such amendment and/or supplement)

Article 16
     This contract shall take effect as of the date of issuance of the investment license.

Article 17
     This joint venture contract is signed at (location) on (date) in (state number of copies) originals in Vietnamese and in (a commonly used foreign language - probably English). Both versions shall be of equal legal validity.

VIETNAMESE PARTY(IES)                                FOREIGN PARTY(IES)
(Signature and seal)                                     (Signature and seal)

(Where there are several parties, state the name of each party and affix the appropriate seal, if any.)

11.7 Business co-operation contract 

     The business co-operation contract (BCC) is the most flexible contract for doing business in Vietnam; they are particularly popular in certain business sectors. Important matters such as objectives and profit sharing arrangements are generally left up to the agreement and discretion of the parties.

     A BCC is similar to a partnership under common law; it does not create a separate legal entity, but it does create a contractual relationship with respect to a specific investment project undertaken in Vietnam.

     Many of the articles in a BCC have exactly the same wording as a joint venture contract (JVC) but is is important to note the distinction between these two types of contract; a JVC creates a legal entity, but a BCC does not.

Example Business Co-Operation Contract
     Please note that the contract is not a complete document; for the purposes of this unit, it is not necessary to examine the articles below marked N/A. Additional notes for guidance are given in brackets in italics.

BUSINESS CO-OPERATION CONTRACT

     Pursuant to the Law on Foreign Investment in Vietnam and other relevant legal instruments, the parties mentioned hereinafter wish to carry out investment activities in the Socialist Republic of Vietnam in the form of a business co-operation contracts as outlined in the contents and scope of this business co-operation contract.

A. Vietnamese party(ies):
Same format and conditions as example JVC above.

B. Foreign party(ies):
Same format and conditions as example JVC above.
Hereby agree to sign this Business Co-operation Contract with the following terms and conditions:

Article 1
Objectives of business co-operation on the basis of a contract: (full description of the proposed content and scope of business co-operation)

Article 2
1. Location
2. Production capacity: goods/services in the stabilised production year. Split into main and auxiliary products (if necessary)
3. Product(s) of this business co-operation contract shall be marketed as follows:
Vietnamese market: .…..% of products
Foreign market: ......…% of products
4. Address of operating office (if any):
    Telephone:                     Fax:

Article 3
     Responsibilities of business co-operation parties to contribute capital for the implementation of the contracts:

a) The Vietnamese party(ies) shall contribute ..... in the form of ....... (the land use right, machinery and equipment, raw materials, spare parts, components, cash, other costs) ....

b) The foreign party(ies) shall contribute ........ in the form of ......... (machinery and equipment, raw materials, spare parts, components, cash, other costs) ......

     At the time when the actual contribution is made, if the projected values shown above differ from the actual contributed values, the two parties must reach an agreement on the differences and report same to the investment license-issuing body for consideration and approval.

     Where one of the parties is unable to fulfil its responsibilities as agreed, that party must inform the other party within .... days of the reasons as well as the measures to be taken to remedy the situation. The actual and legitimate losses caused by any delay or inability of one party to carry out its responsibility(ies) must be compensated for as mutually agreed; in cases of disagreement, the decision shall be made by the judicial body or arbitration organisation stipulated in article 10 of this contract.

Article 4
Other duties and responsibilities of the parties in the implementation of the contract:
Vietnamese party(ies) ........................
Foreign party(ies) .........................
(Describe in detail the party bearing responsibility, and the time limit, for completion of each job, such as organisation and management of production, technical and technology control, purchase of equipment, raw materials, consumption of products, etc.)

Article 5
     During the implementation of the contract, the parties agree on the following supervision mechanism: (Describe in detail the mechanism whereby a co-ordination board and operating office may be established and the method of establishment, activities, authority, responsibilities,etc.)

Article 6
     The duration of this contract is ........ years from the date of issuance of the investment license. Any changes to the duration of the contract must be agreed by the parties and reported to the investment license issuing-body for consideration and approval.

     Any of the business co-operation parties wishing to extend the agreed duration of the contract must so inform the other party at least ....... months prior to the expiry of the contract. If the parties agree to the extension of the contract, they must submit an application for consideration by the investment license- issuing body at least six months prior to the expiry of the contract.

     If all conditions for termination of the contract which are stipulated in the contract cannot be implemented, the contract shall remain in effect regardless of the expiry of the contract, provided that the extended duration of the contract is approved by the investment licenseissuing body.

Article 7     N/A

Article 8
1. The foreign party(ies ) must fully carry out its/their tax obligations and other financial obligation as stipulated in the investment license. (State the method of paying tax on profits and the remittance of tax by foreign party, e.g. via direct payment, via the Vietnamese party, etc.).

2. The Vietnamese party (ies) shall fully carry out its/their taxation obligations and other financial obligations in accordance with the laws applicable to domestic enterprises and the provisions stipulated in the investment license.

(The party responsible for paying the general taxes related to the implementation of the contract such as export duties, import duties, other taxes, etc., should be clearly defined.)

Article 9
  The contracting parties agree to share products and/or profits losses from the implementation of the contract as follows:
Vietnamese party(ies) : (State each party)
Foreign party(ies): (State each party)

Article 10     Same wording as Article 10 of JVC

Article 11     N/A

Article 12
     This business co-operation contract may be terminated prior to the expiry of its duration or terminate in the following cases: (describe in detail the cases in accordance with article 52 of the Law on Foreign Investment and relevant provisions of the Decree).

Article 13
     Upon expiry of the contract, the parties agree on the liquidation of the assets relating to their rights and responsibilities in the business co-operation contract as follows: (describe in detail each party’s rights, responsibilities, assets, etc., in conformity with article 52 of the Law on Foreign Investment and relevant provisions of the Decree.)

Article 14
     All other terms relating to the business co-operation contract but not specifically provided for in this business co-operation contract shall be implemented by the parties in accordance with the provisions of the law of Vietnam and of the investment license.

Article 15
     This business co-operation contract may be supplemented and/or amended pursuant to a written agreement between the parties and must be approved by the investment license issuing body prior to the implementation (of such amendment and/or supplement).

Article 16
     This contract shall take effect from the date of issuance of the investment license.

Article 17     Same wording and format as Article 17 of JVC