Choice of law agreements in service contracts between Vietnamese enterprises and foreign partners

In the context of international integration and cooperation, cross-border commercial activities between Vietnamese enterprises and foreign traders, investors or partners take place on a regular basis. Under Point a Clause 2 Article 663 of the Civil Code 2015, these are civil relations involving foreign elements. Accordingly, contracts entered into between Vietnamese enterprises and foreign partners may concurrently be subject to national laws, international treaties, international customs and mandatory regulations at the place where the contracts are performed. In this context, determining the applicable law is not merely a drafting technique but also directly affects the interpretation of the contract, the determination of the parties’ rights and obligations, the handling of breaches and the resolution of disputes.

In practice, during contract negotiations, each party often tends to propose the law of the country in which it is incorporated or headquartered because of its greater familiarity with that law, easier access to legal advice and greater convenience in anticipating risks. However, selecting a legal system solely on the basis of familiarity may give rise to various risks if the parties do not fully assess the scope of the selected law, its compatibility with the commercial arrangements under the contract, the mandatory rules that may apply, and the relationship between the choice of law clause and the dispute resolution mechanism.

Within the scope of this article, the author focuses on analysing certain legal issues relating to the selection and agreement on the law applicable to cross-border service contracts between Vietnamese enterprises and foreign partners (the “Service Contract”). On that basis, the article clarifies the parties’ right to choose the applicable law and the limitations on that right; identifies certain risks arising where there is no choice of law agreement, where the selected law is unclear, or where the selected law is unsuitable for the transaction structure; considers the role of relevant international treaties; and proposes certain considerations for negotiating and drafting governing law clauses in order to mitigate legal risks and enhance the enforceability of the Service Contract.

1. Rules on the Right to Choose the Law Applicable to Contractual Relations

1.1. The Right to Choose the Applicable Law and Its Limitations

Under Clause 2 Article 664 of the Civil Code 2015, where an international treaty to which Vietnam is a party or Vietnamese law provides that the parties are entitled to make a choice, the law applicable to a civil relation involving foreign elements shall be determined in accordance with the parties’ choice. This provision indicates that the right to choose the applicable law does not automatically arise in every civil relation involving foreign elements, but must be recognised by an international treaty or a specific provision of Vietnamese law.

With respect to contractual relations, Clause 1 Article 683 of the Civil Code 2015 recognises the parties’ right to agree on the law applicable to their contract. However, this right is subject to certain limitations, including:

Real estate contracts: The law of the country where the real estate is located mandatorily applies to the transfer of ownership rights and other rights over the property, the lease of real estate, or the use of real estate as security for the performance of obligations.¹¹

Employment contracts and consumer contracts: If the law chosen by the parties adversely affects the minimum rights and benefits of employees or consumers under Vietnamese law, Vietnamese law shall prevail.¹²

Agreement to change the applicable law: The parties may change the law governing the contract, provided that such change does not prejudice the lawful rights and interests of any third party established before the change, unless such third party consents.¹³

Accordingly, the Civil Code 2015 recognises the parties’ freedom to choose the law applicable to contracts involving foreign elements, in line with the principle of freedom and voluntariness in making commitments and agreements. However, this right is not absolute and is restricted in certain circumstances to protect particular interests, weaker parties and the rights and interests of third parties.

Accordingly, for a Service Contract, the parties may proactively select Vietnamese law, the law of the country in which the foreign partner is incorporated, or the law of a third country as the governing law of the contract.¹⁴ However, the law selected by the parties includes only the substantive rules governing the parties’ rights and obligations under the contractual relationship and does not include conflict of laws rules used to determine the applicable law.¹⁵ In other words, a choice of law agreement is understood as follows:

The parties select the substantive rules of the designated legal system, without triggering a renvoi to Vietnamese law or a referral to the law of another country.

The selection of the substantive law governing the contract is not equivalent to the selection of procedural law. For court proceedings, procedural matters are, in principle, governed by the law of the country where the court hearing the dispute is located. For arbitration, procedural matters are governed by the law of the seat of arbitration and the arbitration rules selected by the parties.

Note on commercial customs: In addition, under Clause 2 Article 5 of the Commercial Law 2005, parties to commercial transactions involving foreign elements may agree to apply international commercial customs, provided that the foreign law or international commercial customs selected are not contrary to the fundamental principles of Vietnamese law. However, unlike national law, which is a complete system of rules comprehensively governing contractual relations, international commercial customs generally regulate only specific matters or commercial operations. Therefore, in contract drafting practice, the parties should select a national legal system as the general governing law while incorporating international commercial customs by reference for the specific matters governed by such customs.

1.2. Where the Parties Have No Choice of Law Agreement

The absence of a choice of law clause in a Service Contract does not mean that the contract is automatically governed by Vietnamese law or by the law of the forum. In principle, where the parties have no agreement on the applicable law, the law of the country with the closest connection to the contract shall apply.¹⁶ For a service contract, the law of the country where the service provider resides, if the service provider is an individual, or where the service provider is incorporated, if the service provider is a legal entity, is deemed to be the law of the country with the closest connection to the contract.¹⁷ However, this presumption may be displaced if it is demonstrated that the law of another country has a closer connection to the contract; in that case, the law of that country shall apply.¹⁸

For example, where a foreign enterprise provides services to a Vietnamese enterprise and the contract contains no choice of law clause, the law of the country in which the foreign enterprise is incorporated may form the basis for determining the applicable law, even if the service recipient is located in Vietnam. Therefore, the absence of a choice of law clause does not remove the need to determine the applicable law. If a dispute arises, the law governing the contract will be determined in accordance with the above principles and, in certain circumstances, foreign law may apply even where one party is a Vietnamese enterprise.

2. Certain Considerations When Agreeing on a Choice of Law Clause and Potential Legal Risks

In contract negotiations, the choice of governing law often reflects the parties’ relative bargaining positions. Each party tends to propose the law of the country in which it is incorporated or headquartered in order to take advantage of its familiarity with that law and its ability to manage legal risks.

In principle, Vietnamese law respects the parties’ choice because, except in certain specific cases, the selected legal system is not required to have a direct connection with the parties’ nationality, the place of contract formation or the place of contract performance. However, the selected foreign law may apply only to the extent that it is not contrary to the fundamental principles of Vietnamese law.¹⁹ Therefore, a valid choice is not necessarily an optimal choice. Selecting a legal system that is unsuitable for the characteristics of the transaction may increase compliance and dispute resolution costs and create difficulties in identifying, applying and proving the contents of foreign law.

Accordingly, when negotiating a Service Contract with a foreign partner, enterprises should pay particular attention to the following matters:

2.1. First, the choice of law clause should clearly identify the applicable legal system and ensure that it is appropriate for the transaction.

The parties should specify the applicable legal system and avoid general or ambiguous wording. For a country in which multiple legal systems coexist, such as the United States, the choice of law clause should specify the law of the relevant state or jurisdiction. If the parties select only the law of a country without identifying the corresponding domestic legal system, the applicable law will be determined in accordance with the principles of that country’s law.²⁰

Example: This Contract shall be governed by and construed in accordance with the substantive laws of the State of New York, United States of America.

In addition to clarity, the choice of law should be considered in light of the nature of the services, the place where the principal obligations are performed, the place where the service deliverables are received, and the relevant sector-specific regulations.

For example, if a Vietnamese enterprise provides services in Vietnam, the service deliverables are accepted and used in Vietnam, and payments are made from Vietnam, selecting Vietnamese law will generally have a stronger practical basis. This choice enables the Vietnamese enterprise to assess and determine its corresponding rights and obligations more conveniently.

Conversely, if the services are performed abroad, the service deliverables are received and used abroad, and disputes are also expected to be resolved in that country, selecting the law of the country where the services are performed may be more reasonable. Before accepting such a choice, the Vietnamese enterprise should assess its ability to access foreign law, the costs of legal advice, the costs of proving the contents of foreign law, and the effect of that legal system on key contractual provisions such as limitations of liability, damages and termination rights.

2.2. Second, the parties should clearly define the scope of the selected law and avoid making general references to multiple legal systems at the same time.

The choice of law clause should clarify whether the selected law applies to the whole contract or only part of it, and whether it governs contract interpretation, the parties’ rights and obligations, performance, breach, exemption from liability, damages, termination and the consequences of termination.

Where the parties wish to apply different legal systems to different parts of the transaction, they should clearly delineate the scope of each legal system and the order of priority in the event of conflict.

For example, a contract may provide that Vietnamese law governs all rights and obligations of the parties, while incorporating UCP 600 for payments by documentary credit. This allocation avoids an interpretation that UCP 600 replaces Vietnamese law in governing matters such as service standards, breach, damages or termination.

2.3. Third, the selected law should be considered together with the dispute resolution body and mechanism.

In practice, foreign partners often require both the application of the law of their home country and the resolution of disputes before the courts or an arbitral institution in that country. This approach allows the governing law to be applied by a dispute resolution body familiar with the relevant legal system, but may place Vietnamese enterprises at a significant disadvantage in terms of legal fees, the language of proceedings, evidence collection, travel costs and differences in procedural rules.

Conversely, if a contract selects foreign law but provides for dispute resolution in Vietnam, the Vietnamese dispute resolution body may be required to determine and apply the contents of foreign law, giving rise to additional requirements for relevant legal instruments, notarised translations or expert opinions.

Enterprises should therefore assess the governing law, dispute resolution body, seat of arbitration, language of proceedings, location of assets available for enforcement, and the prospects of recognition and enforcement of a judgment or award as an integrated whole. In many cases, international arbitration seated in a neutral jurisdiction may offer a more balanced solution.

2.4. Fourth, selecting foreign law does not exclude the mandatory provisions of Vietnamese law, nor does it permit national law to be entirely replaced by international commercial customs.

The selection of foreign law to govern contractual rights and obligations does not automatically exclude Vietnamese regulatory provisions that apply independently by reason of their territorial scope or regulated subject matter. Accordingly:

If the Service Contract is performed in Vietnam or relates to activities subject to the supervision of Vietnamese state authorities, the parties must still comply with mandatory regulations on business conditions, tax, foreign exchange, employment, personal data protection, intellectual property, technology transfer and other relevant sector-specific matters.

Example: A consultancy agreement under which a Vietnamese enterprise is the service provider and a Singaporean enterprise is the service recipient may provide for Singapore law to apply. However, selecting Singapore law does not exclude the Vietnamese enterprise’s obligation to ensure that its registered business lines are consistent with the scope of the services provided and that it fully satisfies the applicable business conditions and obtains the licences or approvals required to conduct the relevant business activities under Vietnamese law. If the provision of services involves data processing or the transfer of personal data from Vietnam abroad or vice versa, the mandatory obligations under Vietnamese personal data protection law must still be strictly complied with. The parties’ selection of Singapore law does not automatically exclude these requirements.

In addition, if the parties agree to apply an international commercial custom or set of rules, they should clearly identify the name of the custom or rules, the relevant version and the scope of application. International commercial customs generally regulate only a particular commercial operation or category of matters and do not constitute a complete body of rules governing the entire contract. A prudent approach is therefore to select a national legal system as the general governing law while incorporating international commercial customs by reference for the specific matters governed by those customs.

3. Practical Recommendations and Conclusion

There is no single legal system that is optimal for every Service Contract involving foreign elements. Before execution, enterprises should:

3.1. Accurately identify the type of transaction, the service provider, the place where the principal obligations are performed, and any factors that may trigger mandatory regulatory requirements.

3.2. Review any potentially applicable international treaties, customs or sets of international commercial rules, and clearly specify their name, version, scope and order of priority.

3.3. Compare the effects of the proposed legal systems on contract validity, limitations of liability, contractual penalties, damages, exemptions from liability, termination and limitation periods.

3.4. Assess the dispute resolution body, seat of arbitration, language of proceedings, and prospects of recognition and enforcement as an integrated whole.

From a practical perspective, the choice of law clause and the dispute resolution clause should be designed as a coherent structure. A clear choice of law clause that is incompatible with the dispute resolution body may still significantly increase costs and risks. The objective is not to select the “most favourable” legal system in the abstract, but to make a choice based on its suitability for the transaction, its practical applicability and the feasibility of enforcing the outcome of the dispute resolution process.

^{(11) Clause 4 Article 683 of the Civil Code 2015.}

^{(12) Clause 5 Article 683 of the Civil Code 2015.}

^{(13) Clause 6 Article 683 of the Civil Code 2015.}

^{(14) Clause 1 Article 683 of the Civil Code 2015.}

^{(15) Clause 4 Article 668 of the Civil Code 2015.}

^{(16) Clause 1 Article 683 of the Civil Code 2015.}

^{(17) Point b Clause 2 and Clause 3 Article 683 of the Civil Code 2015.}

^{(18) Clause 3 Article 683 of the Civil Code 2015.}

^{(19) Point a Clause 1 Article 670 of the Civil Code 2015.}

^{(20) Article 669 of the Civil Code 2015.}

Submission date: 20/7/2026

Author: Hoa Hua, Dung Bui, Thao Vo

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Disclaimers:

This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.

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