“In international trade, the identification of the applicable law or the jurisdiction is such an important factor that helps the parties to avoid legal risks, time cost and losses in case of disputes.“
Step 1: Choose the applicable law
Every contract is governed by an applicable law (mostly the law of the country of the seller or the law of the third country to ensure the objectivity) for the contents, validity and performance of contracts, etc. If the contract does not specify the applicable law, the Court will base on the principles of private international law to decide the law that applies.
Disputes among companies within the countries being the members of the Vienna Convention such as Vietnam will be governed by this Convention in case the Convention is chosen by the parties, etc.
Step 2: Determine the legality of contracts
Without the freedom of agreement, the contract will not be made. Any coercion, deception, and deliberately misleading can lead to an invalid contract. A contract comes into existence through the process of offer and acceptance. In the agreements that cannot be made in writing or signed by the parties, the process of offer and acceptance would be hard to identify, which may lead to the cancellation of such offer.
According to the national law, normally a company can only enter into contracts within the scope of the business certificate, investment certificate or the regulations of the industrial zones and economic zones, etc. A contract that is ultra vires is unenforceable.
A contract is also not enforceable if it has an illegal purpose. To avoid invalid contracts due to the acts of violating the law, the parties often agree with the separate effect of each clause in order not to affect the validity of entire contract.
Step 3: Limit the scope of the agreement
According to the common law system, contract is the entire agreement among the parties. To avoid conflicts in the negotiation process, the parties should stipulate that all documents or agreements that predate the contract will no longer be valid when the contract is signed.
Preamble of the contract is a fundamental base to understand the true meaning of the contract through rendering the desire of the parties when entering into contracts. Sellers often make mistakes when considering this as an opportunity to show the ability and quality of the goods. In case the quality of the goods in the Preamble does not match with the contract’s terms and conditions, it will be unfavorable for the sellers in case of disputes.
Any important contents (letters, memo, etc.) agreed before the contract will be listed in the contract as contracts’ material. The contents need to be sorted by priority; in the event of conflict, the contents of the material with higher priority will prevail.
Definition for each content as agreed during negotiation process should be reflected in the definition part of the contract.
Step 4: Identify the parties of the contract
When the legal base of the contract is established, the parties to the contracts are the subject that should be taken into account and clearly identified. The official and registered names of the parties should appear at the head of the contract. After that, the abbreviations names should be used to save space and prevent problems caused by mistyping names.
The parties need to identify the exact form of enterprise, make sure that the company exists and operate normally, that the officer signing the contract has the authority to do so and check the authenticity of the signature if necessary.
Unless the contract specifies otherwise, the transfer of right is allowed, but the transfer of right to third parties should be made explicitly and have written consent from the parties to the contract. According to Article 315 of the 2005 Civil Code, the obligor may transfer the civil obligation to a substitute obligor “if the beneficiary party agrees”. Unidroit Principles also requires the consent of the beneficiary party which is the same as the Civil Code of Vietnam. However, Unidroit Principles also has regulations on the methods of consent of the beneficiary party. Specifically, under Article 9.2.4, Clause 1: “The beneficiary may give prior consent on the transfer of obligation”.
Step 5: Negotiate the settlement of disputes
The parties usually agree to settle disputes through negotiation before the implementation of legal procedures. Procedure and detailed time limits for dispute resolution should also be reflected in the contract.
If the provisions of arbitration are prescribed, the invalidity of a part or whole of the contract does not affect the arbitration clause. If the provisions of arbitration are not prescribed, the procedure in national courts will apply in case of disputes.
In many countries, arbitration is more preferable than the court because the process is quicker, the costs are predictable, the arbitration is neutral, and the decision is business-oriented rather than law-oriented. The arbitration clause should clearly stipulate the form of arbitration (institutional or ad hoc), location, language, number of arbitrators and the commitments that both parties make to accept the arbitral decisions.