Legal Alert - Issue February 2017

Legal Alert - Issue February 2017

In early 2016, the Vietnam Government ratified the United Nations Convention on Contracts for the International Sale of Goods (“CISG”), which took effect on 1 January 2017.

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A new legal framework for the international sale of goods in Vietnam

In early 2016, the Vietnam Government ratified the United Nations Convention on Contracts for the International Sale of Goods (“CISG”), which took effect on 1 January 2017. At present, over 80 countries are parties to the CISG, which provides a unified legal framework for the sale of goods between member countries.

Vietnam’s ratification of the CISG will broaden and complement its existing domestic legal framework for the sale of goods between Vietnamese and foreign entities. The CISG will support the commercial activities of traders in Vietnam vis-à-vis their customers and counterparts abroad by providing a universally understood and applied legal framework that removes uncertainties that previously hampered international trade in Vietnam.

Overview of the CISG and its potential impact

Currently, the international sale of goods in Vietnam falls under the purview of national trade laws, international best practices, and multilateral or bilateral treaties between Vietnam and specific countries. The disparate legal basis governing the international sale of goods previously required traders to study and understand not only national law, but also international treaties and the laws of the relevant countries where they conduct business. As disputes arose with respect to the international sale of goods, the adjudicator of the dispute was also required to be fully versed in the treaties and national laws that might apply. The numerous bodies of law, some being contradictory, created an environment of uncertainty that hindered trade due to increased legal costs. The unpredictability, in general, disincentivized business activities.

On the other hand, Vietnam’s ratification of the CISG is likely to encourage trade not only between Vietnam and fellow members to the CISG, but also with trading partners from non-signatory countries that can now rely on the framework provided by the CISG to govern their trading activities with Vietnamese partners. In comparison to Vietnamese law, one of the advantages of the CISG is that it stipulates specific provisions that must be included in a goods sale and purchase contract. In addition, the CISG contains regulations related to time frame to make a claim, specific remedies in case of breach, and common law principles, supported by case law, for the calculation of potential damages that are more predictable than Vietnam’s prevailing regulations on sale and purchase transactions. As the legal foundation, the CISG will resolve ambiguities inherent under Vietnamese laws.

Currently, Vietnam conducts direct trading activities with more than 70 countries, in which its top five trade partners are China, South Korea, Italy, the USA and Japan, which are also parties to the CISG.

CISG highlights

a. As a default position, the CISG will automatically govern all international sales contracts between enterprises in Vietnam and those based in signatory countries, unless the parties elect not to apply the CISG.

b. The CISG also automatically applies to international sales contracts between enterprises in Vietnam and those based in non-signatory countries where Vietnam law governs the sales contract.

c. As for international sales contracts between enterprises in Vietnam and those based in non-signatory countries, where the parties do not agree to apply the CISG or Vietnam law to govern the contract, and where a dispute arises and the adjudicating body with jurisdiction decides that Vietnam law should be applied, the CISG would apply.

d. The scope of the CISG excludes certain goods, such as personal goods, and goods acquired by auction.

e. Practically, Vietnam has modified certain provisions related to contractual forms required all covered contracts to be made in writing.

f. The CISG does not contain language stipulating the law or dispute resolution processes would be applicable to settle a dispute arising between the contracting parties. Thus, the parties should agree on the governing law and dispute resolution forum during the negotiation of the contract. This choice of law and dispute resolution forum also serves as the legal basis for the adjudicating body with jurisdiction to receive the claim and carry out the applicable procedures.

Overall, the CISG supplements Vietnam’s legal framework relating to international sale of goods, expanding trade capabilities and improving efficiency by minimizing uncertainties and costs for traders in Vietnam engaging in the international sale of goods.

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