Question: Our company – a German enterprise, signed a sales contract with Company A, a partner based in Vietnam. However, after receiving the goods, we discovered that the goods received were of substandard quality, forcing us to recall the products and suffer serious damage to our reputation and finances. Despite multiple emails and requests for a refund of the deposit, the Vietnamese partner has not provided any clear response. Therefore, we wish to cancel the contract and initiate legal proceedings. However, the Contract does not have any provisions on applicable law and dispute resolution agency. So in this case, can we file a lawsuit in Vietnam? Is it possible to cancel the contract, reclaim the deposit and request compensation for damages under Vietnamese law?
Answer:
Based on the information you have provided, SB Law would like to offer the following legal analysis:
- Can a foreign enterprise initiate legal proceedings in Vietnam?
Yes.
According to Article 469 of Civil Procedure Code 2015, if the defendant is a legal entity with an address in Vietnam and there is no separate agreement on arbitration or a foreign court, the Vietnamese courts have jurisdiction to resolve the dispute.
In this case, if there is no specific agreement between your company and Company A regarding dispute resolution, you have the full right to initiate a lawsuit at the People’s Court at the provincial level where Company A has its principal office.
- Regarding contract cancellation in case of substandard goods
According to Clause 4, Article 312 of Commercial Law 2005, the buyer has the right to cancel the contract if the seller commits a fundamental breach that results on the contract’s purpose being unattainable.
In your company case, the fact that the goods do not meet the quality standards and are forced to withdraw the products from the market is a clear sign of a fundamental violation of obligations, causing serious consequences. This can be considered a basis for contract cancellation under Vietnamese law.. However, to make your cancellation claim legally valid, you should prepare the following:
- The sales contract or Proforma Invoice, along with emails clearly showing the agreement on product quality;
- Evidence of goods being withdrawed or rejected or returned by the Clients (photos, reports, minutes, etc.);
- Emails or notices showing that your company had previously notified the seller of the breach and requested a remedy;
- Warehouse records or evidence showing the goods were properly stored (if required under the contract).
These are essential elements to prove that the breach is serious and irreparable, forming a solid basis for your contract cancellation claim. With all these factors, contract cancellation is completely possible under Vietnamese law.
- Regarding the issue of claiming back the deposit According to Article 328 of Civil Code 2015, if the party receiving the deposit (Company A) refuses to perform the contract , they must return the deposit and pay an amount equal to the deposit’s value, unless otherwise agreed by the parties.Additionally, Article 314 of the Commercial Law also stipulates the legal consequences of contract cancellation as follows:.
Article 314 of the Commercial Law stipulates the legal consequences of contract cancellation as follows:
“1. Except for cases specified in Article 313 of this Law, following the cancellation of a contract, such contract shall be invalid from the time it is entered into, and the parties shall not have to continue performing their contractual obligations, except for their agreements on their post-cancellation rights and obligations and resolution of disputes.
- The parties shall have the right to claim benefits brought about by their performance of their contractual obligations. Where both parties have indemnity obligations, their obligations must be performed concurrently. Where it is impossible to make the indemnity with benefits which one party has enjoyed, the obliged party must make the indemnity in cash.
- Aggrieved parties are entitled to claim damages according to the provisions of this Law.”
In case your company can provide evidence to prove its request to cancel the contract, your company can also consider applying the provisions on the legal consequences of contract cancellation as a mechanism to request the refund of the deposit. When the contract is canceled, the contract is not valid from the time of signing, the parties must return to each other what they have received, including the deposit that your company has previously deposited, unless the parties have an agreement on the handling of the deposit, which agreement is considered an agreement on rights and obligations after the cancellation of the contract.
- Can damages be claimed?
Yes, if actual losses and a causal link can be proven.
Your company is fully entitled to claim compensation from Company A for damages arising from the breach of contract, including:
- Transportation, warehousing, and return handling costs;
- Damage to brand reputation and loss of customer relationships;
- Lost revenue or missed business opportunities.
However, the burden of proof lies with you, and supporting documents such as expense invoices, customer emails, market reports, etc., will be required to substantiate the claim.
SB Law – Legal Representative for Foreign Enterprises in Commercial Disputes in Vietnam
In the context of globalization, an increasing number of foreign enterprises are engaging in direct commercial transactions with partners in Vietnam. However, when disputes arise, navigating Vietnamese law, language barriers, and procedural systems can pose significant challenges.
SB Law understands these difficulties and has accompanied many international enterprises in similar situations by providing legal services such as:
- Advising on the feasibility of initiating legal proceedings in Vietnam (including reviewing dispute resolution agreements and conditions for the application of Vietnamese law);
- Drafting and submitting lawsuits to Vietnamese courts (including consular legalization, translation of documents, and establishment of legal interests);
- Acting as legal representative in negotiations, mediations, or litigation processes to maximize the foreign enterprise’s legal rights;
- Advising on contract cancellation and claiming for deposit refunds and compensation for damages;
Assisting in the collection and verification of evidence in compliance with Vietnamese legal requirements.
