Service Contract Disputes in Vietnam

Why service contract disputes are harder to handle than sale-of-goods disputes

Under Article 513 of the 2015 Civil Code, a service contract is an agreement between the parties under which the service provider performs work for the service recipient, and the recipient must pay the service fee to the provider. This definition sounds simple, but the very nature of “performing work” creates three distinctive difficulties when disputes arise.

First, the object of a service contract is work — something that cannot be weighed, measured, or counted like goods. The quality of a marketing campaign, a consulting package, or a maintenance shift can only be judged against criteria the parties themselves set. If the contract fails to quantify “acceptable”, the dispute degenerates into a debate about perceptions.

Second, services are typically performed gradually over time, intertwined with the recipient’s own cooperation (supplying data, approvals, feedback). When quality falls short, each side has reasons to blame the other: the provider says the recipient was late with inputs, the recipient says the provider lacked capability. Allocating responsibility requires tracing back the entire performance process.

Third, many service contracts are signed in haste, with thin acceptance and payment clauses and no clear committed service levels (SLA). When a dispute breaks out, each side’s lawyer must “re-read” the contract in the way most favorable to their client — and the vaguer the contract, the longer and costlier the dispute.

Service acceptance: the focal point of most disputes

Acceptance is the stage confirming that the provider has completed the work as agreed — and also the most disputed stage. Typical scenarios:

• Refusal of acceptance without clear grounds: the recipient invokes vague reasons (“not up to standard”, “not satisfied”) to withhold signing the acceptance record, thereby delaying or evading payment obligations.
• Partial acceptance, dispute over the rest: the service was performed in phases but the contract provides no phased acceptance, leading to disputes over the volume completed.
• No authorized signatory for acceptance: personnel changes on both sides mean the person signing the acceptance record was not authorized, casting doubt on the record’s legal value before a court.
• “Verbal” acceptance, nothing in writing: the service was actually used but there is no acceptance record — the provider struggles to prove completion, while the recipient can deny it.

The practical lesson: service contracts should spell out acceptance criteria, the acceptance procedure (who accepts, within how long, the form of the record), and especially a “deemed acceptance” clause — if the recipient fails to respond within a defined period, acceptance is deemed given. This is the most effective provider-protection clause, and one that many contracts omit.

Service quality and SLAs: when “acceptable” is not quantified

Disputes over service quality can only be resolved satisfactorily where the contract defines “quality” in measurable indicators. In professional service contracts, this tool is the SLA (Service Level Agreement) — the committed service level, e.g., incident response time not exceeding 4 hours, system availability of 99.5%, a minimum number of files processed per month.

A good SLA needs three elements: specific measurable indicators, an objective measurement methodology (who measures, with what tool, the reporting cycle), and sanctions for non-compliance (tiered fee reductions, the right to unilaterally terminate after a number of consecutive breaches). When a quality dispute arises, courts or arbitral tribunals will anchor their assessment on these indicators — without an SLA, proving “poor quality service” depends almost entirely on testimony and subjective impressions.

A practical note: for creative or advisory services (marketing, design, strategic consulting), setting rigid SLAs is difficult. In such cases, the contract should instead provide an approval process for each deliverable (concept, draft, final), a maximum number of revision rounds, and a mechanism for when the parties cannot agree on quality — e.g., referring the matter to an independent evaluation panel or a third-party expert.

Terminating service contracts: the right and its legal consequences

The law reserves a special termination regime for service contracts. Under Article 520 of the 2015 Civil Code, where continuing the work is no longer to its benefit, the service recipient has the right to unilaterally terminate performance of the contract — but must give the provider reasonable advance notice, and must pay remuneration for the portion of services already performed and compensate for damages. Conversely, where the recipient seriously breaches its obligations, the provider has the right to unilaterally terminate performance and claim damages.

In practice, termination disputes revolve around three questions: first, how long is “reasonable” advance notice — the law does not quantify it, so contracts should specify (e.g., 30 days); second, how is the value of performed services calculated under a lump-sum contract; third, how far does termination damage extend — the provider may claim costs already incurred and lost profit on the remaining work, while the recipient believes it owes only up to the termination date.

A distinction must be drawn between unilateral termination of performance of a service contract under Article 520 of the 2015 Civil Code and contract cancellation for breach — a regime that applies where one party seriously breaches its obligations, with different legal consequences (the contract is ineffective from formation for the performed portion, and the parties return what they received). Choosing the wrong termination basis can turn the initiating party from “right” to “wrong”, liable to compensate in reverse.

Service fees and payment terms: the root of debt disputes

Disputes over service fees are usually not about “having no money to pay” but about the parties’ differing understandings of payment conditions. The hot spots:

• Unclear fee calculation: lump-sum versus hourly/monthly/result-based fees; how out-of-scope extra costs are priced and who approves them before performance.
• Payment conditions tied to acceptance: progress payments versus payment only after final acceptance; where the recipient deliberately drags out acceptance, the provider’s cash flow breaks.
• Late payment penalties and late payment interest: the penalty rate, interest calculation method, and when accrual starts — if the contract is silent, claiming late payment interest will be difficult in dispute resolution.
• Deductions and set-offs: the recipient unilaterally deducts part of the fee to “offset” damages it believes the poor service caused, while the provider does not acknowledge those damages.

On limitation, note a distinctive feature of commercial disputes: under Article 319 of the 2005 Commercial Law, the limitation period for suit in commercial disputes is two years from the time lawful rights and interests are infringed — shorter than the three-year period for ordinary civil disputes. Businesses that delay suit while negotiating may lose their right to sue without realizing it. Separately, Article 318 of the 2005 Commercial Law provides complaint time limits: unless otherwise agreed, the complaint period for breaches other than those relating to quantity or quality of goods is nine months from the date the breaching party was to complete its contractual obligations.

Damages for substandard services: scope and calculation

When services fall short, the aggrieved party may claim damages under the 2005 Commercial Law and the 2015 Civil Code. The scope of compensation covers the actual, direct losses the aggrieved party suffered due to the breach, and the direct profits the aggrieved party would have earned absent the breach — provided the breaching party could have foreseen them at contract formation.

The greatest difficulty in service disputes is proving the causal link between “poor service” and “loss”. Example: a business claims a failed marketing campaign caused VND 5 billion in lost revenue — but revenue decline may have many causes (the market, competitors, the product). Courts and arbitral tribunals are typically very strict about indirect losses and lost profits unless the claiming party proves them with figures, financial reports, and reasoned comparisons.

Experience shows the claims with the strongest evidentiary footing are: costs of hiring another party to redo the defective work, incident remediation costs, and penalties the business had to pay its own customers because of the provider’s service (with full contracts and payment records). Conversely, claims for “reputational harm” and “lost business opportunities” are very hard to win without a convincing quantification method.

One important note: contracts should include a limitation of liability clause — e.g., total compensation not exceeding the service fees of 12 months. Without such a clause, the provider faces unlimited compensation exposure, while the recipient may abuse compensation claims as a pressure tool.

Routes for resolving service contract disputes

Under Article 317 of the 2005 Commercial Law, commercial disputes are resolved through: negotiation between the parties; mediation via a mutually agreed intermediary; resolution before arbitration or courts. Each route suits a different stage and objective.

Direct negotiation is the first and cheapest step: the two sides sit down, compare acceptance records, work logs, and email exchanges to determine which parts are done and which fall short, and agree on a plan (redo, fee reduction, conditional termination). Negotiation succeeds while both sides still want the relationship and the disputed amount is not too large.

Mediation via an independent intermediary suits cases where negotiation is deadlocked but the parties still want to avoid litigation. A successful mediated settlement may be recognized to gain enforcement value.

Commercial arbitration is a popular choice for high-value service contracts, those with foreign elements, or where confidentiality is needed — provided the contract contains a valid arbitration agreement. Legal update: the 2010 Law on Commercial Arbitration has been amended and supplemented by Law No. 81/2025/QH15, effective from 01/07/2025. Law 81/2025/QH15 must be clearly distinguished from Resolution 81/2025/UBTVQH15 — two different instruments: Resolution 81/2025/UBTVQH15 of the National Assembly Standing Committee governs court organization (including concentrating jurisdiction over requests to set aside arbitral awards at several provincial People’s Courts), not an amendment to the Law on Commercial Arbitration.

Courts are the last resort where there is no arbitration agreement or one party refuses to cooperate. Business and commercial cases follow the procedures of the 2015 Civil Procedure Code. Businesses should weigh the time, cost, and publicity of court proceedings before filing suit.

Preventing disputes at the service contract drafting stage

Most service contract disputes we handle could have been prevented — or at least greatly simplified — if the original contract had been drafted carefully. A checklist of key clauses:

• A detailed statement of work (SOW), clearly distinguishing in-scope from out-of-scope work, with an approval mechanism for additional work.
• Quantifiable acceptance criteria, the acceptance procedure, response time limits, and a deemed-acceptance clause when no response is received by the deadline.
• SLAs/KPIs with measurement indicators, measurement methodology, reporting cycles, and fee-reduction sanctions for non-compliance.
• Fee calculation, installment payment conditions, payment deadlines, late-payment penalties and interest, and the handling of extra costs.
• Advance notice for unilateral termination, valuation of performed work, and a cap on compensation liability.
• Confidentiality, intellectual property in deliverables, non-compete (if needed).
• Dispute resolution: how long for negotiation, where for mediation, arbitration (which institution, number of arbitrators, language, venue) or courts.

For ongoing service contracts whose terms remain thin, businesses should review and sign supplementary annexes while things are still “peaceful” — negotiating additional terms before any dispute is many times easier than when conflict has already erupted.

Frequently asked questions

Useful links

When you should talk to a lawyer

• The counterparty refuses or delays service acceptance without giving specific written reasons.
• Service quality falls short of commitments and you need to assess the chance of claiming fee reductions or damages.
• You want to unilaterally terminate a service contract and need to calculate the costs and compensation obligations before sending notice.
• Service fee and debt disputes drag on with no agreement on the volume of work performed.
• A high-value service contract about to be signed has thin acceptance, SLA, and dispute resolution clauses.
• The two-year limitation period for suit is approaching while negotiations remain fruitless.