Disputes on FDI Project Termination: 5 Common Dispute Groups and How to Prevent Them

Many investors think “project termination” is just an administrative procedure: file the decision, wait for the investment registration authority’s document, done. In reality, behind every FDI project is a cluster of “living” contracts — land leases, factory leases, construction, supply, labour, capital contributions. When the project stops, each of those contracts can turn into a separate dispute.

This article lists the 5 most common dispute groups on FDI project termination in Vietnam, the legal basis of each group, and what to do to avoid closing a project while going to court at the same time.

1. Disputes with land, factory and industrial park lessors

This is the most expensive dispute group, because lease contracts are usually large in value and long in term (10–50 years).

On early project termination, the first question is: does the lease contract allow early termination, and on what conditions? The Civil Code 2015 prescribes three different contract-ending mechanisms: termination by agreement or when the contract is completed (Article 422), cancellation when the other party seriously breaches or breaches agreed cancellation conditions (Article 423), and unilateral termination of contract performance (Article 428). Each mechanism has different conditions and consequences — confusing them is a common mistake.

The second key point is money. If the lease is a commercial contract, the breaching party may bear a breach penalty (only when the contract agrees a penalty — Article 300 of the Commercial Law 2005), at a level agreed by the parties but not exceeding 8% of the value of the breached obligation portion (Article 301), plus damage compensation including actual losses and the benefits that would have been enjoyed absent the breach (Article 302). Many IP developers also retain deposits and require site restoration to original condition — dismantling self-built factories can cost billions of dong.

An important distinction often missed: leasing land directly from the State differs from sub-leasing land/factories in an industrial park. The first case is governed by land law — when the project terminates, land use rights and land-attached assets are handled under land law (clause 5, Article 36 of the Investment Law 2025), and projects subject to land recovery may lose land use rights without compensation in law-prescribed cases (clause 8, Article 81 of the Land Law 2024). The second case is a purely contractual relationship with the IP developer — handled under the contract and the Civil Code. Misidentifying the relationship’s nature means misidentifying the “playing field”.

2. Disputes with contractors and suppliers: work in progress and warranties

Projects mid-construction, production lines mid-installation, materials already deposited — when the project stops, all these contracts must be “closed out”. Disputes usually revolve around three points: whether performed volumes are accepted, how final settlement unit prices are calculated, and how long warranty obligations remain effective.

On sanctions, the legal framework is similar to the group above: breach penalties up to 8% (Article 301), actual damage compensation (Article 302). But there is one figure many enterprises miss until too late: the limitation period for commercial disputes is only 02 years from when legitimate rights and interests are infringed (Article 319 of the Commercial Law 2005). Meaning if a contractor owes the investor warranty money and the investor is busy with dissolution procedures, remembering to sue two years later — the limitation may have expired.

Practice rule: before signing any contract liquidation minutes, finalise three contents in full — accepted volumes, amounts still payable (both directions), and remaining warranty periods. Every “done, nobody owes anyone” agreement must be in writing with both parties’ signatures; oral agreements in this phase are very hard to prove in disputes.

3. Disputes with employees: the largest group, the most sensitive

When an enterprise ceases operations, labour contracts terminate under clause 7, Article 34 of the Labour Code 2019. Sounds simple, but this is the dispute group with the fastest escalation potential — because it involves dozens or hundreds of people at once, and local labour authorities always watch closely.

Financial obligations to handle: severance allowance (half a month’s salary per working year — Article 46) or job-loss allowance (one month’s salary per year, minimum two months — Article 47), depending on each type’s statutory conditions; outstanding wages; social insurance book finalisation. Payment deadline: within 14 working days of contract termination, the two parties must fully pay related amounts; where the enterprise ceases operations, the deadline may extend but not beyond 30 days (clause 1, Article 48).

Common mistakes: paying allowances “at will”, not preparing a labour usage plan, or notifying employees too late. When dozens of workers flock to the labour authority to complain together, the entire dissolution progress can slow significantly — and if the dispute goes to Court or Arbitration, the enterprise will not qualify for dissolution until the dispute is resolved (clause 2, Article 207 of the Enterprise Law 2020).

4. Disputes among investors: one wants to exit, the other wants to stay

Not every FDI project is owned by one investor. When one party wants to withdraw capital and the other wants to continue — or the two disagree on capital value, on who bears losses — internal disputes erupt.

The legal framework for multi-member LLCs: members have the right to request the company to repurchase capital contributions in law-prescribed cases (Article 51 of the Enterprise Law 2020); if selling externally, they must offer to remaining members first, and may only sell to outsiders when remaining members do not buy or do not buy all within 30 days of the offer, on the same offered conditions (Article 52). Skipping this 30-day offer step is a procedural error that can leave the transfer transaction challenged later.

At the investment project level, the Investment Law 2025 allows investors to transfer all or part of the project to another investor when meeting statutory conditions (clause 1, Article 34), but with conditions: the project is not subject to operation termination; the foreign investor receiving the transfer meets market access conditions; compliance with land, housing, real estate business laws; and meeting conditions stated in the investment policy approval document, the Investment Registration Certificate. For IRC-granted projects, the procedure is adjusting the investment project (clause 2, Article 34). In other words, “selling the project” is not done by signing a sale contract — a mandatory administrative procedure layer follows.

The internal dispute hotspot is usually valuation: the exiting party wants book value high, the staying party wants to deduct accumulated losses. No statutory formula is imposed — price is agreed by the parties, or follows principles in the company charter. So the charter should contain a withdrawal valuation mechanism at establishment; negotiating only when conflict arises is too late.

5. Disputes with state authorities: when the project is “terminated” against your will

Not all project terminations are investor-initiated. The investment registration authority has the right to terminate project operations in law-prescribed cases — e.g. the project has ceased operations, and after 12 months the investment registration authority cannot contact the investor or legal representative (point d, clause 2, Article 36 of the Investment Law 2025), or the project fails to complete operational objectives after 24 months from the progress deadline without being eligible for progress adjustment (point b, clause 2, Article 36). Then the investment registration authority also issues the decision revoking the Investment Registration Certificate (clause 6, Article 36).

For land-using projects, the risk goes further: land unused for 12 consecutive months or 24 months behind schedule may be considered for recovery under land law; if the land is still not used by the extension’s end, the State recovers it without compensation for land and land-attached assets, except force majeure (clause 8, Article 81 of the Land Law 2024).

When disagreeing with an administrative decision, investors have the right to complain and file administrative lawsuits in the statutory order. But a practical note: during complaint/litigation, the termination decision usually remains enforceable until another competent authority decision — project-related transactions may therefore stall. So with this dispute group, prevention (maintaining contact with the investment registration authority, not letting the project “go missing” for over 12 months) is always cheaper than cure.

Arbitration or Court? Check this clause BEFORE acting

Every contract in the 5 groups above has (or should have) a dispute resolution clause. And that clause decides where you go in a dispute: Commercial Arbitration or Court.

The Commercial Arbitration Law 2010 provides: disputes arising from commercial activities, or disputes where at least one party has commercial activities, fall under arbitration jurisdiction (Article 2). The condition for arbitration to accept is that the parties have an arbitration agreement — which may be made before or after the dispute arises (clause 1, Article 5). The agreement must be established in writing — including email, fax exchanges and equivalent forms (Article 16).

The most important consequence: when the parties have a valid arbitration agreement and one party sues in Court, the Court must refuse to accept — unless the arbitration agreement is void or unenforceable (Article 6). In practice quite a few cases lose a whole year just from suing the wrong body: filing in court only to discover the contract has an arbitration clause, the court refuses, turning to arbitration then — time lost and sometimes close to the limitation period.

One little-known but valuable point in the project termination context: an arbitration agreement remains effective when one party is an organisation that must cease operations, dissolve, go bankrupt — it binds the organisation receiving that organisation’s rights and obligations (clause 3, Article 5). Meaning a dissolved company does not mean old contract disputes are “written off”.

What to do today: dig out all the project’s major contracts, make a summary table — for each contract where disputes are resolved (which arbitration/which court), how much limitation time remains, which obligations are unfulfilled. This table is the “battlefield map” before you sign any termination notice.

Dispute prevention checklist on project termination

List all effective contracts — leases, construction, supply, labour, credit, capital contributions — with each contract’s termination and dispute resolution clauses.
Give termination notices in the correct form and time the contract prescribes. Wrong-form notices (sending email while the contract requires mailed documents) may be deemed invalid notice.
Close two-way debts in writing with each partner before liquidating contracts: who owes whom, how much, payment deadlines, remaining warranties.
Fully handle employee obligations — allowances, wages, SI book finalisation — within statutory deadlines, with a written plan.
Do not skip the 30-day offer step when transferring capital contributions externally (Article 52 of the Enterprise Law 2020).
Track limitation periods (02 years for commercial disputes — Article 319 of the Commercial Law 2005): rights to claim warranty money, contractor debts do not wait for the enterprise to be “free”.

Is your FDI project preparing to terminate with any contract worrying you? Project termination disputes rarely come from one cause — they come from many contracts “exploding” at once, while limitation periods keep running. FLAT LAW FIRM reviews the project’s entire contract cluster, assesses each contract’s dispute risk, and builds a termination-liquidation roadmap in the safest order.

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