FLAT LAW FIRM
Request a consultation

Drafting International Commercial Contracts: A Standard Clause Framework

The secret to drafting international commercial contracts well is not length. It is leaving out nothing that matters. In practice, most disputes involving FDI companies in Vietnam do not start with fraud. They start with blank clauses — no Incoterms, no decision on governing law, no workable arbitration clause. This guide provides a standard framework of 16 clause groups for systematic drafting, from the CISG and Incoterms 2020 to governing law and dispute resolution.

Table of contents

1. What is an international commercial contract? Who needs this framework?

Under the 2005 Law on Commerce, a commercial contract is an agreement between merchants (or where at least one party is a merchant) that establishes, modifies or terminates rights and obligations in commercial activity. The "international" element arises where the parties have places of business in different countries, or where goods are delivered or obligations performed across borders.

This framework serves three groups in Vietnam: FDI companies importing raw materials or machinery from a parent company or foreign supplier; exporters selling into foreign markets; and companies signing cross-border processing, distribution or agency contracts. The common thread: when a dispute arises, each party sits in a different country, so every gap in the contract becomes a cost — the cost of determining the governing law, the cost of pursuing a case abroad.

The principle running through this framework: write down everything you can anticipate; whatever you leave open, default law will fill in — but not necessarily the way you want. The CISG, Incoterms and national laws are only the backdrop. The contract is the one document the parties actually control.

  • 2005 Law on Commerce (36/2005/QH11; consolidated text 113/VBHN-VPQH dated 28/8/2025; amended by Article 2 of Law No. 75/2025/QH15, effective 01/01/2026) — remedies for breach (Articles 292, 300–303), exemptions from liability (Articles 294–295), suspension, temporary cessation and cancellation of contracts (Articles 310–312), and limitation periods (Article 319). Still in force; not replaced.
  • 2015 Civil Code — general contract rules: form of contract (Article 402), contractual penalties (Article 418), damages for breach of obligations (Article 419), and the parties' right to agree on the governing law for contracts with foreign elements (Article 664).
  • CISG 1980 — Vietnam acceded on 18/12/2015 (84th member state); effective in Vietnam from 01/01/2017. It applies automatically to sale contracts between parties with places of business in Contracting States (Article 1), unless excluded under Article 6. Important: Vietnam declared a reservation under Article 96, so the provisions allowing contracts in any form (Articles 11, 29 and Part II) do not apply where a party has its place of business in Vietnam.
  • Incoterms 2020 — issued by the International Chamber of Commerce (ICC), effective 01/01/2020, with 11 delivery terms. This is trade usage, not law: it binds only when the parties incorporate it expressly.
  • 2010 Law on Commercial Arbitration (54/2010/QH12), the 1958 New York Convention (Vietnam acceded in 1995), and Decree 22/2017/ND-CP on commercial mediation — the foundation for dispute resolution clauses.
  • Ordinance on Foreign Exchange (Article 22) — payments in the territory of Vietnam are made in Vietnamese dong, except where foreign exchange use is permitted, including payment for cross-border goods and services.
  • 2017 Law on Foreign Trade Management — governs import/export of goods and may affect each party's licensing obligations under an international sale contract.

3. The 16 standard clause groups

3.1. Definitions and interpretation

Open with defined terms: "Goods", "Delivery Date", "Business Day" (of which country?), "Fundamental Breach". Parties from different legal systems may read the same word differently — "consequential damages" at common law is far broader than "thiệt hại" (damages) under Vietnamese law. Add interpretation rules: which document prevails if an appendix conflicts with the main body; whether "including" introduces an illustrative or exhaustive list.

3.2. Subject matter, quality and quantity

Describe the goods precisely enough to define the obligation: product name, technical specifications, quality standards (which country's standards? ISO? the buyer's internal standards?), quantity and permitted tolerance (e.g., ±5%). Where goods must be fit for a particular purpose, state that purpose expressly — both the CISG (Article 35) and Vietnamese law protect the buyer more strongly when fitness for purpose is on the record. A common failure is naming the goods generically ("cotton fabric") with no technical schedule attached.

3.3. Price and payment terms

State the unit price, total value, payment currency, and whether tax, freight and insurance are included. For FDI companies in Vietnam, note the foreign exchange rules: payments in Vietnam are made in dong except where permitted — cross-border sales of goods qualify for foreign currency use, but the clause should still fix the exchange-rate mechanism (which bank's rate, at what point in time) to avoid argument.

The three standard methods are wire transfer (T/T — typically part prepayment, balance against shipping documents), documentary collection (D/P, D/A) and letter of credit (L/C — governed by the ICC's UCP 600 where incorporated). An L/C is the safest for both sides but costs bank fees and time; T/T is fast but concentrates risk on one party. The clause should fix deadlines, drawdown conditions, default interest and the procedure if the bank refuses payment. For in-depth analysis, see our payment clause guide.

3.4. Delivery and Incoterms 2020

A proper delivery clause answers four questions: where, when, who bears freight and insurance costs, and when risk passes from seller to buyer. Incoterms 2020 supplies 11 standardised terms (EXW, FCA, CPT, CIP, DAP, DPU, DDP, FAS, FOB, CFR, CIF) that answer the first three compactly. The golden rule: state all three elements — term + named place + version (e.g., "DAP — Buyer's warehouse at VSIP Industrial Park, Incoterms 2020"). Writing "FOB price" with no load port and no version is a reliable way to manufacture a dispute.

Two legal notes: Incoterms govern delivery, cost allocation and risk transfer only — not the passing of title and not the consequences of breach (those fall to the CISG or the governing law). For containerised cargo, prefer FCA over FOB: traditional FOB attaches to the moment goods cross the ship's rail, which fits poorly where goods are handed to the carrier at a container yard well before loading. See our delivery clause guide.

3.5. Inspection of goods

The CISG requires the buyer to examine the goods within as short a period as practicable (Article 38) and to notify the seller of defects within a reasonable time after discovery, capped at two years from delivery (Article 39). Miss the notice deadline and the buyer loses the right to rely on the lack of conformity — a severe sanction. The contract should go further than the CISG: who inspects (buyer or an independent surveyor?), where (seller's works or port of destination?), against which standard, at whose cost, and within how many days notice must be given. For machinery, provide two rounds: pre-shipment inspection and acceptance testing after installation and commissioning.

3.6. Transfer of risk and title

Risk (loss of or damage to goods) and title are independent issues; give each its own clause. Under the CISG (Articles 66–70), risk passes when the goods are handed over as the contract requires — but where Incoterms are chosen, the effective risk-transfer point follows the incorporated term (e.g., under EXW, risk passes as soon as the goods are placed at the buyer's disposal at the works).

On title: the CISG does not govern the passing of property — that belongs to the applicable national law. State expressly when title passes: on delivery, on full payment, or on registration (for special goods). A retention-of-title clause (title retained until full payment) is vital for sellers granting deferred payment, but its effectiveness depends on the law where the goods are situated — have local counsel confirm.

3.7. Warranty

The seller's undertaking on quality after delivery: scope (materials defects, workmanship?), duration (12 months? 18 months?), and remedies in order of priority (repair, replacement, price reduction, refund?). Distinguish warranty (the seller's undertaking) from maintenance (paid or unpaid after-sales service). For complex goods, run the warranty period from the date of successful acceptance, not the delivery date — equipment may sit in a warehouse for months before installation.

3.8. Governing law and the CISG

This clause sets the "rules of the game" and has two layers. Layer one — the CISG: where both parties have places of business in Contracting States (Vietnam, China, the US, EU member states, Japan and Korea are all members), the CISG applies automatically unless excluded under Article 6. Where the counterparty is based in a non-Contracting State, the CISG may still apply through Article 1(1)(b) — where conflict-of-laws rules point to the law of a Contracting State. Vietnam has not entered an Article 95 reservation, so this route remains open, but practice is not yet uniform — the contract should state the parties' position expressly. The drafter must make a conscious choice: keep the CISG (a uniform regime that reduces conflicts of laws) or exclude it (to apply one familiar national law in full). Silence is also a choice — and a bad one, because the CISG then applies by default to parties who may never have read it.

Layer two — the supplementary national law: the CISG does not cover everything (validity, passing of title, limitation under national law), so the contract still needs a designated national law for what lies outside the CISG. The 2015 Civil Code (Article 664) allows parties to agree on the governing law for contracts with foreign elements. When choosing, weigh neutrality, the depth of case law and enforceability where the breaching party's assets sit. See our governing law clause guide.

3.9. Contract language

Cross-border contracts are usually bilingual (Vietnamese–English or English–Chinese). The language clause must designate the prevailing version in case of conflict — mandatory, not optional. Best practice: choose the version your legal team controls best, and have both versions independently legally reviewed before signing (never rush-translate the second version after the first is final). Also fix, separately, the language for performance (notices, claims, technical documents) and the language of any arbitral proceedings. See our prevailing language clause and bilingual contract drafting guides.

3.10. Force majeure

The 2005 Law on Commerce (Article 294) exempts a breaching party from liability in the cases the parties have agreed upon (point a of Article 294), and where: a force majeure event occurs; the breach is entirely the other party's fault; or the breach results from implementing a decision of a competent state authority unforeseeable to the parties. The invoking party must notify promptly and mitigate loss (Article 295). But the statutory definition is not enough for an international contract. The clause should list illustrative events (natural disasters, epidemics, war, sanctions, government action); spell out consequences — how long performance is suspended, who bears resulting costs, after how many days either party may terminate; and distinguish hardship — where performance remains possible but has become excessively onerous, calling for renegotiation rather than exemption. The CISG (Article 79) has a similar impediment regime, but its exemption is narrower than commonly assumed — do not rely on the CISG and leave this clause blank. See our force majeure clause guide.

3.11. Penalties and damages

The 2005 Law on Commerce provides three financial remedies: contractual penalties (Article 300 — only where agreed), damages (Article 302 — actual direct loss plus direct profits the aggrieved party would have earned), and specific performance. Two drafting points matter most.

The 8% cap: Article 301 limits penalties to 8% of the value of the breached contractual obligation (aggregate across multiple breaches). Exceeding the cap does not void the whole clause, but the excess will not be enforced. Many international templates stipulate 10–20% out of habit from foreign law — where the dispute is resolved under Vietnamese law, everything above 8% gets cut.

Penalties vs. damages: under Vietnamese law, the aggrieved party may claim both a contractual penalty and damages. To avoid a "double penalty" attack, state expressly that the penalty is independent and does not exclude recovery of loss exceeding the penalty. Note: CISG Article 74 caps damages at loss the breaching party foresaw or ought to have foreseen at conclusion — narrower than Vietnamese law's "entire actual loss". See our penalties and damages guide.

3.12. Suspension, temporary cessation, cancellation and termination

The 2005 Law on Commerce distinguishes three levels: suspension of performance (Article 310 — paused for a period, the contract survives), temporary cessation (Article 311 — the remaining obligations end) and cancellation (Article 312 — the contract is unwound, each party returns what it received). Many contracts write "unilateral termination" when the real intent is merely to suspend as payment leverage — picking the wrong tool can turn you into the breaching party.

Beyond remedies, provide for termination for convenience (how much notice, any compensation) and termination for fundamental breach (define what counts as "fundamental"). Finally, a survival clause should list obligations that outlive the contract: confidentiality, warranty, payment of accrued sums, and the dispute resolution clause itself.

3.13. Confidentiality

Define "Confidential Information" broadly enough, while carving out information already public or already known to the recipient. Impose non-disclosure and non-use obligations, with exceptions for disclosures required by authorities or to legal advisers (under equivalent restrictions). Set a duration — typically 2–5 years post-termination, potentially indefinite for core secrets. See our confidentiality clause guide.

3.14. Assignment

The default rule: neither party may assign rights or obligations to a third party without the other's prior written consent — except for listed carve-outs (assignment to group subsidiaries or the parent; assignment of receivables to a bank for financing). For FDI companies, watch group restructurings (a merger or split of the foreign parent): an absolute anti-assignment clause with no intra-group carve-out can put the company in breach the moment the group reorganises.

3.15. Boilerplate

The closing clauses are often skimmed, yet they decide whether the contract holds up in a dispute: entire agreement (this contract supersedes all prior exchanges and emails — no reliance on oral promises outside it); severability (one invalid clause, e.g. a penalty above the 8% cap, does not bring down the rest); no waiver (not exercising a right once does not abandon it); notices (valid form, which email addresses, when deemed received — a remarkable number of disputes turn on whether a claim notice was properly sent).

3.16. Dispute resolution

Design in tiers: good-faith negotiation (30–60 days) → commercial mediation (Decree 22/2017/ND-CP) → arbitration or litigation. Tiers filter out disputes that negotiation can resolve, saving arbitration costs.

If arbitration is chosen, the clause must state five minimum elements (2010 Law on Commercial Arbitration, Articles 5 and 16): (1) the arbitral institution (VIAC — the Vietnam International Arbitration Centre — ICC, SIAC, HKIAC); (2) the seat (which determines the procedural law of the arbitration); (3) the number of arbitrators (one or three); (4) the language of proceedings; (5) the substantive governing law. Missing any element can render the clause unworkable.

Arbitration's biggest cross-border advantage is enforceability: Vietnam is a party to the 1958 New York Convention (acceded 1995), so foreign arbitral awards are recognised and enforced in Vietnam (and vice versa) under the Convention mechanism, instead of relitigating from scratch in each country. See our dispute resolution clause and arbitration clause guides.

4. Time limits and key dates

  • Limitation for commercial disputes: 2 years from when the lawful rights and interests are infringed (Article 319, 2005 Law on Commerce). Once time-barred without a court or arbitration filing, the right to seek resolution is in principle lost — the contract cannot extend a statutory limitation period.
  • CISG notice of defects: within a reasonable time after discovery, capped at 2 years from delivery (Article 39). Contracts should go shorter (e.g., 30 days) so disputes are handled while evidence is fresh.
  • Complaint periods for quantity or type: not fixed by statute — entirely a matter for the contract. Left blank, the general periods of the CISG or governing law apply, usually to the buyer's disadvantage.
  • Fees for drafting and reviewing international contracts depend on transaction complexity, contract value and negotiation rounds. Contact FLAT — hotline 0988424851 for a matter-specific fee quote before signing any high-value document.

5. Seven common mistakes

1. Using a domestic template for an international deal. Domestic sale templates contain no Incoterms, no CISG, no governing law and no international arbitration. Result: when a dispute arises, no workable resolution mechanism was ever agreed. Prevention: every contract with a foreign element gets drafted or reviewed under the international framework.

2. Half-written delivery terms. "CIF Hai Phong price" with no Incoterms version and no agreed insurance terms. Result: cargo damaged in transit with no common standard for who bears the risk. Prevention: always state all three elements — term + named place + "Incoterms 2020".

3. No conscious decision on the CISG. Silence means the CISG applies automatically (where conditions are met), to parties who may never have read it. Result: rules like the two-year notice period or the foreseeability cap on damages apply by surprise. Prevention: write "the CISG applies" or "the CISG is excluded under Article 6, replaced by the law of [country X]".

4. Foreign-currency payment without checking exchange controls. USD pricing and settlement are normal in cross-border sales, but obligations performed and paid in Vietnam outside the permitted cases can render the clause invalid under the Ordinance on Foreign Exchange. Prevention: separate the cross-border payment leg from the domestic payment leg in the price clause.

5. 10–20% penalties copied from foreign-law habits. Where the dispute is resolved under Vietnamese law, everything above the 8% cap (Article 301) is cut — the aggrieved party loses the deterrent it thought it had. Prevention: cap penalties at 8% and add an express right to damages exceeding the penalty.

6. Vague arbitration clauses. "Disputes shall be resolved by arbitration" with no institution, seat, number of arbitrators or language. Result: the clause may prove unworkable, sending the parties back to court litigation with all its jurisdictional and enforcement barriers. Prevention: state all five elements in section 3.16.

7. No prevailing-language clause in a bilingual contract. The Vietnamese and English versions conflict on the delivery deadline, with neither designated prevailing. Result: argument over the parties' true intent, prolonged proceedings. Prevention: always include a prevailing-language clause; have both versions independently reviewed. See also our commercial contract disputes guide.

6. Pre-signing checklist

  • [ ] Classified the contract as commercial or civil (decides whether the 8% cap applies)
  • [ ] Made an express decision to apply or exclude the CISG (Article 6), and designated the supplementary national law
  • [ ] Delivery term states all three: term + named place + "Incoterms 2020"
  • [ ] Risk-transfer point and title-transfer point addressed separately
  • [ ] Payment method, currency, exchange-rate mechanism and default interest stated
  • [ ] Goods inspection and defect-notice periods fixed (shorter than the CISG's 2 years)
  • [ ] Penalties within 8% of the breached obligation's value (Article 301)
  • [ ] Force majeure lists events, consequences and termination rights after how many days
  • [ ] Bilingual contract has a prevailing-language clause; both versions independently reviewed
  • [ ] Dispute clause covers all 5 elements: institution, seat, number of arbitrators, language, governing law
  • [ ] Confidentiality, assignment, entire agreement and notices clauses present
  • [ ] Signatory has valid representative authority (check licences, charter, internal resolutions)

7. Frequently asked questions

7.1. Must a commercial contract with a foreign counterparty be in writing?

Yes — always put it in writing. Vietnam has declared a reservation under Article 96 CISG, so the provisions allowing contracts in any form (Articles 11, 29 and Part II CISG) do not apply where a party has its place of business in Vietnam; Vietnamese form requirements continue to govern. More importantly, in a cross-border dispute a written contract is the only reliable evidence — gathering witness testimony abroad is prohibitively expensive and procedurally difficult.

7.2. Should the contract exclude the application of the CISG?

There is no one-size-fits-all answer — the CISG allows parties to exclude it in whole or in part under Article 6. Keeping the CISG gives both sides a uniform set of rules on formation, obligations and remedies, shared by Vietnam and most major trading partners (China, the US, EU member states, Japan, Korea). If you exclude it, name the substitute national law expressly and confirm that it covers everything the CISG would have covered, so no legal vacuum remains.

7.3. Arbitration or court litigation for an international contract dispute?

Arbitration is usually the better fit for international commercial contracts: single-instance proceedings, confidentiality, and foreign arbitral awards are recognised in Vietnam under the 1958 New York Convention, which Vietnam joined in 1995. Vietnamese courts suit cases needing urgent interim measures tied to assets in Vietnam, or where the counterparty will not agree to arbitration. Whichever forum you choose, the clause must name the institution, seat, language and governing law — a vague clause is worse than none.

7.4. What is the maximum contractual penalty under Vietnamese law?

No more than 8% of the value of the breached contractual obligation, under Article 301 of the 2005 Law on Commerce — applied to the aggregate penalty for multiple breaches. An agreement exceeding the cap does not invalidate the whole clause, but the excess will not be enforced by the dispute resolution body. Note the important boundary: the 8% cap applies only to commercial contracts; civil contracts are governed by the 2015 Civil Code (Article 418), which sets no statutory cap unless another relevant law provides otherwise.

7.5. In a Vietnamese–English bilingual contract, which version prevails in case of conflict?

Whichever version the contract itself designates as prevailing — which is why a prevailing-language clause is mandatory in every bilingual contract. Without one, establishing the parties' true intent when the two versions conflict is difficult and expensive. Best practice: designate one prevailing version (usually the one your legal team controls best) and have both versions independently legally reviewed before signing. See also our cross-border contract checklist.

8. When to work with counsel

This framework keeps companies from missing the big issues, but it does not replace transaction-specific legal review. Work with counsel when:

  • The contract value is large or performance spans years, where one poorly written clause compounds into major loss.
  • The counterparty insists on foreign law or an arbitral institution you have never used.
  • The deal structure is complex: multiple technical schedules, milestone-linked instalments, or goods subject to sectoral licensing.
  • Breach signals have already appeared (late delivery, non-conforming goods) and you need a strategy assessment before sending a formal notice — a mishandled notice can forfeit rights under CISG Article 39 or Article 295 of the 2005 Law on Commerce.
  • The bilingual contract's translation was supplied by the counterparty — have it independently reviewed before signing.

Contact FLAT — hotline 0988424851 for review and drafting of international commercial contracts, and for support in negotiation and dispute resolution with foreign counterparties.

References

  • Law on Commerce No. 36/2005/QH11 (consolidated text 113/VBHN-VPQH dated 28/8/2025; amended by Article 2 of Law No. 75/2025/QH15, effective 01/01/2026)
  • Civil Code No. 91/2015/QH13 (effective 01/01/2017)
  • United Nations Convention on Contracts for the International Sale of Goods (CISG 1980) — Vietnam acceded 18/12/2015, effective 01/01/2017, Article 96 reservation
  • Incoterms 2020 — International Chamber of Commerce (ICC), effective 01/01/2020
  • Law on Commercial Arbitration No. 54/2010/QH12 (effective 01/07/2011)
  • 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Vietnam acceded 1995)
  • Ordinance on Foreign Exchange No. 28/2005/PL-UBTVQH11 (amended by Ordinance No. 06/2013/UBTVQH13)
  • Decree No. 22/2017/ND-CP on commercial mediation (effective 15/04/2017)
  • Law on Foreign Trade Management No. 05/2017/QH14 (effective 01/01/2018)

Language versions