Checklist for Handling a Counterparty Breach of Contract: 12 Steps to Protect Your Business

A counterparty delivers late, delivers the wrong quality, or simply disappears when payment is due — that is when many businesses freeze, unsure where to start. In practice, how you handle a counterparty breach of contract in the first few days decides most of the final outcome: how much money you can recover, whether the business relationship survives, and — most importantly — whether you still have a path to court if negotiations collapse. The checklist below has 12 steps arranged in the correct legal sequence under the Commercial Law 2005 and the Civil Code 2015 — from preserving evidence, re-reading the contract, sending the breach notice, filing claims on time, to calculating penalties, claiming damages, and choosing arbitration or the court.

1. Who this checklist is for and how to use it
2. The detailed checklist
3. Common mistakes in self-handling
4. After completing the checklist
5. Frequently asked questions
Language versions
References

1. Who this checklist is for and how to use it

This checklist is for directors, heads of legal, debt accountants and anyone directly managing contracts at businesses engaged in commercial transactions: sale of goods, services, distribution, processing, transport, construction and installation. Open it as soon as you spot signs that the counterparty is not performing as promised — the sooner the better, because many legal rights are tied to deadlines counted in days and months.

How to mark each item: ☐ not done · ☑ done · ⚠ consult a lawyer before acting. Work through items 1 to 12 in order, skipping none — each step builds on the result of the previous one. If the case has a foreign element or a large disputed value, treat the ⚠ items as mandatory stops for legal advice.

2. The detailed checklist

The twelve items below follow the correct legal sequence — from detecting the breach and preserving evidence to locking in a resolution plan — so that each step rests on the previous one and no deadline is missed.

Item 1: Identify exactly what the breach is ☐

What to do: Compare each obligation in the contract against what the counterparty has actually done. Build a simple two-column table: the left column lists the promised obligations (how much goods, when, what quality, how payment works), the right column records what actually happened. Note the dates, quantities and exact deviations.
Why: Clause 12, Article 3 of the Commercial Law 2005 (Luật Thương mại 2005) defines a contract breach as one party's failure to perform, incomplete performance or improper performance of an agreed obligation. It sounds obvious, but many disputes start from the two sides reading the same clause differently — there may be no real breach at all. Misidentifying the breach at the start sends every later step off course.
How: Read the entire contract with its appendices, supplementary minutes and email exchanges that amended obligations. If the contract has milestone-based delay penalties, pin the breach to the relevant milestone.
Note: Do not jump to conclusions. A counterparty 5 days late on delivery is not in breach if the contract allows a 10-day extension in specific cases — yet a seemingly minor issue can be a fundamental breach (see Item 10).

Item 2: Collect and preserve evidence immediately ☐

What to do: Gather every document proving the breach: emails, Zalo/Viber/WhatsApp messages, delivery notes, photos and videos of defective goods, bank transfer records, invoices, warehouse receipts, meeting minutes. If possible, draw up a joint on-site record signed by both sides at the moment the breach is discovered.
Why: To claim damages, the aggrieved party must prove three elements: a breach, actual damage, and a direct causal link between the breach and the damage (Article 303 of the Commercial Law 2005 (Luật Thương mại 2005)). Without evidence, your claim is just words before a court or tribunal.
How: Create a dedicated file for the case, storing originals and backups separately; print important emails and save the .eml files; screenshot messages with full timestamps and the sender's phone number. For perishable evidence (damaged goods, construction sites), consider having a bailiff draw up a record (vi bằng).
Note: The most common trap is evidence scattered across the personal phones of employees who have left. Internal rule: all contract-related exchanges with the counterparty must go through company email. Never edit or splice original files — tampered evidence can be thrown out by the court.

Item 3: Re-read the whole contract — scrutinize the sanctions clauses ☐

What to do: Re-read the contract end to end, focusing on three clause groups: (1) breach penalties and damages; (2) exemptions and force majeure; (3) dispute resolution (negotiation, mediation, arbitration or court) and governing law.
Why: A breach penalty applies only where the contract so agrees in advance (Article 300 of the Commercial Law 2005 (Luật Thương mại 2005)), and it may not exceed 8% of the value of the breached obligation (Article 301). Damages, by contrast, arise without any prior agreement (Article 302). Misreading the sanctions clauses is the top reason businesses claim too little or too much.
How: Highlight each relevant clause and summarize on one page: how much penalty you may claim, what damages are available, whether any exclusion clauses exist, and where disputes are resolved. Compare against the statute to catch unlawful clauses (a 20% penalty, for example, exceeds the 8% cap).
Note: A subtlety many miss: Clause 3, Article 418 of the Civil Code 2015 (Bộ luật Dân sự 2015) provides that if the parties agree on a penalty but say nothing about combining penalty and damages, the breaching party bears only the penalty. The wording of the contract decides whether you get one or both.

Item 4: Check whether the counterparty has an exemption ground ☐

What to do: Ask the counterparty to explain in writing the cause of the breach, with supporting documents if it invokes an exemption such as force majeure.
Why: Article 294 of the Commercial Law 2005 (Luật Thương mại 2005) lists the exemption cases: an agreed exemption, force majeure, breach caused entirely by the aggrieved party's fault, or performance of a state authority's decision unforeseeable at signing. If the counterparty genuinely falls in one of these, your claim will struggle.
How: Match the counterparty's stated reason against each point of Article 294. For force majeure, demand a confirmation from a competent authority (natural disaster, epidemic, state prohibition orders) and check whether the counterparty notified you promptly — the duty to notify is a condition for exemption.
Note: Financial hardship, rising input prices, or the counterparty's own supplier defaulting are, as a rule, not force majeure. These are business risks the breaching party must bear. Do not let "difficulties" be used to dodge liability.

Item 5: Send a written breach notice to the counterparty ☐

What to do: Draft a formal breach notice: identify the breached contract clause, describe the breach, demand remedy within a specific period (e.g. 7 or 15 days), and reserve all rights to sanctions under the contract and the law.
Why: A written notice fixes the date the counterparty learned of the breach — a timeline anchor for claim deadlines, the limitation period, and proof of your good faith. Many contracts also require the aggrieved party to notify before sanctions apply; skipping this step can render your penalty claim premature.
How: Send simultaneously by email (to the contact address in the contract) and by registered post with proof of receipt, or via bailiff for serious cases. Keep the receipts, posting slips and the full text of the notice.
Note: Keep the tone professional, grounded in facts and contract clauses — no threats, no insults, no ultimatums beyond your rights. An angry letter today can become evidence against you tomorrow.

Item 6: File the claim within the statutory deadline ☐

What to do: Send a formal claim letter to the counterparty within the statutory period, listing every demand: specific performance, breach penalty, damages, or other relief.
Why: Article 318 of the Commercial Law 2005 (Luật Thương mại 2005) sets the claim periods absent other agreement: 3 months from delivery for quantity claims; 6 months for quality claims (or 3 months from the end of the warranty period for warranted goods); 9 months from the date the breaching party was due to perform for other breaches. Miss the deadline without claiming, and you may lose the right to hold the counterparty liable.
How: Draft the claim as a separate document from the Item 5 notice — the notice "informs", the claim "formally demands". Itemize each claim with its legal basis. Send by a method that proves receipt.
Note: Do not confuse the claim period with the limitation period for suit. A claim is a direct demand to the counterparty; a lawsuit goes to court or arbitration. Even after sending the breach notice, you still need a timely written claim to preserve your rights.

Item 7: Negotiate, bargain and record the agreement ☐

What to do: Proactively propose a working session with the counterparty to find a way forward: extended performance, price reduction, replacement goods, instalment repayment, or conditional termination. Every agreed point must be recorded in minutes or a contract appendix signed by the lawful representatives of both sides.
Why: Article 317 of the Commercial Law 2005 (Luật Thương mại 2005) places negotiation between the parties first among dispute-resolution methods. A successful negotiation recovers your money fastest and cheapest — and, importantly, preserves the business relationship; winning a lawsuit while losing a strategic partner is not always a win.
How: Prepare fallback options in order of priority and fix your non-negotiable "red lines" in advance. During the session, take full notes; afterwards, circulate a summary email for both sides to confirm.
Note: Never agree orally. Nor should you sign minutes without reading every word — negotiation minutes, especially ones where the counterparty admits the breach or commits to repay, become key evidence if you later sue. For a typical "sue or negotiate" analysis where a counterparty is months behind on payment, see our in-depth article on a partner 6 months late on payment (link to be added at publish).

Item 8: Consider commercial mediation ☐

What to do: If direct negotiation stalls, propose commercial mediation — conducted by a mediator or mediation institution chosen by both sides.
Why: Under Decree 22/2017/ND-CP, commercial mediation rests on voluntariness, equality and confidentiality (Article 4). A successful mediation settlement has the value of a new contract between the parties and is enforced far faster than a lawsuit dragging on for years.
How: The parties may agree to mediate before or after the dispute arises, at any time (Article 6 of Decree 22/2017/ND-CP). Contact a reputable commercial mediation institution or mediator in your field, and agree on the mediation rules, timing and venue.
Note: Mediation is not mandatory and does not forfeit your right to sue if it fails. It is a sensible bridge before spending on arbitration or court — especially useful where both sides still want to keep working together.

Item 9: Calculate the full penalty and damages claimed ☐

What to do: Build a detailed schedule of every amount claimed from the counterparty: the breach penalty (if the contract so agrees) and each head of damage — remediation costs, additional expenses incurred, and the direct profit you would have earned absent the breach.
Why: Article 302 of the Commercial Law 2005 (Luật Thương mại 2005) defines damages as the actual, direct losses suffered by the aggrieved party plus the direct profit it would have earned. Article 307 allows penalty and damages to be combined where the contract agrees on a penalty. Claim too little and you lose out; claim too much without documents and the court will reject it.
How: Tie each amount to a document: invoices, replacement contracts signed with third parties, bank interest statements, profit reports for comparable periods. For lost profit, use a reasonable, grounded method (e.g. average margin on similar orders).
Note: The aggrieved party must mitigate its loss — if you could have reduced the damage by reasonable measures and did not (e.g. failing to source replacement goods though the market had them), the extra damage from your own passivity may not be compensated. Counterparties routinely exploit this point to cut the amount payable.

Item 10: Decide whether to suspend, stop or cancel the contract ⚠ ☐

What to do: Assess whether the counterparty's breach has reached "fundamental breach" level, then decide on one of the strong remedies: suspension of performance, cessation of performance, or cancellation of the contract — and notify strictly under the contract's procedure.
Why: Article 293 of the Commercial Law 2005 (Luật Thương mại 2005) provides that suspension, cessation and cancellation apply in principle only to fundamental breaches — in other words, unless the contract provides otherwise, you may use these remedies only for a fundamental breach. Clause 13, Article 3 defines a fundamental breach as one causing damage so serious that the aggrieved party fails to achieve the purpose of entering into the contract.
How: Revisit the core purpose of signing: a 3-day late delivery under a year-long framework contract is hardly fundamental; but late raw materials shutting your production line for a month very likely is. State the basis clearly in the remedy notice.
Note: This is the riskiest item in the whole checklist. Cancelling without a sufficient fundamental-breach basis can flip your position — from aggrieved to breaching party — and the counterparty will turn around and claim damages from you. This item must be reviewed by a lawyer before any notice goes out.

Item 11: Choose commercial arbitration or the court ☐

What to do: Check the dispute-resolution clause in the contract against the actual situation to decide between commercial arbitration and the competent People's Court.
Why: Article 317 of the Commercial Law 2005 (Luật Thương mại 2005) lists arbitration or court proceedings as the last resort when negotiation and mediation fail. The two paths differ fundamentally: arbitration has jurisdiction only where the parties have an arbitration agreement (Article 5 of the Law on Commercial Arbitration 2010 (Luật Trọng tài thương mại 2010)), proceedings are not public, and awards are final; courts need no prior agreement, hear cases publicly under strict procedure with two levels (first instance and appeal).
How: If the contract has a clear arbitration clause (naming the arbitration centre, e.g. VIAC), prepare the statement of claim under that centre's rules. If the contract is silent or the clause is invalid, prepare the court filing where the defendant resides or where the contract is performed.
Note: Verify the validity of the arbitration agreement carefully — a vague clause ("disputes shall be resolved by arbitration" without naming a centre) can still spark jurisdictional fights and add months to the case. Do not discover your arbitration clause is defective only when you file.

Item 12: Lock the limitation period and complete the file ☐

What to do: Pin down exactly how much of the limitation period remains, and complete the filing set: statement of claim, contract and appendices, all breach evidence, the damages schedule with supporting documents, and the company's legal papers (enterprise registration certificate, charter, authorization for the litigation representative).
Why: Article 319 of the Commercial Law 2005 (Luật Thương mại 2005) sets the limitation period for commercial disputes at 2 years from the time the lawful rights and interests are infringed. Expiry of the limitation period does not make the court dismiss your case automatically — the court applies the limitation only when a party raises it in a valid request before the first-instance judgment is rendered. But if the counterparty successfully invokes the limitation, your case is dismissed — all the work in the 11 items above goes down the drain.
How: Take the infringement date as the anchor (usually the date the counterparty was due to perform and did not), add 2 years for the deadline. Keep at least 1–2 months of buffer for finalizing and filing. Recheck the whole file against the list, number the pages, index the evidence.
Note: The limitation period may be interrupted in some cases — e.g. the counterparty acknowledges the obligation in writing or commits to repay. If you obtained such a document during negotiation (Item 7), the period restarts. Conversely, do not assume "there is plenty of time left" — misidentifying the starting point is a common and irreversible mistake.

3. Common mistakes in self-handling

Mistake 1: Phone calls and messages only, no formal writing. Many businesses handle breaches by phone "for speed". In court, the other side denies everything discussed, and you cannot prove you notified or claimed on time. Lesson: every important step must be in writing with proof of sending.

Mistake 2: Missing the 3–6–9 month claim deadlines. Many remember the 2-year limitation period but forget the much shorter claim periods under Article 318. Once the claim deadline passes, the counterparty can refuse liability from the first round, and you lose an important tool for asserting your rights.

Mistake 3: Demanding a penalty the contract never agreed. Under Article 300, no agreement means no penalty — demanding it only weakens the credibility of your claim before the court. Focus on damages, which arise by default under Article 302.

Mistake 4: Cancelling hastily without a sufficient fundamental-breach basis. As analyzed in Item 10, a wrongful cancellation can reverse your position: from aggrieved to breaching party. Before sending any cancellation notice, have a lawyer independently assess whether the breach is "fundamental".

Mistake 5: Failing the duty to mitigate loss. Some businesses let damaged goods deteriorate, make no effort to find substitute supply, then claim everything from the counterparty. Courts and tribunals will deduct the damage you could reasonably have prevented. Proactive mitigation is not only a legal duty — it also gets your capital back faster.

4. After completing the checklist

When all 12 items are marked ☑, you hold a complete file: the breach clearly identified, evidence preserved, notices and claims sent on time, damages calculated with documents, and a resolution path (further negotiation, mediation, arbitration or court) chosen on solid grounds. Whichever route you take, you are in the driver's seat.

There are three moments you should have a lawyer beside you rather than going alone: when considering contract cancellation (Item 10), when drafting the arbitration or court filing, and when the dispute has a foreign element or a large value. One hour of timely advice costs far less than a lost case over a procedural error.

If your counterparty is showing signs of breaching and you do not know where to start, contact FLAT Law Firm for a case assessment and a tailored action plan. Hotline: 0988424851.

5. Frequently asked questions

Below are the questions businesses ask most often when handling a counterparty breach of contract, with concise answers and legal bases for quick reference.

The counterparty breached the contract but it has no penalty clause — can we still claim a penalty?

No. Under Article 300 of the Commercial Law 2005 (Luật Thương mại 2005), a penalty for breach applies only where the contract so agrees. You may still claim damages under Article 302 without any prior agreement, provided you can prove the breach, the actual damage and the causal link between the two.

What is the maximum penalty for breach of contract?

Under Article 301 of the Commercial Law 2005 (Luật Thương mại 2005), the penalty level is as agreed by the parties but may not exceed 8% of the value of the breached contractual obligation. An agreement exceeding this cap risks being reduced by the court or arbitral tribunal when the dispute is resolved.

What is the limitation period for suing over a commercial contract breach?

Under Article 319 of the Commercial Law 2005 (Luật Thương mại 2005), the limitation period for commercial disputes is 2 years from the time the lawful rights and interests are infringed. Note: expiry of the limitation period does not extinguish your right to sue — the court applies the limitation only when a party raises it in a valid request before the first-instance judgment is rendered (Article 149(2), Civil Code 2015).

Is mediation mandatory before suing the counterparty in court?

No. Article 317 of the Commercial Law 2005 (Luật Thương mại 2005) lists negotiation, mediation, arbitration and court proceedings as dispute-resolution methods the parties may choose. Commercial mediation under Decree 22/2017/ND-CP is entirely voluntary but encouraged because it is fast, confidential and inexpensive.

When may a contract be cancelled because of a counterparty breach?

Under Article 293 and Clause 13, Article 3 of the Commercial Law 2005 (Luật Thương mại 2005), cancellation applies in principle only to a fundamental breach — a breach so serious that the aggrieved party fails to achieve the purpose of entering into the contract — unless the contract provides otherwise. Cancelling on a wrong basis may turn you into the breaching party, so have a lawyer re-check before acting.

Language versions

References

Commercial Law 2005 (Luật Thương mại 2005) (No. 36/2005/QH11), effective from 01/01/2006, in force at the time of writing.
Civil Code 2015 (Bộ luật Dân sự 2015) (No. 91/2015/QH13), effective from 01/01/2017, in force at the time of writing.
Law on Commercial Arbitration 2010 (Luật Trọng tài thương mại 2010) (No. 54/2010/QH12), effective from 01/07/2011, in force at the time of writing.
Decree No. 22/2017/ND-CP of the Government on commercial mediation, issued 24/02/2017, in force at the time of writing.