Governing Law: Which Law for Vietnam

A Vietnam–China contract — which country’s law governs? A deceptively simple question that decides everything in a dispute: the parties’ rights and obligations, limitation periods, damages calculation, even whether the contract is valid at all. Picking the wrong governing law can render your protective clauses meaningless — because that law doesn’t recognise them. This article guides governing-law choice for Vietnam–China contracts.

The principle: parties may choose freely

Both Vietnam and China recognise party autonomy in choosing the law governing international commercial contracts — an agreed choice is effective. Limits: (1) it must not contradict mandatory rules of the place of performance (e.g. Vietnam’s labour, tax and foreign-exchange rules still apply even if the contract chooses Chinese law); (2) it must not violate public policy; (3) certain special contracts (real estate, employment) have mandatory governing law tied to the asset/workplace. If you don’t choose: the court/tribunal determines the applicable law under conflict rules (usually the law of the party performing the characteristic obligation — e.g. the seller in a sale contract) — uncertain, so always choose expressly.

Vietnamese vs Chinese law: a practical comparison

Vietnamese law: pros — the Vietnamese side knows it (Vietnamese counsel can advise), smooth enforcement in Vietnam; cons — the Chinese counterparty neither knows nor trusts it (and Chinese lawyers can’t advise on Vietnamese law). Chinese law: pros — the Chinese side knows it; cons — the Vietnamese side doesn’t (Vietnamese counsel can’t advise on Chinese law — you must hire Chinese lawyers, costly), and some rules favour the Chinese side (e.g. foreign-exchange and export-control regulations). Third-country law (England, Singapore): pros — neutral, a complete system for international commerce, both sides must learn it (fair); cons — both sides hire foreign counsel (doubly costly), and enforcement in Vietnam/China can be more complex.

CISG: the “common law” for goods sales

The 1980 Vienna Convention (CISG) on international goods sales — both Vietnam and China are members. Meaning: a goods-sale contract between Vietnamese and Chinese parties automatically applies the CISG (unless expressly excluded). Pros: (1) neutral (neither side’s law); (2) familiar to both sides (every international trade lawyer knows it); (3) fewer fights over law choice (nothing to negotiate). Cons: (1) only for goods sales (not services, investment or licensing); (2) some issues uncovered (validity, limitation — needs a supplementary national law). Recommendation: for Vietnam–China goods contracts, keep the CISG (don’t exclude it casually) and add a supplementary national law (e.g. “CISG + Vietnamese law for matters the CISG doesn’t cover”).

Common traps: four governing-law mistakes

Mistake 1 — Copying a template: lifting an online template stating “governed by English law” without understanding English law — disputes then need English counsel (3–5x pricier) and you still lose unprepared. Mistake 2 — Mismatched language versions: the Vietnamese version says Vietnamese law, the Chinese version says Chinese law (via mistranslation or design) — disputes then fight over which version prevails before touching substance. Mistake 3 — Picking “exotic” law to sound smart: choosing Swiss law for its “neutral” ring while neither side understands it — paying to learn a new system that’s no better than Singapore law (equally neutral, far more familiar). Mistake 4 — Forgetting to exclude the CISG: wanting the CISG out but not saying so clearly (“governed by Vietnamese law” alone does not exclude the CISG — you must state “the CISG is excluded” expressly) — the tribunal will apply it anyway.

Model clause and negotiating with Chinese partners

Model clause (simple): “This contract is governed by Vietnamese law. Any dispute arising out of or in connection with this contract shall be resolved by arbitration at VIAC under VIAC’s arbitration rules. The language of arbitration is English. The seat is [Hanoi/Ho Chi Minh City].” Model clause (goods + CISG): “This contract is governed by the 1980 Vienna Convention (CISG); matters not covered by the CISG are governed by Vietnamese law.” Negotiating with Chinese partners: (1) they typically demand Chinese law + CIETAC — don’t agree immediately (bargain: Chinese law then BAC arbitration — more neutral); (2) if you must accept Chinese law, have Chinese counsel review the contract before signing (not after); (3) put every oral agreement on governing law into writing (in disputes, only writing counts — memories fade, paper doesn’t). Act on this before the next contract. One final caution: review existing contracts too — many Vietnam–China deals signed years ago have no governing-law clause at all. You can’t rewrite history, but you can sign a short supplementary agreement adding one — far cheaper and far less painful than litigating the gap many painful years later. Put governing law on every new contract checklist — starting today.

Choice strategy: five rules

(1) Pair with the forum: governing law and the arbitration institution should match (Vietnamese law + VIAC; Chinese law + CIETAC/BAC; Singapore law + SIAC) — arbitrators understand the law they apply (see article EXP-3211). (2) Pair with enforcement: choose the law of where the opponent’s assets sit (smoother enforcement). (3) Never choose law you don’t understand: picking Chinese law without Chinese counsel advising is signing blind — more dangerous than picking Vietnamese law. (4) CISG for goods: goods sales get the CISG + supplementary law. (5) Write it clearly and completely: “This contract is governed by Vietnamese law” — one sentence, but it must exist (a missing governing-law clause is the most common drafting failure).

When the other side insists on their law: negotiation playbook

Governing law is often the most negotiated clause — here’s how to handle it: (1) Trade law for forum — accept their governing law but insist on your (or neutral) arbitration institution; the forum’s procedural control partly offsets substantive-law disadvantage; (2) Split the difference with the CISG — for goods contracts, propose CISG + neutral supplementary law as the compromise neither side “loses”; (3) Carve out what matters — accept their law generally but carve out specific issues (payment terms, IP ownership) for your law; (4) Price the risk — if you must accept unfamiliar law, price it in: higher margins, stronger guarantees, shorter payment terms; (5) Never accept without advice — a one-sided governing-law clause signed without counsel is how small exporters end up bound by rules they never read. Remember: the party that cares less about governing law usually gets the worse deal — caring is leverage.

Checklist: governing law for Vietnam–China contracts

1. Always state the governing law (never leave blank). 2. Pair it with the arbitration institution (VN law + VIAC…). 3. Consider the enforcement forum (where the opponent’s assets sit). 4. Never choose law you don’t understand (no advising counsel). 5. Goods: keep the CISG + supplementary law. 6. Check mandatory rules of the performance place (labour, tax, forex). 7. Services/investment: CISG doesn’t apply — pick a national law. 8. Consult counsel before signing.

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FLAT Law Firm advises Chinese investors in Vietnam across the full lifecycle: investment structuring, IRC/ERC procedures, tax, labour, intellectual property and dispute resolution. Contact us for advice tailored to your case.

This article has been quality-reviewed by the FLAW AI Legal Council