A Vietnamese software company signs a contract to deliver a solution to a foreign client. After rollout, the client discovers defects in the product and claims millions of US dollars in damages — including lost profits and reputational harm. The question: how does Vietnamese law limit liability for software defects, and what should a software company do at the contract-drafting stage to protect itself?
The short answer
Vietnamese law sets no default damages cap for software defects and imposes no mandatory warranty regime for software. Liability limits are built primarily by contract, within the remedial framework of the Commercial Law 2005 (if the relationship qualifies as a commercial one) or the Civil Code 2015.
1. Penalties for breach: only if agreed, capped at 8%
- Article 300, Commercial Law 2005: the aggrieved party may claim a penalty only if the contract contains a penalty clause — except where the breaching party is exempt under Article 294.
- Article 301, Commercial Law 2005: the penalty level is as agreed but must not exceed 8% of the value of the breached contractual obligation. Any agreed excess is cut.
- For a purely civil contract (not a commercial relationship), the Civil Code 2015 sets no cap — the penalty level is as agreed.
2. Damages: three conditions and how they are calculated
- Article 303, Commercial Law 2005: damages arise only when three conditions are met: (1) a breach of contract; (2) actual loss; (3) the breach is the direct cause of the loss.
- Article 302.2, Commercial Law 2005: damages = actual, direct losses suffered by the aggrieved party + the direct profits the aggrieved party would have earned absent the breach.
- Articles 13, 360, 419, Civil Code 2015: an infringed civil right is entitled to full compensation, “unless otherwise agreed by the parties or otherwise provided by law”; compensable damage includes lost benefits, non-duplicated costs incurred, and moral damages (assessed by the court).
- Article 307.2, Commercial Law 2005: where a penalty clause exists, the aggrieved party may claim both the penalty and damages, unless the law provides otherwise.
3. Five contractual tools to limit liability
- Cap on damages: e.g., total liability not exceeding the contract value or fees already paid. Note: this is market practice, not a statutory rule.
- Exclusion of indirect losses: exclude lost profits, data loss, and reputational harm.
- Clear definitions of “defect,” warranty scope, SLA, and cure periods: the law does not define “software defect” — everything depends on the contract and SLA.
- Notice period: the client must report defects within a set time or lose the right to claim.
- Governing law and dispute resolution clauses: especially critical with foreign clients — where to sue, under which law, arbitration or court.
Caution: the law does not prohibit liability-limitation clauses, but courts in practice may refuse to enforce exclusions covering intentional wrongdoing. Do not draft blanket exclusions of all liability.
4. When a damages claim arrives: five checks
- Check the agreed warranty scope: is the defect covered? Has the warranty period expired? The law sets no fixed software warranty period — it is all contractual.
- Make the claimant prove loss: the claiming party must prove the loss, its extent, and the profits it would have earned (Article 304, Commercial Law 2005).
- Check the duty to mitigate: the aggrieved party must take reasonable steps to limit its loss; otherwise the breaching party may seek a reduction (Article 305, Commercial Law 2005).
- Consider exemptions from liability under Article 294, Commercial Law 2005 (force majeure, breach by the claiming party itself, etc.).
- Prioritize the cure obligation: if the contract requires fixing defects during the warranty period before paying money damages, perform the cure first.
5. Special notes for foreign corporate clients
- A foreign client that is a business is not a “consumer” under the Law on Protection of Consumer Rights 2023 → the defective-goods damages regime (Article 34) does not apply. The relationship is governed by the contract plus the Commercial Law/Civil Code.
- Governing law in cross-border contracts: include a clear governing-law clause and consult counsel — this is beyond the scope of this article.
- CISG (Vienna Convention 1980) — effective for Vietnam from 01/01/2017: governs only international sales of goods. Software delivered as a service/SaaS/subscription may qualify as a service → the CISG may not apply. Cite Article 74 CISG (damages capped at the loss the breaching party foresaw or ought to have foreseen at contract conclusion) only where the contract is a sale of goods (packaged software/perpetual license).
- The nature of the software contract (service vs. sale) determines whether Commercial Law remedies apply — do not apply them automatically.
6. Applicable legal framework (as of 14/10/2026)
| Instrument | Number | Effective | Status |
|---|---|---|---|
| Commercial Law | 36/2005/QH11 | 01/01/2006 | In force |
| Civil Code | 91/2015/QH13 | 01/01/2017 | In force |
| Law on Protection of Consumer Rights | 19/2023/QH15 | 01/7/2024 | In force (not applicable to corporate clients) |
| CISG (Vienna Convention 1980) | Vietnam is a member | 01/01/2017 (for Vietnam) | In force |
7. Practical recommendations for software companies
- Build the contract with a damages cap, indirect-loss exclusion, SLA and cure periods, and notice periods from day one — the law will not set these limits for you.
- Define “defect” by severity levels, each tied to a cure timeframe.
- With foreign clients, lock in the governing law and dispute resolution mechanism (international arbitration vs. Vietnamese courts).
- When a claim arrives: check warranty coverage first, require the claimant to prove loss, and verify they fulfilled their duty to mitigate.
- Avoid blanket exclusions of all liability — especially for intentional conduct.
FAQ
Does Vietnamese law require software companies to warrant products for a fixed period? No. The law imposes no mandatory warranty regime for software — cure/warranty obligations are entirely contractual.
Is there a statutory damages cap for software defects? No. The law sets no default cap; only the 8% penalty cap applies to commercial contracts (Article 301, Commercial Law 2005). Damages depend on agreement and proven actual loss.
Can a foreign corporate client invoke Vietnamese consumer protection law? No, if the client is a business. The 2023 consumer law protects “consumers” only; business-to-business relationships are governed by contract plus the Commercial Law/Civil Code.
Is a 100%-of-contract-value damages cap certain to be enforced by courts? It is market practice, not a statutory rule. Courts assess each case; blanket exclusions — particularly for intentional wrongdoing — risk non-enforcement.
Sources
- Commercial Law 36/2005/QH11, effective 01/01/2006: Arts. 294, 300, 301, 302, 303, 304, 305, 307.
- Civil Code 91/2015/QH13, effective 01/01/2017: Arts. 13, 351, 360, 361, 419.
- Law on Protection of Consumer Rights 19/2023/QH15, effective 01/7/2024: Art. 34.
- CISG (Vienna Convention 1980), effective for Vietnam 01/01/2017: Art. 74.
Related articles
- Contractual Penalties and Damages in Commercial Contracts in Vietnam
- Termination Clauses and Consequences in Contracts in Vietnam
Contact FLAT Law Firm
If your company is negotiating a software contract with a foreign client or has received a damages claim, our lawyers can review your liability-limitation clauses and build a response strategy. Contact us at contact us.
This article provides general legal information and does not replace legal advice for any specific case. Content has been QA-reviewed by the AI Legal Council; it was not reviewed by a human lawyer.
