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The trend of globalization is considered a springboard to help countries reach their development, including Vietnam. Cooperation and foreign affairs are particularly concerned by our Party and State. This is followed by an increase in the number of contracts with foreign elements. Currently, there are many foreign disputes arising from establishment and performance of contracts. So about the matter “Judgment of a foreign element contract dispute in Vietnam” Let’s find out with LSX in the article below.

Legal grounds

• Civil Code 2015
• Civil Procedure Code 2015
• Law on Commercial Arbitration 2010 No. 54/2010/QH12 promulgated by the National Assembly
• Decree 22/2017/ND – CP

Contracts with foreign elements

According to the provisions of civil law in Vietnam, a contract is an agreement to perform, change or terminate by the parties thereby expressing the rights and obligations that the parties agree to meet their interests of each party.

– In legal practice, foreign factors are considered as the basis and basis for formulating and determining the principles of selecting the governing law, in order to solve the problem of legal conflicts and conflicts of jurisdiction in international law. For example, for the element of the subject participating in legal relations, there is the principle of nationality law respectively; For the element of a legal event taking place in a foreign country, there is corresponding principle of law where the contract is concluded or the place where the disputed event occurs, with respect to the subject matter of the transaction, there is the principle of the law of the place where the object is located.

– According to the provisions of Article 663 of the Civil Code 2015, a contract with foreign elements is a contract determined based on specific factors as follows:

+ One of the contracting parties is a foreign subject. Subjects here can be individuals or legal entities;

+ The parties to the contract are all Vietnamese individuals and legal entities, but the establishment, change, performance or termination of the contractual relationship occurs in a foreign country;

+ The parties to the contract are all Vietnamese individuals and legal entities, but the subject of the contract is a foreign party.

Thus, a contract with a foreign element is a contract involving a foreign entity; the legal grounds giving rise to, changing or terminating the contract occur in a foreign country or under foreign law; the property related to the contract is located abroad. Since then, determining the law applicable to the contract as well as to protect the interests of the parties when settling disputes arising from the contract will inevitably face many difficulties. To solve this problem, one of the important principles is that a contract with one of the above elements will be considered a contract with foreign elements in the laws of other countries. As analyzed above, in fact, transactions related to contracts with foreign elements are increasing day by day. It comes from the economic development, cooperation and foreign policy trends of each country.

Laws applicable to contracts with foreign elements

Contract is understood as the agreement of the parties on the applicable terms, as well as the legitimate rights and interests of the parties involved. Contracts with foreign elements are similar. It is built based on the agreement and will of the parties, so the principle of freedom of the parties in the contract is prioritized to be applied and respected by the law. Therefore, the law stipulates that the parties in a co-relationship can agree to choose the law applicable to the contract, according to which all contents agreed upon by the parties in the contract must comply with the provisions of law selected by the parties. In particular, the contract with foreign elements also clearly stipulates the rights and obligations of the parties involved. The parties involved will agree and commit to each other on responsibilities and powers, and this is binding on the parties, is the law for the parties. Therefore, the law that the parties have chosen will govern both the rights and obligations of the parties in the contract. This is completely consistent with international treaties, showing flexibility and grasping new things in the Vietnamese legal system.

The provisions on choice of law agreement do not apply to cases of contracts involving real estate; labor contracts, consumer contracts affecting the minimum interests of employees and consumers; changes in the law applicable to the contract affecting the legitimate rights and interests of a third party. These are typical cases, the choice of applicable law must comply with the provisions of law. The law applicable to each type of contract with foreign elements will be different. As follows:

Laws applicable to real estate contracts:

Real estate is understood as assets that cannot be moved, attached to the territory or country. It can be land and properties attached to land. Thus, for contracts involving immovable property, the applicable law in the event of a dispute is usually the law of the place where the immovable property is located. Regulations on the application of such laws both show respect for the territories of countries and are in line with international practices. Besides, it also helps to make the enforcement of decisions of competent authorities more convenient, faster and easier.

Laws applicable to labor contracts and consumer contracts:

Labor contracts, consumer contracts appear more and more, but the participants here are individuals and organizations in Vietnam with individuals and organizations abroad. Unlike the law applicable to real estate, in the labor contract and consumer contract relationship, the law allows the parties to agree to choose the applicable law. However, that choice must comply with certain regulations. Accordingly, the law stipulates that if the choice of applicable law negatively affects workers and consumers, such law shall not be applied. This is to ensure the interests of consumers, because they are the weaker subject in this form of transaction. Because in fact, the employer or the supplier of goods and services can take advantage of their position to force workers and consumers to choose the applicable law that is more favorable to them. Therefore, the above regulation aims to protect the legitimate rights and interests of employees and consumers.

Applicable law in case the parties agree to change the law applicable to the contract affecting the interests of a third party:

When entering into a contract, the parties to the contract not only have the right to choose the applicable law, but also can agree to change the applicable law. In fact, the change of applicable law is also the unification of the will, wishes and aspirations of the parties in choosing the applicable law. Therefore, the law recognizes and respects their opinion. The essence of the contract is the establishment of a transaction between the parties to bring benefits to the parties involved. When entering into a contract, the parties always give priority to benefits for their individuals and organizations. However, the parties cannot for their own interests affect the rights and interests of others. Therefore, if the change of applicable law affects or infringes upon the interests of a third party, such change will not be recognized. The parties can only change the application of a different legal system if it does not affect the interests, or lead to unwanted negative effects for a third party. The introduction of regulations on changing the applicable law in contracts with foreign elements in order to protect the interests of third parties. Because the third party is considered a passive subject in the agreement to change the law of the parties. So, to put it simply, if the third person knows and agrees to that change, the new law applied is legal. On the contrary, the change of applicable law related to a third party, negatively affecting the third party and without their consent, the change will be recognized by the worker’s law.

Judgment of a foreign element contract dispute in Vietnam

Decision 16/2019/QDKDTM – ST dated 27/11/2019 Danang City Court.

Request for recognition and enforcement in Vietnam of business and commercial judgments of foreign arbitrators

Case content: Company U (Requester) in the Philippines and Steel Company D (headquartered in Vietnam) signed a contract to buy and sell 6000 tons of steel on June 12, 2017 with a contract value of 2,430. 000 USD. During the performance of the contract, D Steel Company did not deliver the goods according to the quantity and time limit specified in the Sales Contract. Company U has filed a lawsuit in the International Court of Arbitration of the International Chamber of Commerce (ICC). The ICC has ruled to order D Steel Company to compensate for the damages claimed by Company U.

Now Company U requests to recognize and enforce in Vietnam the award of the International Court of Arbitration of the International Chamber of Commerce (ICC).

Judgment of the Court: Considering the content of the award is consistent with the substantive law of the Socialist Republic of Vietnam. This statement is consistent with the provisions of Clause 1, Article 34 and Clause 1, Article 37 of the Commercial Law. The judgment forces Company D to pay compensation for damage caused by the act of non-performance of the contract, the compensation value is equal to the value of remedying the damage by compensating the purchase of similar goods, in a smaller volume, at a lower cost, nearly equivalent is consistent with Clause 2, Article 41, 300, 301 and 302 of the Commercial Law.

Decision: Recognition and enforcement in Vietnam Judgment Case file No. 23329/PTA/ASB/HTG dated October 19, 2018 and Appendix to Judgment 23329/PTA/ASB/HTG dated December 11/ 2018 of the International Arbitration Court of the International Chamber of Commerce (ICC) on the settlement of disputes The high-grade billet sales contract No. DNY-UNI-12.06.2017 dated 12/6/2017 signed between the Company U, address: Punturin, Valenzuela City, Philippines with  Steel Joint Stock Company D, ward H,  district L, Da Nang city, Vietnam.

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