Reaching an agreement to enter a commercial transaction marks a significant success. However, determining how the involved parties should establish a transaction contract that aligns with their interests, mitigates disputes, and appropriately applies the law, while ensuring the selection of the right dispute resolution agencies, is equally crucial. In light of the prevailing laws in Vietnam, BLawyers Vietnam provides specific insights regarding the freedom to choose applicable laws and the settlement of disputes within a contract.

Under Vietnamese law, parties engaged in a contractual relationship possess the liberty to designate the applicable law for the contract, barring instances involving real estate transactions. In such cases, the law governing the transfer of ownership and associated rights, lease agreements, or utilization of real estate to secure obligation fulfillment corresponds to the jurisdiction where the real estate is situated. Additionally, in labor or consumer contracts where the chosen law impacts the fundamental rights of employees or consumers as outlined in Vietnamese legislation, Vietnamese law supersedes and takes precedence. 

Applicable Laws for Dispute Settlement 

According to Vietnam’s Law on Commercial Arbitration, when a dispute doesn’t involve any foreign elements, the arbitration council will use Vietnamese law to resolve it. If the dispute includes foreign elements, the council will apply the law chosen by the parties. If there’s no agreement on the applicable law, the council will decide which law is most suitable. If neither Vietnamese law nor the law chosen by the parties addresses the specifics of the dispute, the council may resort to international practices, as long as it doesn’t contradict the fundamental principles of Vietnamese law. 

In international arbitration cases involving a foreign element, Vietnamese law doesn’t automatically apply to: (i) determining the law governing the contract or dispute, or (ii) the arbitration agreement and proceedings. Generally, the arbitral tribunal decides the applicable law for resolving the dispute’s merits and the arbitration agreement, respecting the parties’ chosen law in their contract. 

As per the principle of party autonomy, parties have the authority to select the law governing the contract and arbitration agreement. 

The law governing the arbitration agreement may differ from the contract’s law, as parties can opt for different laws. If there’s no explicit or implied choice of law by the parties, the arbitral tribunal determines the applicable law based on the conflict of law rules in the chosen arbitration rules. In the absence of such rules, the tribunal refers to the conflict of law rules of the arbitration seat. 

If the parties fail to agree on the applicable law, the law of the country most closely connected to the contract shall govern. The following circumstances establish such a connection:

(a) the law of the country where the seller resides or is established, in the case of goods purchase and sale contracts;

(b) the law of the country where the service provider resides or is established, for service contracts;

(c) the law of the country where the recipient resides or is established, for contracts involving transfer of use rights or intellectual property rights;

(d) the law of the country where the employee regularly works, in labor contracts; or

(e) the law of the country where the consumer resides, in consumer contracts. If it can be demonstrated that another country’s law has a closer relationship to the contract than those mentioned above, that country’s law shall apply.

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