New Civil Code and Contracts What You Should Know

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1 GBA Meeting, Ho Chi Minh City, 11 September 2017 New Civil Code and Contracts What You Should Know Duane Morris Vietnam LLC Manfred Otto 2017 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP. Duane Morris Firm Offices New York London Singapore Philadelphia Chicago Washington, D.C. San Francisco Silicon Valley San Diego Shanghai Taiwan Boston Houston Los Angeles Hanoi Ho Chi Minh City Atlanta Baltimore Wilmington Miami Boca Raton Pittsburgh Newark Las Vegas Cherry Hill Lake Tahoe Myanmar Oman Duane Morris Affiliate Offices Mexico City Sri Lanka Duane Morris LLP A Delaware limited liability partnership Topics 1. Contract signatory 2. Damages (actual and liquidated) 3. Foreign arbitration Extra: UN Convention on Contracts for the International Sale of Goods (CISG) 2 1

2 Case Study DeCo signs a goods sale agreement with VietCo... a. Signed and chopped by deputy director of VietCo b. Damages: i. 8% of the value of the breached obligation (penalty) ii. $5,000 per day of delay (liquidated damages) c. Arbitration in Singapore d. Governing law: Vietnam substantive law 3 Unauthorized Contract Signatory 1. Is the signatory authorized to sign? a. Registered legal representative b. Authorization through Power of Attorney c. Scope of authorization (check Charter) Fundamental issue of new Civil Code: Who can be represented? Only individuals and legal entities (juristische Person) 4 2

3 Unauthorized Contract Signatory 2. Is the transaction valid? apparent authority Not valid, unless: a. Company recognized the transaction b. Company knew but did not object (within reasonable time) c. Company s fault (other party did not or could not have known) 5 Unauthorized Contract Signatory 3. Who is liable? a. Company not liable (unless recognized, knew/ not objected, at fault; see previous slide) b. Signatory personally liable (also check Charter and ILR) c. Other party jointly with signatory, if it knowingly entered into the unauthorized transaction and caused loss/damages 6 3

4 Unauthorized Contract Signatory 4. Invalid transactions a. Restitution: restore each other to original state (return assets) b. If restitution not possible, then pay value in money c. Bona fide party can keep benefits or income! d. Party at fault causing loss or damage must compensate 7 Verify Signatory s Authorization Recommendations a. Check legal representative on national business registration portal: dangkykinhdoanh.gov.vn b. Check scope of authority in most recent Charter (Satzung) c. Review PoA (if registered legal representative is not signing) d. Ensure representations and warranties are in place 8 4

5 Damages 1. Compensation principle Old: Limited to actual loss/damage (+ 8% penalty) New: Total loss/damage, unless otherwise agreed or as provided by law (Arts. 13, 360, 418); and/or penalty. 9 Damages 2. Liquidated damages a. Agreed damage amount in contract (e.g., $5,000 per day for late performance) b. Vietnamese law: no definition or limit, but unless otherwise agreed language could open the door c. Common law: OK, if reasonable and proportional unreasonably large liquidated damages void as penalty 10 5

6 Damages 3. Agree to liquidated damages AND actual damages? Must be clear avoid clauses that cause legal uncertainty! 4. Recommendation for liquidated damages clause: Explain and justify how the amount is calculated 11 Foreign Arbitration 1. Generally bad idea... Especially if Vietnamese party has no assets outside Vietnam 2. Why? Vietnamese courts don t recognize/enforce foreign arbitral awards, if against basic (fundamental) principles of Vietnam Law 12 6

7 Foreign Arbitration 3. New Civil Code defines basic principles of civil law first time! Article 3. Basic principles of civil law a. Equality in civil relations b. Freedom of civil rights and obligations (freedom of contract) c. Goodwill and honesty (good faith) d. No infringement of national interests, public interests, lawful rights and interests of other persons e. Personal liability for the performance of one s civil obligations 13 CISG: Highlights United Nations Convention on Contracts for the International Sale of Goods IMPORTANT: CISG applies now automatically to almost all international sales contracts! Unless opted out in the contract, CISG applies to all international sales contracts with parties from other member states and even to contracts with non-members where Vietnam law governs Other facts: 85 members to CISG represent 2/3+ of global commercial exchange Effective in Vietnam since 1 January 2017 Excluded goods (personal use, shares, ships, electricity etc.) Rich academic literature and case law (4,500+ cases) But CISG has no provisions on dispute resolution 14 7

8 Contact Duane Morris Vietnam LLC Ho Chi Minh City Office Suite 1503/04, Saigon Tower 29 Le Duan, District 1 Ho Chi Minh City Vietnam Hanoi Office Pacific Place, Unit V1307/ B Ly Thuong Kiet Street Hoan Kiem District, Hanoi Vietnam Manfred Otto (spricht Deutsch) Registered Foreign Lawyer Tel: Mob: MOtto@duanemorris.com 8