OTHER IMPORTANT COMMERCIAL AGREEMENTS 2025
DRAFTING BATTLE-TESTED CONTRACTS
CHAPTER 4
OTHER IMPORTANT COMMERCIAL AGREEMENTS
I. REPRESENTATIONS AND WARRANTIES
Representations and warranties are important clauses in contracts under the Common Law system, but they are often absent in contracts under the Civil Law system. Over time, with the process of integration and trade, this clause has gradually become popular in commercial agreements.
This section focuses on the following issues:
– What are representations and warranties?
– The contents that the parties often represent and warrant to each other.
– The legal value of this clause in the context of Vietnamese law.
Representations and warranties (hereinafter referred to as “Representations”) are clauses in a contract whereby one party represents to the other party or the parties represent to each other about the accuracy of certain information or events. There are two things to note when drafting representation clauses:
– Representations can be one-sided or mutual. The drafter needs to be cautious when requesting representations. For example, in an M&A transaction, the seller represents to the buyer: “The company has no disputes with any third party as of the date the parties sign the share purchase agreement.” However, mutual representations are also common, such as: “The parties are legally established under the national laws of their respective countries,” or “Each party has the legal right and authority to enter into and perform this contract.”
– The contents of representations vary depending on the transaction, but in general, representations ensure the accuracy of events and/or information.
According to the 2015 Civil Code, a breach of contract is essentially a breach of obligation—meaning that one party fails to perform, performs incorrectly, or incompletely performs the obligation. An obligation is an act whereby one or more subjects (hereinafter referred to as the obligor) must transfer property, transfer rights, pay money or valuable papers, perform work, or refrain from performing certain work for the benefit of one or more other subjects (hereinafter referred to as the obligee).
As analyzed above, representations are assurances by one party to the other about the accuracy of certain information and/or events. In other words, a breach of representation is not a breach of contract. Therefore, remedies in the Civil Code [As well as in the Commercial Law and specialized laws of Vietnam] for breach of contract, such as requiring continued performance, penalties, or compensation for damages, do not apply to breaches of representations.
This presents a challenge for contract drafters. When a breach of representation does not lead to a sanction or adverse consequence, the agreement and/or drafting of this clause in the contract becomes meaningless. Practically, to give value to representation clauses, the parties often combine this clause with another agreement, such as an event of default.
Example 1: Provisions on Events of Default
Any of the following events shall be considered an event of default:
– The borrower uses the loan for purposes other than those specified.
– Any representation and warranty made by the borrower under the loan agreement is proven to be inaccurate.
By linking representations to events of default, the drafter has turned representations from less binding to a basis for “triggering” an event of default. Thereafter, the parties can record other remedies, such as termination of the contract.
As mentioned at the beginning of the book, when drafting a contract, always answer the question: Who are you protecting the interests of? Applied to the case of drafting representation clauses, this principle should be understood as answering the question: Which party benefits from the wording of this clause?
Example 2: Representation Clause in a Share Purchase Agreement
The seller represents to the buyer:
…
There are no environmental violations to the extent that they would be subject to action by the competent state authority of the host country.
The wording “There are no environmental violations to the extent that they would be subject to action by the competent state authority of the host country” is very broad. This wording benefits the buyer and is disadvantageous to the seller. To protect the interests of the seller, it is best to limit the scope of this representation. For example, consider the following options:
– Time limitation: There are no environmental violations to the extent that they would be subject to action by the competent state authority of the host country as of the date the parties sign the share purchase agreement.
– Scope limitation: There are no significant environmental violations to the extent that they would be subject to action by the competent state authority of the host country.
– Or to the seller’s knowledge, there are no environmental violations to the extent that they would be subject to action by the competent state authority of the host country.
ENGLISH-AMERICAN STANDARDS IN CONTRACTS IN VIETNAM
Vietnam is a country that traditionally follows a civil law system. The influence of French civil law is particularly apparent, as many Vietnamese law professors who contributed to the drafting of the 2015 Civil Code were former students in France.
London and New York are the two largest financial centers in the world. Although both the Continental European system and Common Law have their merits, serving these two financial markets has made English-American law firms among the world’s leading. In the context of Vietnam, following the economic reforms, some of the first foreign law firms operating in Vietnam were American. These firms became training grounds for young Vietnamese lawyers. This background, combined with cross-border transactions, introduced English-American standards into contracts drafted by Vietnamese law firms.
A contract is defined as “an agreement between parties to establish, modify, or terminate rights and obligations.” In other words, when drafting contracts, parties are “obligating” their relationships. However, the approach of English-American contracts tends to focus on risk allocation. In practice, sometimes a party may not violate any obligations yet still trigger an event of default and activate remedies. For example, parties may agree that significant business disruption or bankruptcy constitutes an event of default.
Contracts drafted by law firms are subject to review by courts and/or arbitration. According to recent statistics, in 2019, the Vietnam International Arbitration Center (VIAC) handled nearly 200 cases, roughly the same number of cases an average judge in Ho Chi Minh City handles in a year. In 2023, the number of disputes increased by 30% compared to 2022, with VIAC handling 427 cases, many of which were complex and of high value. This indicates that most disputes are resolved in court.
There are views that the development of the legal profession is outpacing the courts. However, over the past decade, approximately 80-90% of top law graduates have joined large law firms after graduation. An important point is that a judgment in the name of the Socialist Republic of Vietnam carries symbolic value. Vietnam has chosen to follow the civil law tradition.
Systemic constraints from the Supreme Court and individual judges’ performance evaluations make it difficult for judges to adopt an open approach. Arbitrators may hold a title and contribute or respond to a specific need, but being a judge is a career. All of these factors make English-American contracts face many risks. Therefore, it is not surprising that most contracts with the “most English-American” characteristics opt for arbitration for dispute resolution.
Conclusion: English-American contract standards are currently a trend in Vietnam. However, there are a few issues to note:
– Cross-border transactions with large transaction values often need to meet investor requirements, ensuring risk management and consistency in transaction structure. Importantly, these transactions do not only apply Vietnamese law, and sometimes the jurisdiction is not in Vietnam. Such transactions are still relatively uncommon in the Vietnamese legal market.
– Why, officially, is Vietnam pursuing a civil law tradition while choosing English-American standards, which sometimes put transactions in a position where it is uncertain whether agreements are legally valid instead of seeking standards that fit the civil law tradition?
– Some individuals learning about English-American contracts only grasp the form without understanding the essence. Sometimes they do not know how to obligate representations and warranties. As a result, while some skilled lawyers turn warranties into obligations, others turn representations and warranties into mere declarations.
II. RIGHTS AND OBLIGATIONS OF THE PARTIES
The sale of goods contract discussed within this book is a type of bilateral contract, meaning each party has obligations to each other. In other words, each party to the bilateral contract holds both rights and obligations. Within the content of this type of contract, the rights of one party are correspondingly opposed to the obligations of the other party, and vice versa. This necessitates the inclusion of clauses regarding the rights and obligations of the parties in the sale of goods contract.
Both parties are responsible for fulfilling each content of the rights and obligations stipulated in the contract. Clearly defining these responsibilities will help both parties achieve their objectives smoothly, avoiding difficult-to-resolve disputes. However, within this section, a question arises: Which is more important, the rights or the obligations clause? In principle, both rights and obligations are important. However, typically, if the contract protects the seller, it may design more obligations for the buyer, and vice versa, if the contract protects the buyer, it may emphasize the seller’s obligations more.
Balancing the rights and obligations clauses of the parties is challenging, but in drafting, it is implicitly understood that when mentioning one party’s obligations, these obligations correspond to the rights of the other party. Therefore, drafting techniques often highlight the clauses on the obligations of the parties to clarify responsibilities, mandatory issues that both parties must perform to ensure the contract is carried out optimally.
A principle that the contract drafter must always remember is: During the contract drafting process, the contents regarding the rights and obligations of the parties have been embedded in each previous clause. For example, in the payment clause, the drafter has embedded the determination of who has the obligation to pay whom and how payment should be made; in the delivery clause, the obligations of the seller and the carrier have been mentioned; or in the warranty clause, it is mentioned who has the obligation to warranty.
Thus, it is not necessary to list all the obligations in this section, as doing so would make the contract cumbersome and fail to clearly reflect the mandatory elements that the parties must perform in each previously mentioned clause. This section should only stipulate the rights and obligations not covered in previous content to avoid overlapping. Essential issues when drafting an obligations clause include:
– Who owes the obligation to whom;
– What the obligation is;
– When the obligation must be performed;
– Where the obligation will be performed;
– Why one party must perform the obligation;
– How the obligation will be performed;
– If the obligation involves money, how much it is.
Example: Obligation Clause:
“No later than 60 days before a product is delivered to retail stores, the manufacturer must send a sample of that product to the licensor for approval. The licensor will approve or reject the sample and notify the manufacturer of their decision by email no later than three business days after receiving the sample for approval.” This clause is based on the context of a manufacturer selling products through a supermarket channel. Therefore, before the product is approved, there is a clear deadline for the manufacturer to send the sample, along with a sample approval period and a method of notifying the approval results.
A few notes for contract drafters:
– Instead of stating that one party has a right, it is better to state that the other party has an obligation, and only state that one party has a right if it is a remedial measure. Drafters often state: “The buyer has the right…; the seller has the right…”. This wording should be avoided because it puts the drafter in a “difficult position” of proving that the parties have those rights.
– Example: Regulation: “The seller has the right to receive payment of VND 20,000,000 after delivering the goods to the buyer.” In this case, for the seller to receive the payment, they must prove their right to receive the money. Therefore, the drafter should state: “The buyer has the obligation to pay VND 20,000,000 after the seller delivers the goods.”
– An exception to this note is to still state that parties have the right […] if it is a remedial measure. For example, in a lease agreement, the parties agree: “If the tenant does not return the premises in a clean condition, the landlord has the right to retain the deposit equivalent to the reasonable cleaning costs.” In this case, the landlord does not intend to keep the deposit if the tenant cleans the premises before returning them. The landlord will return the deposit if the premises are clean; otherwise, the landlord will keep the deposit to cover the cleaning costs.
– Avoid using the word “agree” when drafting obligation clauses.
– Example: Some clauses like: “Members agree to contribute VND 2 billion to the company before April 5, 2023”; “The parties agree to perform this contract in good faith”; “The parties agree to negotiate and mediate in the spirit of mutual respect if a dispute arises.” Using the word “agree” is redundant because a contract is an agreement, the parties’ consent is inherent in all clauses; without this consent, there would be no clauses in the contract.
This error does not violate legal regulations but is a wording error. At the beginning of the contract, after the preamble, it often states: “Now, the parties agree to enter into this contract with the following terms and conditions…”. This already addresses the parties’ consent, so there is no need to repeat it in other clauses.
– Avoid using the phrase “responsible for” when one party does something.
– Example: “The seller is responsible for delivering the goods to the buyer’s warehouse”; “The buyer is responsible for payment upon receiving the goods.” Using the phrase “responsible for” can cause confusion, making it seem like a penalty, a responsibility as an adverse legal consequence that one party must bear when there is a breach of contract.
III. CONDITIONS PRECEDENT
Conditions precedent are understood as certain events that must occur before one party in a contract is obligated to perform their duties to the other party. These clauses are agreed upon and applied in large, complex contracts.
Conditions precedent are conditions that directly affect whether the parties will enter into a contract or the validity of the contract. Parties may set one or more conditions precedent; if a condition precedent is not met, the party imposing the condition may decide to waive or not require it. Alternatively, the failure to meet a condition precedent may lead to the termination of the transaction if the imposing party does not accept the waiver.
Typically, conditions precedent are presented in two forms: As agreed upon by the parties, or as required by law. Some conditions precedent agreed upon by the parties include:
Example 1: Imagine you want to buy house A, but you don’t have enough money. You need to sell house B first to afford house A. However, if you wait to sell house B, you might miss the opportunity to buy house A. In this case, there’s still a solution for you, a technique often used by commercial lawyers: applying a condition precedent. This clause would operate as follows:
You and the seller can sign the contract for house A, and this contract is legally binding from the date of signing. However, the buyer’s obligation to pay is only triggered when and only when the buyer has sold house B. Thus, the buyer selling house B to afford house A is a condition precedent for the sale contract to proceed. To protect the seller’s interests, there must be a deadline for the buyer to meet this condition precedent. The parties can agree as follows:
“The sale price of house A is VND 20 billion. The buyer is obligated to pay this price on the condition that they have sold house B. However, under no circumstances should the payment period exceed six (6) months from the date of signing the contract.
If the condition precedent does not occur or six months have passed since the contract was signed and the buyer cannot pay, the contract will be handled in one of two ways:
- The parties will extend the contract, subject to the seller’s discretion.
- The parties will terminate the contract, in which case the rights and obligations of the parties will be handled as follows:…”.
Example 2: The parties agree on payment terms in a share purchase agreement. What happens if, after selling the shares, the buyer does not make the payment? In this case, the seller may stipulate conditions precedent as follows:
Conditions Precedent for Shareholder Obligations at Completion:
(a) The obligation of the shareholders to sell the shares on the completion date depends on the satisfaction, on or before the completion date, of the following conditions precedent:
– The representations and warranties of the investor in Article [*] are true, accurate, and not misleading on the completion date.
– The investor has transferred the purchase price into the escrow account under the escrow agreement.
The parties can agree on the conditions precedent, contents, and effective conditions as long as they are not contrary to law and social ethics. The parties self-determine the necessary precedent conditions to be performed before any obligation arises in the contract or before the contract takes effect.
For conditions precedent prescribed by law, which may also be the conditions for the contract’s validity, meeting these conditions is a mandatory obligation of the parties. Therefore, reiterating these conditions in the conditions precedent serves only to “emphasize” them in the contract.
Example 3: Conditions Precedent:
The lender will only provide the loan to the borrower if the following conditions precedent are met by the borrower within three (3) days from the date of signing this contract:
1.1. This contract is validly signed by the parties.
1.2. The business cooperation contract is validly signed by the parties.
1.3. No event of default is ongoing or arising from the signing and performance of this contract.
1.4. The borrower’s representations and warranties in this contract are true in all material respects.
Some conditions precedent, as required by law, may be presented as follows:
– The contract is validly signed by the parties: Parties should pay attention to the signing authority of the representative. If it is a legal representative (especially in companies with multiple legal representatives) or an authorized representative, the scope of representation and the scope/value of the signed contract should be noted.
– Internal approval procedures have been completed: When signing a contract for the sale of company assets, in some cases, the seller must provide internal approvals to ensure the sale contract’s validity.
– Point d, Clause 2, Article 55 of the 2020 Law on Enterprises, amended and supplemented in 2022: Stipulates the authority of the Members’ Council: “Approving loan agreements, loaning, asset sales, and other contracts specified by the company charter with a value from 50% or more of the total asset value recorded in the company’s most recent financial statement or another smaller percentage or value as stipulated in the company charter.” Thus, the approval of the Members’ Council in this case is also a condition precedent for the sale of company assets valued at 50% or more of the total asset value.
– Point h, Clause 2, Article 153 of the 2020 Law on Enterprises, amended and supplemented in 2022: Stipulates the authority of the Board of Directors: “Approving contracts for purchasing, selling, lending, borrowing, and other contracts and transactions with a value from 35% or more of the total asset value recorded in the company’s most recent financial statement, except where the company charter stipulates a different percentage or value, and contracts, transactions under the authority of the General Meeting of Shareholders as stipulated in Point d, Clause 2, Article 138, Clauses 1 and 3, Article 167 of this Law.”
– No event of default is ongoing or arising from the signing and performance of the contract: For example, the parties preparing to sign a goods sale contract, a condition precedent is that the goods are lawfully owned by the seller, and there are no disputes arising related to the seller’s ownership of the goods. If such an event of default occurs, the sale contract will not be executed.
– The representations and warranties of one party in this contract are true in all material respects: Depending on each contract, the parties may agree on these “material respects.” For example, parties may represent that there are no violations of environmental, tax, labor issues, etc.
– Necessary approvals from state authorities have been obtained: For example, if Party B signs a loan contract with Party A to finance the production of a film. The loan’s purpose is to produce the film, and regarding the disbursement conditions, the parties may agree: “The condition precedent for the lender to transfer the money to the borrower is that the borrower must obtain all necessary approvals from the competent state authorities for film production.”
Thus, in a loan contract, the lender has an obligation to transfer money to the borrower, but if the borrower does not have a film production license after the transfer, it poses a risk to the lender. Therefore, the parties agree to add a condition for disbursement: the borrower must obtain the film production license. At this point, the lender’s obligation will be triggered.
Simply put, conditions precedent act as “checkpoints.” Creating these “checkpoints” serves two purposes: preventing an obligation from occurring if the other party does not satisfy a condition; and determining whether these conditions precedent occur and how the parties will handle them. In other words, these are conditions that must be met before the contract takes effect or before certain important obligations of the contract take effect. These conditions can be action-based (performing one or more conditions) or non-action-based (not violating prior commitments, representations, and warranties).
Example 4:
Article 4.1 Conditions for the Seller’s Obligations at Completion
(a) The seller ensures that the equitization plan, equitization policy, and all necessary procedures and requirements for the seller’s conversion to a joint-stock company model have been fully and entirely approved and/or agreed upon by state authorities and/or relevant competent agencies.
(b) The seller will transfer, or the seller and the strategic investor will require the company to transfer to the strategic investor: (A) the original share ownership certificates for the purchased shares and a certified copy of the shareholder register extract, confirming the strategic investor as the holder and legal owner of the purchased shares; and (B) a certified copy of the amended enterprise registration certificate to reflect the strategic investor as the investor of the company for the purchased shares.
Example 5:
Article 4.2 Conditions for the Strategic Investor’s Obligations at Completion
The strategic investor’s obligation to pay the seller on the completion date depends on the satisfaction, on or before the completion date, of the following conditions precedent, any of which may be wholly or partially waived in writing by the strategic investor:
(i) This contract and the other transaction documents have been validly signed and transferred accordingly by the parties and the parties of the other transaction documents;
(ii) The seller’s representations and warranties in Article [*] are true, accurate, and not misleading from the contract signing date to the completion date;
(iii) The strategic investor has received from the company (A) the original share ownership certificates for the purchased shares and a certified copy of the shareholder register extract, confirming the strategic investor as the holder and legal owner of the purchased shares; and (B) a certified copy of the amended enterprise registration certificate to reflect the strategic investor as the investor of the company for the purchased shares.
SUMMARY OF CHAPTER 4
- Representations and Warranties: These are clauses in a contract where one party represents to the other, or the parties represent to each other, about the accuracy of certain information or events.
- Rights and Obligations of the Parties: When mentioning one party’s obligations, these obligations correspond to the rights of the other party. During the contract drafting process, the contents regarding the rights and obligations of the parties are embedded in each clause. Thus, this clause only stipulates the rights and obligations not covered in the previous content to avoid redundancy.
- Conditions Precedent: These are understood as one or several events that must exist before one party in the contract is obligated to perform their duties to the other party. These conditions may be agreed upon by the parties or stipulated by law.
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“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”
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