Hello everyone, and welcome back to The Lawyers Talk channel from BLawyers Vietnam. I’m Huynh Kim Thanh, and I’m glad to be with you in today’s episode No. 37 of the BLawyers Vietnam podcast. Before we begin, let’s imagine a very practical situation: your business has delivered the goods, provided the services, and fulfilled its contractual obligations, but the other party delays payment, avoids responsibility, or even terminates the contract without prior notice. At that point, the question is not only “who is right and who is wrong”, but also: what should the business do to protect its interests effectively?
Today’s topic is about the questions that BLawyers Vietnam most frequently receives from clients who wish to resolve a commercial dispute in Vietnam. Instead of discussing legal rules in a dry or purely technical manner, we will approach this topic from a practical business perspective: how to choose the right dispute resolution forum, how to make penalty and late payment interest clauses truly meaningful, and how to make sure that winning a case does not remain only a judgment or award “on paper”.
A commercial dispute is a dispute arising from commercial activities between parties who are referred to as “traders” in Article 6 of the Law on Commercial 2005. Accordingly, Article 3 of the Law on Commercial 2005 defines commercial activities as activities carried out for profit-making purposes, including the sale and purchase of goods, provision of services, investment, trade promotion, and other profit-making activities. So, when a dispute arises within the scope of these activities, it can take many different forms depending on its underlying nature. For example, this can include a dispute over goods delivered that fail to meet agreed quality standards, or a dispute arising from a party’s prolonged delay in payment, or a dispute arising when a party unilaterally terminates a contract without prior notice, or simply an outstanding debt that has never been fully resolved. Whatever the situation, how a business prepares for and responds to it from the very beginning will largely determine the final outcome.
In this episode, we will discuss 03 key questions that every business owner, in-house counsel, chief accountant, or contract manager should keep in mind: First, when a dispute arises, should the business go to Court or Arbitration? Second, is an 8% penalty enough to protect the business, and how should late payment interest be drafted? Third, after winning the case, how can the business actually recover the money? If you find today’s topic useful, please leave a comment below so BLawyers Vietnam can develop this topic further in future episodes.
1. The first question we would like to raise is: When a dispute arises, should the business bring the case before the Court or commercial arbitration?
This is not a minor technical issue. In practice, a dispute resolution clause can affect the speed of the proceedings, the cost of pursuing the dispute, the confidentiality of business information, and even the company’s negotiation strategy. During contract negotiations, parties often focus heavily on price, payment, delivery, and service quality, but they may underestimate the dispute resolution clause. When an actual dispute arises, one unclear sentence can cost the business additional time, money, and legal leverage.
When a dispute arises, a business typically has two main options: filing a lawsuit with the Court, or resolving the dispute through commercial arbitration. Each method has its own advantages and disadvantages, and choosing an option that doesn’t suit the nature of the business from the outset can create significant difficulties down the road. Let’s briefly compare the two:
On the Court side, the first advantage is that court fees are considerably lower than arbitration fees, and if the Court accepts the claimant’s request in full, the advance court fee will be refunded to the claimant once the judgment takes effect. In addition, a case brought at the Court may go through multiple levels of adjudication, such as first instance, appellate, and cassation review where grounds exist, which means this method offers a relatively high degree of oversight and review. However, this is also precisely what makes many businesses hesitant, because Court proceedings tend to take longer, particularly for complex cases or where one party deliberately delays proceedings by filing appeals. In addition, court trials and judgments are public, which may not suit businesses that wish to keep their business information confidential.
On the other hand, commercial arbitration, most commonly conducted at the Vietnam International Arbitration Centre, or VIAC, offers greater confidentiality and a faster resolution process, since an arbitral award is final and binding, meaning it takes effect immediately and cannot be appealed as a Court judgment can. We have observed that many international commercial contracts involving a foreign element tend to favor arbitration for this very reason. In exchange, however, arbitration fees are typically significantly higher than court fees, and unlike the Court, the arbitration center itself does not refund this fee; instead, the respondent bears this cost if the tribunal accepts the claimant’s request in full. And precisely because an arbitral award is final, if a business is dissatisfied with the outcome, there is almost no opportunity to have the matter reheard, except in a limited number of circumstances where a party may request the annulment of the arbitral award under the law.
One point we would like to emphasize is this: What happens if a contract refers to both Court and Arbitration, or if the dispute resolution clause is simply unclear? In lengthy contracts with multiple appendices and versions, one section may refer to the Court while another refers to Arbitration. This is not only a drafting error; it can become a separate dispute before the parties even reach the main dispute. In such cases, BLawyers Vietnam typically works with the client to review the full file, assess the suitable approach, and, where necessary, send letters so the parties can agree on the competent dispute resolution forum. The practical message is clear: A well-drafted dispute resolution clause is not a boilerplate clause; it is a business risk-management tool.
2. The second question is: Is an 8% penalty enough to protect the business, and how should late payment interest be drafted?
This is particularly important when drafting commercial contracts, because it affects not only the amount a business may claim when initiating proceedings, but also the subsequent judgment enforcement stage.
This is one of the clauses we most often see businesses confuse. This is the confusion between a penalty for breach and late payment interest. Legally speaking, these are two entirely different concepts. A penalty for breach is a punitive sanction applied when a party breaches its contractual obligations, whereas late payment interest is an amount intended to compensate for the delay in performing a specific payment obligation.
Under Article 301 of the Law on Commercial 2005, the penalty for a breach of contractual obligations, or the total penalty in the case of multiple breaches, is agreed upon by the parties themselves, but must not exceed 8% of the value of the breached portion of the obligation, except in certain specific cases provided by law. This is precisely where many businesses fall short when drafting their contracts. They set a penalty rate higher than 8%, and if a dispute arises, the portion exceeding this cap is not upheld by the Court or the arbitral tribunal. In our view, this often stems from businesses following the drafting habits of an ordinary civil contract, forgetting that this is in fact a commercial contract, as we mentioned earlier.
In addition, regarding late payment interest, Article 306 of the Law on Commercial 2005 provides that where a party in breach delays payment for goods, service fees, or other reasonable costs, the aggrieved party is entitled to claim interest on the overdue amount, calculated at the average overdue interest rate prevailing on the market at the time of payment, for the corresponding period of delay. Notably, this provision does not specify an exact interest rate. Therefore, when a case is resolved at Court, Resolution 01/2019/NQ-HDTP of the Judges’ Council of the Supreme People’s Court provides fairly detailed guidance on how to apply this rule, under which the Court will refer to the average overdue interest rate on the market of at least 03 commercial banks in the relevant locality.
Also under this Resolution, specifically Article 13, when rendering a judgment or decision, the Court will record the interest in one of two ways. First, for a contractual obligation where the parties have agreed on the payment of interest, then from the day following the first-instance trial date until the judgment is fully enforced, the judgment debtor must also pay interest on the outstanding amount, at the rate agreed by the parties, provided that this rate complies with the law; where no interest rate has been agreed, the rate under the Civil Code 2015 will apply. Second, for a property obligation, whether under a contract or otherwise, where the parties have not agreed on the payment of interest, then from the date the judgment creditor files a request for enforcement until the judgment is fully enforced, the judgment debtor must pay interest at the rate set out in the Civil Code 2015, unless otherwise provided by law.
In other words, penalty and late payment interest clauses should not be treated as standard wording in a contract. They need to be clear, legally compliant, and commercially practical so that, when a dispute arises, the business has a basis to make a claim, a basis for the Court or arbitral tribunal to recognize it, and, more importantly, a basis to calculate the actual amount that may be recovered at the enforcement stage. A good contract should not only help a business win the legal argument; it should also improve the business’s ability to recover what it is entitled to in practice.
3. The final question is: How does BLawyers Vietnam typically approach a commercial dispute in order to protect the client’s practical interests?
Generally, when we take on a case, the first step we take is to thoroughly review the client’s entire case file in order to build an appropriate resolution strategy. For most disputes, we begin by sending a letter of demand, which opens the door for the two parties to resolve the dispute through negotiation, and allows us to formally record any agreement the parties may reach. This is not only a goodwill gesture, in many cases, it is actually a mandatory step, since a number of commercial contracts expressly require the parties to prioritize negotiation or mediation before either party is entitled to initiate proceedings at Court or Arbitration. Skipping this step can expose the business to procedural risks later on when filing a claim.
If negotiations fail to produce a result, we then assist the client in preparing the case file to initiate proceedings at the Court or Arbitration, depending on which body has jurisdiction under the contract, as we discussed earlier.
Beyond supporting the litigation or arbitration process itself, BLawyers Vietnam also plays an important role in advising on negotiation and case-resolution strategy, helping the client weigh whether to continue negotiating or to proceed directly with a claim, based on factors such as the likelihood of recovering the debt, time, cost, and the long-term business relationship with the counterparty.
Equally important is advising the business on how to resolve the dispute in a way that minimizes the risk of being unable to recover the money owed. In practice, it is not uncommon for a business to win a case, judgment or award in hand, only to run into difficulties at the enforcement stage—for instance, where the judgment debtor no longer has assets, or has deliberately dissipated its assets. For this reason, from the very early stages of a dispute, we typically advise clients to apply a combination of appropriate legal measures, so that, once a resolution is reached, the client can genuinely recover what is rightfully theirs in practice, not simply hold a judgment that exists only on “paper”. In short, in a commercial dispute, winning legally is important, but winning commercially is the ultimate objective.
So, that brings us to the 03 key questions BLawyers Vietnam wanted to share with you today on the topic of commercial disputes: choosing between Court and Arbitration, drafting penalty and late payment interest clauses effectively, and making sure that dispute resolution is connected with the practical recovery of business interests. We hope these insights are helpful, particularly for businesses currently drafting or reviewing commercial contracts, giving you an added perspective to prevent risks from the beginning.
If you found today’s episode useful, don’t forget to leave a comment below. In your company’s commercial contracts, which clause worries you the most when a dispute arises? BLawyers Vietnam will use your real questions to develop deeper discussions in our future episodes.
For any questions, please feel free to leave a comment below. Or, to learn more about BLawyers Vietnam, please visit our website linked below this episode of The Lawyers Talk.
Thank you, and see you next time.
The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at info@blawyersvn.com. We would love to hear from you.
Date: 27 July 2026
Thanh Huynh
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