Conflict of laws regarding contracts pursuant to Vietnamese laws and 4 conflict resolution principles

 Date: 31 August 2021

Writer: Thao Nguyen 

During our support in advising contracts and settling disputes regarding contracts at Courts/ Arbitration Centers, we realize that there have been many overlapping provisions in legal documents. This leads the conflict of laws regarding contracts to become common. The reason is a contract can be subject to various laws whose contents are not consistent. Contracting parties often do not pay attention to determine conflict of laws at the stage of negotiation and conclusion of the contract. They only take the conflict of laws into account when a dispute arises; however, solving that conflict is not simple. Through this Article, BLawyers Vietnam presents underneath some notable issues related to the conflict of laws regarding contracts and conflict resolution principles.

1. What is a conflict of laws regarding contracts?

A conflict of laws regarding contracts happens when a contract is governed by various laws but such laws provide conflicting regulations/ contents.

For example, a credit contract is entered between a credit institution and a client. The credit contract can be subject to Civil Code 2015 (“Civil Code”), Commercial Law 2005 (“Commercial Law”), and Law on Credit institutions 2010. A conflict of laws as to contracts occurs when such laws provide conflicting contents for the same issue.

2. Principles to resolve conflict of laws as to contracts

Principles to resolve conflict of laws as to contracts have not been regulated specifically in any legal documents. However, four principles are widely recognized and often applicable to resolve the conflict:

i. The principle of “international treaties shall prevail”

Law on International Treaties regulated: “In case a Vietnam’s domestic legislative documents and an international treaty to which the Socialist Republic of Vietnam is a signatory contain different regulations on the same issue, the international treaty shall apply, except for Constitution”.

As such, international treaties are in priority in comparison with domestic legislative documents. For example, if a contract is signed between a Vietnamese trader and a trader from a country that is a signatory of the United Nations Convention on Contracts for the International Sale of Goods 1980 (also referred to as CISG), CISG is in priority to apply.

ii. The principle of “the document of higher legal effect shall prevail”

This principle means if various legal documents contain different provisions on the same issue, the document with higher legal effect shall apply. Based on the system of legal documents of Vietnam, Constitution has the highest legal effect. Therefore, if any legal documents provide conflicting contents with the Constitution, the Constitution shall prevail.

iii. The principle of “the latter-promulgated law shall prevail”

This principle is recorded in the Law on Promulgation of Legislative Documents 2015. Accordingly, in case various legislative documents promulgated by a competent agency contain different regulations on the same issue, the document that is promulgated latterly shall prevail. For example, two Decisions of the provincial People’s Committee regulate different contents for the same issue, the decision issued latterly shall prevail.

iv. The principle of “the special law shall prevail”

This principle is scattered in several legal documents of Vietnam.

For instance, Civil Code provides that it is a general law that applies to civil relations. Commercial Law stipulates: “Commercial activities which are not provided in Commercial Law and other laws shall comply with the provisions of Civil Code”. Thus, Civil Code is a general law governing all legal relations under civil laws. On the other hand, Commercial Law is a special law that governs commercial activities specifically. Therefore, in case a contract is subject to both Civil Code and Commercial Law, the Commercial Law, as a special law, shall prevail, provided that this application is not contrary to the basic principle of civil laws as prescribed in Civil Code.

3. Application of conflict resolution principles in case of legal conflicts in the field of construction

We analyzed an example in the construction field. In practice, most construction contracts are subject to Civil Code (general law), Commercial Law (special law), and Law on Construction (“Construction Law”) (specific special law) at the same time. The question is in such a case which legal documents shall prevail if there is a conflict of laws. There are two opinions as follows:

a. Opinion 1: Construction Law shall be given the highest priority, if there is no regulation, then Commercial Law shall be applied. Only when the Commercial Law has no regulation Civil Code will be applied. This opinion is in accordance with the conflict resolution principle mentioned in Item 2.iv above.

b. Opinion 2: Construction Law shall prevail, if there is no regulation, then Civil Code shall be applied, over the application of Commercial Law. This point of view is based on a regulation of Construction Law, in which regulated “a construction contract is a civil contract”.

Such opinion was also shown in the Official Letter No. 48/BXD-KTXD dated 03 September 2019. Accordingly, contracting parties can apply a higher penalty than 8% of the value of the breached contractual obligation for construction works not using state funds. This means that if Construction Law does not regulate the capped amount for the penalty, the Civil Code will be applied while Commercial Law with the provision of the maximum penalty is 8% is dismissed.

Currently, there is still controversy about whether Commercial Law shall prevail in the case mentioned above. However, the second opinion seems against the principle of conflict resolution as stipulated in Civil Code’s Article 4 and Commercial Law’s Article 4.

In conclusion, the law has not provided clear and specific provisions to resolve conflicts thoroughly. Therefore, contracting parties need to study contractual regulations to protect their interests and mitigate disputes arising.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

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