Contract interpretation under Vietnamese law

Contract Interpretation.

In reality, there are many disputes over the language of a contract. Such disputes usually result from ambiguous provisions which are not reviewed thoroughly by parties when concluding contracts. When a dispute arises, the question is how the law interprets the vague language of a contract. In this article, BLawyers Vietnam presents five principles of interpreting a contract under Vietnamese law.

1. Interpretation of contracts according to the intention of the parties

Where a contract contains terms and conditions which are unclear, the interpretation of such terms and conditions shall be based not only on the wording of the contract but also on the intentions of the parties expressed before and at the time of establishment, and during the performance of the contract. As such, the law puts the first attempt on the wording of a contract, but if the wording is vague or difficult to understand, the intentions of the parties will be applied to interpret contracts.

For instance, in a sales contract, A agrees to sell and transfer seafood to B’s warehouse with the amount equal to 10 full warehouses. The issue is how many tons are needed to cause 10 warehouses to be full. What is the sales quantity in this case? During negotiations, B told A in an email that 20 tons of seafood would cause the warehouse to be full. Therefore, the sales quantity in this case shall be interpreted as 200 tons of seafood.

Of note, the wording of a contract is examined before the intentions of the parties. However, the parties’ mutual intentions predominate over the wording if there is a contradiction between the common intentions and the wording in the contract.

2. Interpretation according to the purpose and nature of a contract

The purpose of the contract is the interest that parties wish to obtain when concluding a contract. The nature of a contract is the unique characteristic of a contract, which helps to distinguish it from other contracts.

To illustrate, A agrees to transfer a bike to B and B shall transfer VND 8,000,000 to A in return. According to the contract, payment is divided into two installments. The first installment is when B receives the bike; the second installment is one month after the first payment. After one month of using the bike, B returns the bike to A and refuses to pay the remaining amount. B alleges that this was a bike rental contract, not a sales contract because the contract provides that A agreed to “transfer” a bike to B, not “sell” a bike to B. So how should “transfer” be interpreted?

It can be seen that the purpose of this contract was to sell the bike. The purpose was clearly expressed when the contract provided that B only needed to transfer the amount twice, instead of a monthly payment like other typical rental contracts. The nature of the contract was a contract for purchase and sale of property. Therefore, “transfer a bike” shall be interpreted as “sell a bike”.

3. Interpretation of contracts according to customary practices

A custom is employed to deal with words or provisions which are difficult to understand when they are neither agreed upon by the parties nor prescribed by law but a custom exists to govern such issues. A custom is applied only when it does not contravene the fundamental principles of civil law.

To be considered as a custom, the code of conduct shall: (i) contain clear contents for the determination of the rights and obligations of individuals and legal persons in particular civil relations; (ii) be established and repeated many times for a long time; (iii) be widely recognized and applied in an area, a region, an ethnicity, a residential community or a civil field .

4. Interpretation of the contract as a whole

This principle means that any ambiguous words or provisions shall be interpreted together with the entire provisions of the contract. All the clauses shall be read together to get a clear picture of the contract before deciding the meaning of any vague wording.

In reality, there are many cases where the parties make typos in the contract, then have a dispute over such typos. For example, parties agree to pay in Vietnam dong for many provisions in a contract. But, for some reason, there is one reference to the US dollar. When a dispute arises, the US dollar shall be recognized as an error when drafting a contract and Vietnam dong shall be applied.

5. Interpreting a contract in favor of a disadvantaged party

In case the contract-drafting party inserts in the contract content that is unfavorable to the other party, the contract shall be interpreted in a manner favoring the other party. This principle is to protect innocent parties, balancing interests among the parties.

However, it is difficult to apply this principle in reality because it is hard to clarify the contract-drafting party when the parties jointly agree on the terms of the contract. Therefore, this principle is only commonly used for standard form contracts which employ non-negotiated provisions, such as insurance contracts and credit contracts where assurance companies or credit institutions draft all of the terms.

The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. We would love to hear from you.

Date: 16 August 2023

Writer: BLawyers Vietnam

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