Author
Dr Nguyen Quang Anh
Organisation/Institution
Hanoi Law University
Country
VIETNAM
Panel
International Business Law
Title
Bridging the Commercial Divide: Harmonizing Vietnamese Rules on Penalty Clauses with Global Standards for Enhanced Regional Integration
Abstract
Agreed sums payable upon breach, commonly referred to as liquidated damages in Common Law systems and penalty clauses in Civil Law jurisdictions, are essential to cross-border commerce. In the context of Asia’s development, the reliability and predictability of these contractual tools is highly important for facilitating trust and minimizing risk in complex regional supply chains and investment agreements. Despite the critical role of these clauses in ensuring performance and predictable dispute resolution, Vietnam's current legal framework presents a significant challenge for regional integration. The regulatory gap, particularly the 8% cap imposed on penalty clauses by the 2005 Commercial Law, prompts contracting parties, especially those engaging in international transactions, to circumvent the restriction by labelling their agreed sum agreements as “liquidated damages”. However, the validity of such agreements remains highly uncertain due to the lack of explicit rules and the rigid interpretation by Vietnamese courts. This legal ambiguity is not merely a domestic issue; it is a structural barrier that undermines Vietnam's credibility as a reliable forum for complex commercial dispute resolution, thereby increasing transaction costs across the ASEAN region. This uncertainty impedes the flow of capital necessary for sustainable economic growth and diminishes the perception of justice and fairness in Vietnamese business dealings. This paper argues that Vietnam must strategically align its framework governing agreed sum clauses with prominent international instruments, such as the Principles of International Commercial Contracts (PICC) and the UNCITRAL 1983 Rules on Agreed Sums Payable upon Failure of Performance. In addition, this paper also examines the practical legislative and judicial mechanisms required for the effective implementation of these international standards within Vietnam's unique legal context. By adopting a modern approach that balances contractual freedom with substantive justice and fairness, Vietnam can eliminate legal uncertainty and establish a predictable contracting environment. Ultimately, this reform serves as a concrete mechanism for enhancing regional integration, solidifying Vietnam’s position as a dynamic and trustworthy partner in the accelerating rise of Asia.
Biography
I hold a Bachelor's degree in International Trade and Business Law from Hanoi Law University (Vietnam), as well as a Master's and Ph.D. in Comparative Law from Nagoya University (Japan). Since 2019, I have been working as a full-time lecturer at Hanoi Law University, where I am actively engaged in teaching and research. My primary research interests lie in international business law, with a particular emphasis on contract law.
