To avoid risks arising from a contract for the sale and purchase of goods: A perspective from an appellate judgment

When doing business, most businesses spend a lot of time looking for customers, negotiating prices and expanding markets. However, not all businesses pay commensurate attention to contract development and management. In fact, many commercial disputes worth tens or even hundreds of billions of VND do not stem from deception or deliberate violations of one party, but stem from inadequate terms, agreements that have not been fully recorded or subjectivity in the process of performing contracts.

From an ordinary commercial dispute, the conflict quickly escalated into a lawsuit that lasted through many levels of trial.

A recent appellate judgment related to a dispute over a contract for the sale of goods in the field of supply of materials and equipment for a hydropower project is a notable example[1]. The case not only reflects the common difficulties in goods trading activities but also shows that many businesses still do not consider contracts as a risk management tool but only consider this a necessary procedure to complete transactions.

1. Differences in the interpretation of contracts and lack of mechanisms for handling violations

According to the content of the case, the parties have signed a contract for the purchase and sale of goods for the hydropower project with a large transaction value and a long implementation time. During the implementation process, disagreements arose between the parties regarding the quality of goods, delivery schedule, payment obligations and responsibility to overcome technical shortcomings.

It is worth noting that in the first stage, the parties continued to cooperate, exchange and find ways to handle arising problems. However, because the contract does not fully stipulate the mechanism for handling when a violation occurs, each party gradually forms its own understanding of its rights and obligations. From an ordinary commercial dispute, the conflict quickly escalated into a lawsuit that lasted through many levels of trial.

This practice reflects a fairly common reality in today's business environment. Many businesses think that the contract only needs to stipulate the price, transaction object and payment method. Meanwhile, the terms related to handling violations, correcting errors, extending obligations or terminating contracts are quite sketchy. It is these gaps that often become the cause of disputes.

One of the most important lessons from the case is that businesses often focus on preventing violations but pay little attention to preparing handling scenarios when violations actually occur.

In a business environment, delays in delivery, late payment, or technical errors are inevitable. The important issue is not whether the breach occurred, but whether the contract anticipates how to handle those situations.

Many current contracts stipulate in great detail the object of goods but do not clearly define what is the basic violation, how long is the time limit for remedying the violation, in which cases the breached party has the right to suspend the performance of the contract or when a party is entitled to terminate the contract.

When these contents are not clearly defined, each party will tend to interpret the contract in their favor. That's when the dispute began to form.

From the perspective of corporate governance, a good contract is not a contract that assumes that everything will go smoothly, but a contract that anticipates adverse situations and builds a clear handling mechanism for each of those situations.

2. Risks of unilateral termination of the contract

A prominent content of the case is that one party decided to terminate the contract on the grounds that the partner had breached its obligations.

In fact, this is a decision that many businesses often make when the partnership is at an impasse. However, not every violation allows the other party to unilaterally terminate or cancel the contract.

According to the Commercial Law 2005, the right to cancel a contract is usually only applied when a fundamental breach occurs, i.e. the breach causes the other party to fail to achieve the purpose of entering into a contract. The Civil Code 2015 also sets strict requirements for the unilateral termination of contract performance.

In trial practice, the court not only considers the breach but also evaluates the entire context of contract performance. Some of the factors that are commonly considered include the severity of the breach, the ability to remedy the consequences, the cooperative attitude of the parties, and the previous performance of the contract.

This means that businesses can face huge risks if they decide to terminate the contract in a hurry. In many cases, the party that thinks that it is protecting its legitimate interests becomes the infringing party and must compensate the partner for damages.

Another notable point of the case is that the dispute not only revolves around the content of the contract but also revolves around the ability of the parties to prove.

During the trial, many issues related to the quality of goods, the progress of work performance, the acceptance or confirmation of debts must rely on the evidence system formed during the performance of the contract.

This shows the fact that winning or losing a trade dispute often does not depend entirely on which side is more reasonable, but on which side proves better.

A notable trend in adjudication today is that courts do not only rely on the wording of the contract but also look at how the parties have actually performed the contract.

Many Vietnamese businesses still maintain the habit of handling work through phone calls, private messages or exchanges that are not recorded in writing. When the partnership goes well, this may not create significant problems. However, when disputes arise, the lack of evidence often puts businesses at a disadvantage.

In the context of strong digital transformation, contract governance needs to be extended to contract data management. Emails, meeting minutes, delivery logs, acceptance records, debt confirmations and other electronic data should be considered important legal assets of the enterprise.

3. Adjudication trends of Vietnamese courts and the response of enterprises

A notable trend in adjudication today is that courts do not only rely on the wording of the contract but also look at how the parties have actually performed the contract.

In this case, the appellate level pays significant attention to the exchanges between the parties, the process of performing obligations, the way of handling arising problems and the cooperative attitude during the performance of the contract.

This approach is in line with the principles of good faith and honesty recorded in the Civil Code 2015. Accordingly, the rights and obligations of the parties are determined not only from the content of the document but also from the actual behavior during the performance of the contract.

For businesses, this means that every decision in the process of performing a contract can have legal implications. Accepting slow delivery for a long time, continuing to receive goods even after detecting errors, or repeatedly extending obligations to partners can significantly affect the ability to protect the interests of businesses when disputes arise.

From the perspective of the appellate judgment, it can be seen that most of the damages arise not because the contract does not exist but because the contract has not been properly administered.

In many businesses, contracts are often seen as the responsibility of the legal department or lawyers. However, in reality, contract management is the responsibility of the entire corporate governance system. Sales, finance, purchasing, engineering, and legal departments all play an important role in ensuring that contracts are properly executed and risks are controlled in a timely manner.

A well-crafted contract can help businesses effectively handle situations that arise without taking disputes to court. Conversely, a contract that lacks the right governance mechanism can cause minor conflicts to initially develop into lawsuits that last for years.

The perspective from the appellate judgment shows that the biggest risk in a goods purchase and sale contract does not lie in the partner's breach of obligations, but in the fact that the enterprise does not fully prepare a mechanism to handle the violation when it occurs.

In the context of increasingly volatile markets and increasingly complex supply chains, contracts are no longer merely documents documenting transactions but have become a strategic risk management tool. The more seriously an enterprise invests in the construction, implementation and administration of contracts, the higher the ability to prevent disputes and protect business interests.