Liquidated damages are widely used in commercial and construction contracts, yet remain unregulated under Vietnamese law. This gap results in uncertainty and inconsistent judicial interpretation, creating challenges for businesses in risk allocation and enforcement.

🔍 1. No clear statutory foundation
Vietnamese law only compensates actual and direct losses. Pre-agreed liquidated damages amounts therefore face enforceability concerns unless they align with principles of reasonableness and contract freedom.

⚖️ 2. Three judicial approaches emerging in practice
(i) Rejecting liquidated damages
Courts refuse enforcement when the claimant cannot prove actual loss.
(ii) Reclassifying as contractual penalty

Some decisions treat these clauses as penalties subject to the 8% cap under Article 301 of the Law on Commerce.
(iii) Recognizing the clause based on autonomy & commercial practice
An increasingly progressive approach—courts uphold the clause by applying:
– Freedom of contract principles,
– Commercial custom,
– Equitable interpretation.
This signals a shift toward greater contractual flexibility.

📝 3. Drafting recommendations for enforceability
✔ Define breaches clearly.
✔ Ensure the amount is reasonable and proportionate.
✔ Distinguish penalties vs damages.
✔ Avoid generic or statutory copy-paste clauses.
✔ Provide detailed timing and calculation methods.

📌 4. Why it matters
Liquidated damages—when properly drafted—deliver:
⏺ predictable risk allocation,
⏺reduced evidentiary burden,
⏺improved performance discipline,
⏺greater confidence in cross-border transactions.
In a fast-growing commercial landscape, clarity in damage mechanisms is essential.

🔹 THE LAM LAW LLC – Your legal need, Our Mission‘ Perspective
Vietnam would benefit from clearer judicial guidance to enhance consistency. Until then, careful contract drafting and early legal consultation remain critical to protect business interests.

📚 Bilingual Attached Material: Pls find attachment.

🛡️ Disclaimer
This Legal Update is for general information only and does not constitute legal advice. Specific cases require tailored legal assessment.

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