Principles for determining foreign elements in civil contracts

1. Determining foreign elements in civil contracts

To determine foreign elements in civil contracts, Clause 2, Article 663 of the 2015 Civil Code stipulates that foreign elements are expressed in the following three cases:

• At least one of the participating parties is a foreign individual or legal entity;
• The participating parties are all Vietnamese citizens or Vietnamese legal entities, but the establishment, change, implementation or termination of that relationship occurs abroad;
• The participating parties are all Vietnamese citizens and Vietnamese legal entities, but the subject of the civil relationship is abroad.

The three foreign signs mentioned above can be considered in terms of the conditions of the subject, legal event and legal object respectively. A civil relationship is considered to have a foreign element when that relationship satisfies at least one of the three foreign elements mentioned above.

2. Identify by subject

Regarding the first condition, the subject 'has at least one of the participating parties being a foreign individual or legal entity', requiring one of the participating parties in the civil relationship to be a foreign individual or legal entity without requiring two or all parties in the civil relationship to be foreign individuals or legal entities.

When the above elements are determined, the civil relationship will be determined to be a civil relationship with foreign elements.

For example, a contract for the sale of agricultural products is signed between the seller, Mr. A (individual), a Vietnamese citizen, and the buyer, a company (legal entity) registered for business with headquarters in the US (with US nationality).

The most common method of determining whether an individual is a foreigner or not is based on the nationality of the parties involved. A foreign individual may include a person with a foreign nationality, a person with multiple foreign nationalities, a person without nationality, a dual nationality or a nationality other than Vietnamese nationality.

Unlike individuals, legal entities do not have the status of stateless or multiple nationalities. However, determining the nationality of a legal entity in international trade is often difficult when countries have different definitions of the nationality of a legal entity.

Some countries base their nationality on the place where the legal entity is established, or where the legal entity's headquarters is established, or where the legal entity's main business activities are conducted... This difference makes determining the nationality of a legal entity more complicated, thereby making it more difficult to determine whether the relationship between that legal entity and other parties is qualified to constitute a foreign element.

3. Determined by legal events

A civil relationship is considered to have a foreign element in the case where 'The participating parties are all Vietnamese citizens or Vietnamese legal entities' but the legal event such as 'establishing, changing, performing or terminating the relationship in the contract occurs abroad.

Unlike considering foreign elements based on the subject and nationality of the participating parties, this case focuses on the place where the legal event takes place as the basis for determination.

For example, in the case where two entities, including a Vietnamese legal entity and a Vietnamese individual, both attend the IBA Paris 2023 conference in France and sign a cooperation contract in Paris, that contract is determined to be a commercial contract with foreign elements, based on the fact that the civil relationship occurs abroad.

Similarly, if a civil relationship is terminated, modified or annulled abroad, the dispute resolution will be conducted as for a civil contract with a foreign element.

4. Identification by legal entity

In case the subjects in the dispute are all Vietnamese nationals, and the legal event such as termination, cancellation, or establishment of the contract is also established in Vietnam but the subject of this civil relationship is abroad, then that relationship is also considered to have a foreign element.

For example, two enterprises in Vietnam jointly sign a contract to purchase and sell car parts manufactured in Germany; in this case, the legal subject is determined to be car parts manufactured in Germany.

However, this is usually the case mainly for disputes over fixed assets abroad such as real estate.