Representations and Warranties in a Contract!
We advised a corporate client in a transaction to acquire 3 ha-land and assets attached to land (hereinafter referred to as “the land”) in a Northern province of Vietnam, from another company. We act on behalf of the Buyer.
Since our client is not familiar with legal services and it is the first time they have been using legal services, our scope of works is limited to a number of key works such as drafting the contract, assisting the client during negotiations of the contract and following up until our client is legally recorded as the new owner of the land. Other works which our client can do itself including checking master plan to make sure that the land they acquire is not included in the construction planning for other projects, are carried out by the client.
Nevertheless, when drafting the contract, we still include “representations and warranties” clause into the contract, in which we clearly specify that the Seller undertakes and warrants that the land is not included in any construction planning which has been approved before by the competent authorities.
During negotiation process, the Seller has repeatedly complained to the Buyer that the contract is too long, and that it is not necessary to make it so detailed that way, especially “representations and warranties” clause because they have never seen such clause in any agreement/ contract before. They recommended to remove such clause as it is unnecessary. However, we tried our best to negotiate and managed to persuade them to keep this clause, and instead of deleting, re-word some provisions to make them familiar with Vietnamese contract styles.
The transaction went smoothly, and after about 3 months, our client is officially recorded as the new owner of the land. However, when applying for a construction permit, our client came to big surprise that the land was included in the construction planning which had been approved by the competent authorities.
It is high time for the parties to open the contract to see what they discussed and agreed, and it is very clear that the Seller’s “representations and warranties” clause with respect to the construction planning is there. Finally, the parties agree that the Buyer will hand over the land to the Seller and get the money back.
What can be easily seen in this case is that if the contract does not contain the “representations and warranties” clause, and only contain the basic provisions for the contract, as defined under the Vietnam Civil Code 2015, then the Buyer has no legal ground to claim the money back from the Seller or in a weaker position in the negotiation, or in the worst case, when the dispute is brought to the court, the Buyer is obliged to prove that it is the Seller’s fault not to disclose to the Purchaser the fact that the land is included in the construction planning although it is not easy for the Buyer to do so.
Unfortunately, the “representations and warranties” clause has not yet been popular for many Vietnamese people, given the fact that it originates from common law system such as UK and US legal system and has just been brought to Vietnam. Accordingly, such clause is often seen in complicated deals only. For many Vietnamese people, this clause remains strange, and unnecessary in contracts/ transactions as they rarely see it in any sample contracts which are available on the internet or in notary offices in Vietnam.
Our advice is that when you step in a complicated transaction, you are recommended to seek for legal assistance from a business law firm, with expertise and experience in similar cases. As for Vietnamese young lawyers, wishing to learn more about this term, please read the book “Legal skills for business lawyers” or “Kỹ năng hành nghề luật sư tư vấn” in Vietnamese by Mr. Truong Nhat Quang, one of the best lawyers in Vietnam. Young professionals who are fluent in English can also find the book “Working with contracts: what law school does not teach you” or many other books/ sources in English.
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