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Legality of smart contracts under Vietnamese law


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Blockchain-based smart contracts are one of the many areas where blockchain technology can be used. Many diverse industries, including finance, banking, supply chain management, healthcare, education, and transportation, have developed and deployed smart contracts. Can Vietnam’s contract law be applied to smart contracts? What is the legality of smart contracts?


Smart contracts based on blockchain have gained popularity.


Vietnam’s smart contract legislation


Smart contract legality


A contract is defined as “an agreement between parties on the establishment, alteration, or termination of civil rights and obligations” in Article 385 of the 2015 Civil Code. A contract must fulfill certain requirements in order to be legally binding, such as:


  • (i) The individual is capable of doing civil acts according to established civil transactions.
  • (ii) Entities’ voluntary participation in civil transactions;
  • (iii) The civil transaction’s goals and contents do not contravene any illegal statutes or moral principles;
  • (iv) The civil transaction’s format complies with all applicable legal requirements.


Therefore, in theory, a smart contract would be regarded as a contract and enforceable by the parties if it satisfies the requirements listed above. If we classify smart contracts as a particular sort of electronic contract, it is important to note that the Law on Electronic Transactions of 2005 recognized the legitimacy of electronic contracts.


However, the conclusion and performance of contracts by automated information systems are not covered under the 2005 Law on Electronic Transactions. On the one hand, the Law introduces the idea of automatic electronic transactions, which refers to transactions carried out electronically that are partially or entirely automated using a previously established information system. On the other hand, it is still unclear if automatic electronic transactions are lawful and who is responsible for what when they happen. The idea of utilizing automated information systems in commercial activities is examined in greater detail in the Government’s Decree 52 on e-commerce from 2013.


It is undisputed that the legitimacy of the contract signed results from the interaction between the automatic information system and the human or between the automatic information system owing to the lack of inspection, according to Article 13 of the Decree. interfere with certain decisions made by the automated information system by humans or (s). The validity of smart contracts, a sort of contract that is automatically performed by computer code, has not yet been determined because to Decree 52’s silence on the execution of contracts through automated information systems. sure.


The capacity of parties to electronic transactions is also not governed by the 2005 Law on Electronic Transactions. Let’s look at the nation that is next to China. The 2018 E-Commerce Law of China states in Article 48 that “Parties participating in e-commerce activities are considered to have full civil act capacity to perform corresponding legal acts, except in cases where there is evidence to the contrary.” This regulation is extremely important for the development of electronic transactions because, unlike traditional transactions, it is not required that the parties see each other in person before entering into an agreement.


Using smart contracts as evidence in court to resolve civil disputes


According to the 2015 version of the Civil Procedure Code in Vietnam, “Evidence in a civil case is evidence turned over or provided to the Court by the parties concerned and other agencies, organizations, or individuals during the proceedings.” proceedings or information gathered by the Court in accordance with the format and guidelines established by this Code, which is then used by the Court to assess the case’s actual facts as well as the requests and objections of the parties involved. legally sound or not”


The Code also lists ten sources of evidence, including: electronic data; exhibits; readable, audible, and visible documents; witness statements; expert assessment conclusions; on-site appraisal documents; asset valuation and valuation results; a record of lawful events and acts made by a competent person; notarized / authenticated documents; and other sources as prescribed by law. Therefore, smart contracts can theoretically be fully accepted as a source of evidence for resolving civil disputes at various jurisdictions, in accordance with the 2015 Civil Procedure Code, since they are electronic data. authority over jurisdiction.


Validity of blockchain-based records and cryptographic signatures


Electronic signatures must be formed in the form of words, letters, numbers, symbols, sounds, or other forms via electronic means, according to the Law on Electronic Transactions of 2005. element, suitably attached to or linked to the data message, capable of verifying the data message’s signer and their authorization. into the signed data message’s content. “


When compared to the aforementioned rules, cryptographic signatures fully meet the requirements for being regarded as electronic signatures. The Law on Electronic Transactions of 2005 further states that an electronic signature shall be regarded as secure if it is confirmed by a security check procedure approved by the parties to the transaction and complies with the following requirements:


(i) the data that generates the digital signature is only associated with the signer in the context in which the data is used; (ii) the data that creates the electronic signature is only under the control of the signer at the time of signing; (iii) any changes to the electronic signature after the time of signing are detectable; and (iv) all changes to the content of the data message after the time of signing are detectable.


A certified electronic signature will be taken to meet the security requirements, according to the law, which also states that an electronic signature may be certified by an e-signature certification service provider. Therefore, recognition of the electronic signature as secure does not need the entity providing the electronic signature certification service to be certified.


However, the government recently enacted a Decree on digital signatures following the passage of the 2005 Law on Electronic Transactions (Decree 130 in 2018 detailing the Law on E-Transactions on digital signatures and services). There is uncertainty between digital signatures and electronic signatures, and some people even believe that only digital signatures can be deemed to be digital signatures, as the government has yet to create legislation defining electronic signatures in more detail. safe and legitimate under law.


Contract explanation


The following are the general guidelines for contract interpretation as stated in Article 404 of the 2015 Civil Code:


1. When a contract contains ambiguous language, those words should be interpreted based not only on the contract’s language but also on the intentions of the parties as expressed before and at the time of the contract’s establishment as well as during the performance of the contract.


2. When a contract’s terms and language can be read in a variety of ways, they must be interpreted in the way that best reflects the intent and content of the agreement.


3. In the event that a contract’s terms and language are unclear, the custom of the location where the contract is concluded must be followed.


4. A contract’s terms must be read in light of how they relate to one another in order for their meaning to be compatible with the entirety of the agreement.


5. The parties’ common intents shall govern the interpretation of the contract in the event that they contradict with the language employed in the contract.


6. The contract will be interpreted in the other party’s favor when the party who drafted it contains clauses that are not advantageous to them.


These guidelines, however, apply to all contract types, including smart contracts. Interpretation of the law is still necessary in order to make conflict resolution in practice easier.


Agreement modification


In accordance with Article 421 of the 2015 Civil Code, a contract may be amended with the consent of the parties, and the amended contract shall have the same effect as the original contract. However, as was previously discussed, it is currently rather challenging to alter a smart contract within the contract itself, and the parties may need to negotiate outside of the contract. To modify the terms of an existing smart contract, either work outside the blockchain system or create a new smart contract.


Observe specialized laws


In addition to the Civil Code, smart contracts are also governed by other, more specific regulations. A contract with customers should be governed by consumer protection regulations, while a smart contract in the insurance industry is an insurance contract that should be governed by insurance laws. use.


Identify the relevant jurisdictions and laws


If the parties taking part in the smart contract program (code) the relevant law and authority in the smart contract, this issue can be resolved. There are legal provisions that can be utilized as a foundation to establish the relevant law and the jurisdiction of the Vietnamese courts in the event that such a clause is not pre-programmed on the smart contract.


The 2015 Civil Code’s Article 683 states that, with some exceptions set forth by law, parties to a contract may agree to the law to be applied to that contract. The law of the nation to which the contract is most closely related shall prevail in the absence of such agreement. The 2015 Civil Procedure Code’s Articles 469 and 470, which deal with the determination of jurisdiction, make forth the general jurisdiction of Vietnamese courts to resolve civil disputes involving foreign parties as well as the special jurisdiction of Vietnamese courts. Therefore, if a disagreement over a smart contract emerges, the contesting parties may rely on these clauses to establish the Vietnamese Court’s jurisdiction.