Vietnam Contract Risk: When a Local Director Signs Without Authority

A foreign SME entering Vietnam often needs a local person to run the operation: a general director, deputy general director, plant manager, procurement head, or trusted local executive who can deal with suppliers, landlords, brokers, authorities, and staff. In practice, that person may sign leases, service agreements, purchase orders, construction contracts, debt acknowledgements, or operational commitments long before head office has reviewed every document.

The commercial assumption is simple: if the person appears senior enough, their signature binds the company.

Vietnamese law is more careful than that. The real question is not the title printed on a business card. It is whether that person had representative authority at the moment of signing — and, if not, whether the company later acted in a way that approved, accepted, or failed to object to the transaction.

For foreign investors, this is a quiet but serious Vietnam contract risk. It usually appears only after money has moved, goods have been delivered, a project has started, or a dispute has begun.

The signature is not the authority

Vietnamese law distinguishes between a person who is formally authorised to represent a company and a person who merely appears important inside the business.

Under the Civil Code 2015, the scope of representation may arise from law, the company’s charter, a decision of a competent body, or a power of attorney. In corporate practice, this usually means two documents matter most: the enterprise registration and charter identifying the legal representative, and any written authorisation setting out what another person may sign.

That authority is not unlimited by default. A legal representative may still be restricted by the charter or internal approvals. A deputy general director may have operational authority but no power to sign a high-value supply contract. A factory manager may negotiate every commercial term but still lack authority to bind the company. A local executive may sign within authority for ordinary procurement but exceed authority for land, financing, guarantees, long-term leases, related-party commitments, or unusual pricing.

The risk is sharper in foreign-invested companies because practical control and formal authority often separate. Head office may believe it controls all material decisions. Local management may handle all visible dealings. Counterparties may assume the local executive is authorised because they have been dealing with that person for months. When the relationship is healthy, no one tests the assumption. When the relationship breaks down, the authority question becomes central.

What tribunals and courts look for

Vietnamese disputes on representative authority are fact-heavy. The law does not simply ask whether the counterparty acted in good faith. It asks what the representative was actually authorised to do, what the counterparty knew or should have known, and what the company did after the contract was signed.

Three legal ideas matter.

First, a transaction entered into by a person with no authority does not automatically bind the company. The company may still become bound if it recognises the transaction, knows of it and does not object within a reasonable time, or is at fault in creating the appearance of authority.

Second, a transaction entered into beyond the scope of authority may bind the company only within the authorised part, unless the law treats the excess as accepted, ratified, or attributable to the company. This distinction matters. A person with no authority and a person acting beyond limited authority create different factual arguments.

Third, company conduct after signing can cure the original defect. Payment, delivery, acceptance of work, correspondence acknowledging the contract, continued performance, or silence after becoming aware of the transaction can all become evidence that the company accepted the deal. In one VIAC-reported dispute, the decisive fact was not merely who signed at the beginning. The tribunal also looked at later company conduct showing acknowledgement and acceptance of the underlying transaction.

This is why authority risk cannot be managed by looking only at the signature block. A missing power of attorney may be fatal in one case. In another, the same defect may be cured by months of performance, invoices, emails, board-level silence, or a later letter that appears to confirm the deal.

How this costs foreign investors money

The risk cuts both ways.

A foreign-owned Vietnam subsidiary may be bound by a deal head office never approved. If the local executive signed beyond internal limits, but the company then accepted benefits, paid invoices, used the goods, allowed performance to continue, or failed to object after learning the facts, the company may struggle to deny the transaction later. Internal approval rules may support a claim against the executive, but they may not automatically release the company from the external contract.

The opposite risk is equally dangerous. A foreign investor may rely on a Vietnamese counterparty’s signature, perform for months, and only later discover that the signer had no authority or exceeded a charter-based limit. If the Vietnamese company never approved the transaction and the foreign investor had reasons to check but failed to do so, the investor may be left with a weak claim against an individual rather than a clean claim against the company it thought it had contracted with.

The hardest point is timing. Representative authority is usually investigated too late. By the time the issue appears, the investor may already have paid deposits, delivered goods, committed production capacity, built reliance into a supply chain, or reported the contract internally as secured revenue.

What should be checked before signing

For any material Vietnam contract, the practical control question should be asked before signature, not after dispute.

The investor should identify the legal representative, review the charter or relevant corporate authority provisions, check whether a power of attorney is needed, confirm whether the signatory’s authority is limited by value, subject matter, counterparty type, or internal approval, and preserve written confirmation that the company accepts the signatory’s authority for that transaction.

For recurring operational contracts, the investor should also control its own internal conduct after signing. If head office wants to reject an unauthorised commitment, silence is dangerous. Continued performance is dangerous. Accepting benefits without reservation is dangerous. Internal disagreement is not enough; the external record matters.

The core lesson is simple: in Vietnam, signing authority is not a matter of seniority. It is a matter of legal source, documented scope, counterparty knowledge, and subsequent conduct. A local general director’s signature may bind the company. A deputy general director’s signature may not. An originally defective signature may later become binding because the company behaved as if the contract existed.

For foreign SMEs, that is why representative authority should be treated as a transaction risk item, not an administrative detail.

Source basis: Civil Code 2015, Articles 141–143; VIAC reasoning on unauthorised representation; Vietnamese court reasoning on charter-based signing limits.