Vietnamese law currently lacks a formal definition of “latent defect” (khiếm khuyết ẩn) and a clear mechanism for allocating liability once such defects arise. This regulatory vacuum often leads to prolonged disputes between the Employer and the Contractor, particularly when the construction contracts do not include explicit risk allocation.

For the purpose of our discussion below, a “latent defect” is defined as a fault or flaw in construction works/item that is not discoverable through a reasonably thorough inspection at the time of handover.

In our view, the latent defect may occur in three potential scenarios:

Scenario 1: The Contractor was aware of the latent defect, but deliberately concealed it from the Employer;
Scenario 2: The Contractor failed to discover the latent defect due to a breach of their duty of care or professional negligence (i.e., the Contractor should have known about the latent defect); and
Scenario 3: The latent defect was beyond the contractor's technical capacity to discover at the time, despite the correct performance of all duties. And the Employer is also not able to prove that the latent defect was attributed to the Contractor’s fault.

For Scenario 1 and Scenario 2, the Employer’s recourse relies significantly on its ability to prove causation—linking the latent defect to the Contractor’s performance. Without clear evidence that the defect is attributable to the Contractor, the Employer may face substantial challenges in recovering damages.

For Scenario 3, Vietnamese law does not expressly impose strict liability on the Contractor for all defects regardless of causation. Accordingly, the Employer’s claim regarding the Contractor’s liability for such latent defects (e.g., requests for rectification, warranty, or compensation) is disputable and should be subject to court’s judgement/arbitration award. In particular,

On the one hand, the Employer may rely on the Contractor’s general obligations to guarantee the quality of construction works under law to argue that the Contractor bears ultimate liability for the latent defect, regardless of whether negligence or fault can be proven; and
On the other hand, the Contractor may claim exemption from liability if the latent defect occurred without its fault or is attributable to force majeure. The Contractor’s claim may be based on the following regulations and arguments:

- Under the construction law, the Contractor is entitled to refuse the Employer’s warranty claims in cases where the damage or defects were not attributable to the Contractor’s fault or were caused by force majeure events as stipulated in the construction contract; and

- Under Article 351.2 of the Civil Code 2015, a party is exempt from civil liability for a breach of contractual obligation caused by force majeure, unless the parties have agreed otherwise or the law requires otherwise. If the contract is silent on the allocation of risk for latent defects, the Contractor will likely argue that it is not liable for any breach of its quality guarantees if the latent defect resulted from an unforeseeable force majeure event.

Given the regulatory ambiguity surrounding latent defects in Vietnam, the construction contract remains the primary tool for risk management. To ensure a fair and predictable outcome, the parties to construction contract should proactively negotiate and include explicit provisions on liability allocation and remedies for each type of latent defect as discussed above.

This post is written by Nguyen Hoang Duong.

Vietnam Business Law