Hong Kong: Vietnam - Legal Overview - Contractual Disputes In Vietnam

Last Updated: 20 November 1995
Most Read Contributor in Hong Kong, October 2018
The laws of Vietnam are complex and new legislation is constantly being introduced. What follows is no more than an introductory overview that we hope will assist investors to decide which areas of law they will need to research further.

This summary is, necessarily, selective and is no substitute for detailed legal advice.

1. Introduction
To seek to put into context the options that an investor may have, we begin with a sketch of the Court system in Vietnam.

1.1 At the lowest level, there are the District Courts. Above them are the City and Provincial Courts. Not all cities have City Courts. If the city is a major city and comes under Central authority, like Da Nang or HoChiMinh City, it will have a City Court equivalent in authority to a Provincial Court. Other cities will fall under the authority of a Provincial Court.

1.2 Above the City and Provincial Courts is the Supreme People's Court. This sits in Hanoi.

1.3 The Courts above District level have three divisions: civil, criminal and, now, economic. The Economic Courts are a recent creation.

1.4 In 1996 an Administrative Court may be established to supervise the acts of government bodies.

1.5 The judges at the higher courts are very often those promoted from the lower courts.

1.6 Until 1994, judges did not have to be legally qualified. They trained at the Courts. They now have to undergo legal training whilst they continue in office.

2. An Example

2.1 Where jurisdiction lies will very often be determined by individual items of legislation.

2.2 Determining what is the applicable legislation in any given case is not always easy. A recent, practical instance, arising in the context of leases of commercial property demonstrates the difficulty.

2.3 For example, a joint venture with foreign invested capital builds an office block and lets it to foreign representative offices and to other foreign invested enterprises in Vietnam.

2.4 As far as we can determine, there is no directly applicable legislation.

2.5 What jurisdictional provisions can you include in your lease? Our enquiries suggest that up to now disputes over leases have been treated as arising under civil contracts.

2.6 However, it seems clear that a lease entered into between two foreign invested joint ventures would be an economic contract. Disputes under such contracts probably have to be resolved by the Economic Courts. The applicable law will, pursuant to the legislation on Economic Contracts, have to be Vietnamese.

2.7 However, Article 101 of Decree 18 of 16 April, 1993, which sets out the detailed regulations for investing in Vietnam, is intended to cover disputes between foreign invested joint ventures. This Article provides for disputes to be resolved under Vietnamese law by Vietnamese bodies. It is left unclear whether this could include, for example, arbitration by the Vietnam International Arbitration Centre but it may well do so.

2.8 The parties may then have an option whether or not to go to the Economic Courts.

2.9 The Lessor will, thus, always need to be aware of limitations imposed on what it can provide in its documentation in terms of jurisdiction clauses.

3. Jurisdiction Clauses In Particular Agreements

3.1 Two basic questions need to be answered in relation to any contract:-
(a) what choice of law is permitted; and
(b) what choice of forum for resolution is permitted.

3.2 The laws of Vietnam appear to try to differentiate between (i) the resolution of disputes between the parties to foreign investment vehicles; and (ii) contracts with which non-investors doing business with Vietnam will be concerned; and (iii) contracts between Vietnamese entities (including foreign investment vehicles) and third parties and (iv) disputes with the State and State Bodies.

4. Joint Ventures

4.1 Article 25 of the Foreign Investment Law ("FIL") in its amended form as at 23 December 1992, provides that disputes between the parties to foreign invested enterprises or between a foreign invested enterprise and any Vietnamese economic organisation or other enterprise with foreign owned capital must first be attempted to be resolved by conciliation and negotiation and if this is unsuccessful:-

"Then the dispute shall be referred to a Vietnamese economic arbitration body or other arbitration or judicial body as may be agreed".

4.2 Decree 18 provides in Article 21.6 that a joint venture agreement shall contain provisions relating to:

"...the resolution of disputes between joint venture partners; the arbitration procedures and law to be applied in case of a dispute."

4.3 Article 100 of Decree 18 provides that disputes shall be resolved primarily through conciliation and negotiation, but if these fail, the dispute will be resolved by:

EITHER

"a Vietnamese arbitration body, or an arbitration body of a third country, or an international arbitration body;

OR

- an arbitration council established pursuant to an agreement between the parties to the dispute. The distinction between the above two alternatives seems to be that the former requires that there be reference to an established arbitration body such as the International Chamber of Commerce in Paris and the latter to a typical arbitration clause where, for example, each party appoints its own arbitrator and the two so chosen elect the third and the parties further specify a venue for the arbitration.

4.4 The terms of Article 21.6 referred to above i.e. that the parties choose the law to be applied in the case of a dispute does not mean that the parties can freely choose the law relating to their contract. The reference is to the procedural law which is intended to apply to the arbitration.

The SCCI have, however, accepted that a provision may be included to provide that, to the extent any issue is not covered by Vietnamese law, the substantive law may be that of another jurisdiction.

5. Business Co-operation Contracts

5.1 Article 25 of the FIL applies here also. Article 10.6 of Decree 18 provides that the BCC shall provide for resolution of disputes between contracting parties. Article 100 of Decree 18 quoted above applies also.

6. Wholly Foreign Owned Enterprises ("WFOE")

6.1 Since these are Enterprises where there is only one party, there is, theoretically, no specific provision needed. However, if the WFOE is, broadly speaking, within an important area of the economy, as determined by the Government, there is a right of buy in for a Vietnamese party which converts the WFOE into a Joint Venture, and so it is important to take this into account when drafting certain WFOE.

7. Build Operate Transfer Contracts ("BOT")

7.1 The BOT legislation contemplates that the BOT Company will be formed under the legislation applicable to joint ventures and WFOF.

7.2 The BOT legislation which sets out the detail of the legislation is Decree 87-CP of 23 November 1993, and this provides in Article 15 that disputes between the State Body and the BOT Company shall be resolved through negotiation and conciliation and, if this fails, it may be referred to an ad hoc arbitration established by the parties for dispute resolution. The Article states that the parties shall agree upon the procedure and the laws to govern the dispute.

7.3 The Article goes on to say that the decision of the arbitrators shall be enforced in accordance with Vietnamese laws. Enquiries made of the Vietnam International Arbitration Centre ("VIAC") suggest that there may be no specific enforcement provisions in Vietnamese domestic law to permit the enforcement of a VIAC Award.

7.4 The Ordinance on Economic Arbitration, however, in Article 21.7 provided that in order to implement an order made, the arbitrator was empowered to freeze bank accounts and to require third parties who possessed property and/or who owed money to the party against whom the order is made temporarily to withhold that property or money.

7.5 The same powers now reside in the Economic Courts for the taking of interlocutory measures and Article 88 of the Ordinance establishing the Economic Courts provides that decisions of the Court shall be enforced in accordance with the Ordinance on the enforcement of Civil Judgements and Decisions dated April 1993.

7.6 Circular 333 of 28 February 1994, which expands on Decree 87-CP, states in Article 3.3 that any mortgage of its assets (which a BOT Company is expressly entitled to enter into) must be drawn in accordance with the laws of Vietnam and, in so far as the laws of Vietnam do not cover the issue, the laws of a foreign country may be applied but not in a way that contradicts Vietnamese Law.

8. Appealing Administrative Discretion

8.1 If, for example, the SCCI and/or the Ministry of Science, Technology and Environment ("MOSTE") will not agree to approve a contract unless a Vietnamese forlini is agreed, the parties should be aware that, at present, their remedies are limited. There appears to be no appeal from their decisions.

In this context, an investor needs to have regard also to Article 102 of Decree I 8. Disputes with State bodies (for example the Civil Aviation Authority or the Department General of Posts and Telecommunications) are to be resolved by what is described as "a competent State Body..."

8.3 A practical example of the importance of this provision. If you enter into a petroleum contract under the Petroleum Law, and if you are a foreign party, the dispute will be resolved in accordance with the Foreign Investment Law. If your dispute is with a State Body, it will, apparently, be resolved by the "competent State Body", which may be your contracting party.

9. Foreign Arbitration Awards And Judgements

9.1 There is, at present, no formal method for the enforcement of foreign arbitration awards in Vietnam, as Vietnam is not party to any Convention on the enforcement of arbitral awards. We understand that Vietnam is contemplating becoming party to the New York Convention, so as to permit the enforcement of awards.

9.2 The use of a foreign arbitration tribunal may well be of considerable value once Vietnam joins the New York Convention. However it will not cover those cases where jurisdiction has, by Vietnamese law, to be with a Vietnamese body.

10. Contracts Entered Into Between Vehicles Formed Under The Fil And Third Parties

10.1 Article 101 of Decree 18 provides that:-

"Disputes between enterprises with foreign owned capital, foreign parties to business co-operation contracts and Vietnamese economic organisations, shall be resolved in accordance with the law of Vietnam and by Vietnamese bodies".

Vietnamese economic organisations probably means State owned enterprises, co-operatives, domestic companies and private enterprises established under the Laws on Private Enterprises.

10.2 It would seem to follow that the most likely venue for such disputes to be heard is before the Economic Courts.

10.3 Article 14 of Decree 87-CP relating to 130T Contracts lists in subsection 2 the contracts which a BOT Company can enter into, such as for the right to use land, for construction, for capital finance and to grant mortgages and goes on to provide that the BOT Company may :-

"In respect of issues which are not regulated by the laws of Vietnam apply foreign laws provided that such application is approved by the SCCI".

It is not made clear what is the position if there is a later change in the law in Vietnam to cover issues that are subject to an existing, valid choice of law.

10.4 Article 15 of Decree 87-CP provides that in relation to what are known as "Ancillary Contracts" under a BOT structure, disputes go to (i) an arbitration body in Vietnam; or (ii) an ad hoc arbitrator established by the parties; or (iii) an arbitration body of a third country; or (iv) an international arbitration tribunal. Ancillary Contracts are basically those made with subcontractors on the project.

11. Disputes At Governmental Level

11.1 In relation to contracts with the Government, as such, for example, between a lender such as the World Bank or ADB, there are specific Decisions dealing with these on an individual basis. There appears to be no general law dealing with how this kind of dispute with the Government would otherwise be resolved nor how far the Government can go in waiving sovereign immunity.

12. Disputes Over The Use Of Lad

12.1 In relation to land, the Law on Land makes specific provision and it is left unstated what is intended to be the relationship between this law and the provisions referred to above. We understand that the Law on Land will prevail.

13. Intellectual Property Rights Under Contract

13.1 The definition of what is a contract of technology transfer is very wide and includes such contracts as management contracts and technical assistance contracts.

13.2 Article 6 of the Ordinance of the Transfer of Foreign Technology into Vietnam says that the contract must provide for :-

"The law and procedures to be applied in the resolution of any disputes which may arise from the performance of the technology transfer contracts."

Again the question which arises is whether what is permitted is a law to govern the procedure for dispute resolution or the adoption of a foreign system of law to govern the contract. In our own dealings with MOSTE, they have always insisted upon Vietnamese law applying.

NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions