This article shows foreign businesses the necessity of dispute resolution clauses quite plainly and provides assistance in choosing appropriate alternatives to the
\nVietnamese civil courts.<\/p>\n
Disadvantages of Vietnamese courts<\/strong><\/p>\n Most contracts in North America and Europe specify in detail all of the parties\u2018 obligations and will be closely watched for the effectiveness of its clauses. On the other hand, contracts between foreign investors and Vietnamese entities or with a reference to Vietnam that establishes Vietnamese jurisdiction should In this circumstance, without a dispute resolution clause, Vietnamese courts will have jurisdiction over a possible dispute. But interested parties must consider the particularities of Vietnamese courts in comparison to Western rule-of-law courts. According to Transparency International, the risk of corrupted decisions remains, and almost one-fifth of surveyed Vietnamese households that have been to court declared that they had paid bribes at least once (Global Corruption Barometer 2011). Many businesses therefore avoid Vietnamese courts, as the existence of bribes deters them (Global Integrity 2011; USAID\u2019s Vietnam Provincial Competitiveness Index 2011). Besides the unfortunately persistent risk of corruption, the Vietnamese judiciary, despite improvement efforts, continues to struggle with additional problems: Many Vietnamese judges lack adequate legal training and are appointed through personal contacts with party leaders or based on their political views, as a 2012 study by the United States Dept. of State revealed. Extremely low judicial salaries and short office terms of five years that must be renewed through a new appointment amplify the judiciary\u2019s dependence on the Communist Party\u2019s sympathy and on bribes. Furthermore, there is the systemic problem that rule-of-law and a single-party-system are mutually exclusive, due to the practical lack of separation of powers (Andersson 2012). The term rule-of-law in its Vietnamese translation means rules of the state, therefore rules of the Communist Party running the single-party state. Considering these factors, putting potential disputes into the hands of the Vietnamese judiciary is not advisable, because the possibility of corrupted decisions and political pressure or incompetent judges must still be taken into account. It is also important to note that, similar to other countries with an independent court system and a strong emphasis on the rule-of-law, companies may prefer to see delicate affairs arbitrated, rather than see their commercial disputes become a matter of public record.<\/p>\n Advantages of arbitration<\/strong><\/p>\n The right arbitration center provides independent decisions and professional competence. It is usually possible to select a pool of arbitrators trusted by both parties in the clause, which might lead to a wider acceptance of a possible arbitrational decision. It is important to consider arbitrator candidates based on their expertise in the relevant business field. Most arbitration centers provide renowned experts for certain fields of work.<\/p>\n Selecting an appropriate arbitration venue is a key component in designing any dispute resolution clause A company may decide upon a Vietnamese arbitrational court, Project size<\/strong><\/p>\n For major projects with an investment sum of more than roughly $\u00a05 million, choosing an international arbitration court is generally recommended. At this level, Location of seizable assets – enforcement risks of foreign arbitrational awards<\/strong><\/p>\n Another major factor is the location of the contractual partner\u2019s assets that may be seized when enforcing a possible arbitrational award. If the assets are mainly Pressure of cost<\/strong><\/p>\n One should take into consideration that the costs of on- and offshore arbitration differ widely. For a value in dispute of approximately $4 million, for instance, the cost Complexity and specialty of the subject matter of the contract and potential issue<\/strong><\/p>\n Vietnamese arbitration courts, such as VIAC, have a high legal competence. But domestic arbitrational courts cannot yet provide internationally recognized experts on (Hidden) state-owned enterprises<\/strong><\/p>\n When state-owned enterprises are involved, an offshore arbitration clause should be used. This ensures that the arbitrator handling the case is free of any authoritarian Special case: Intellectual property<\/strong><\/p>\n In special cases, where intellectual property is concerned, the contracts must ensure that no official interim measures are cut off by the arbitration clause. Arbitration Choice of jurisdiction<\/strong><\/p>\n<\/td>\n<\/tr>\n Vietnamese jurisdiction<\/strong><\/p>\n<\/td>\n Onshore Arbitration at Vietnam International Arbitration Center (VIAC)<\/strong><\/p>\n<\/td>\n Offshore Arbitration<\/strong><\/p>\n<\/td>\n<\/tr>\n generally advised against<\/p>\n<\/td>\n project size under $5M<\/p>\n<\/td>\n project size over $5M<\/p>\n<\/td>\n<\/tr>\n Only in special cases regarding intellectual property, an opening clause can be considered to be implemented seizable assets of the contractual partner are located in Vietnam<\/p>\n<\/td>\n seizable assets of the contractual partner are located abroad<\/p>\n<\/td>\n<\/tr>\n less complex legal questions<\/p>\n<\/td>\n more complex legal questions<\/p>\n<\/td>\n<\/tr>\n contract affects more general legal fields, e.g. purchase law<\/p>\n<\/td>\n contract affects legal fields that require a decision from highly specialized legal professionals<\/p>\n<\/td>\n<\/tr>\n contractual partner is not a (hidden) state-owned enterprise<\/p>\n<\/td>\n contractual partner is a (hidden) state-owned enterprise<\/p>\n<\/td>\n<\/tr>\n own financial strength is smaller, cost pressure can be a thread<\/p>\n<\/td>\n own financial strength is higher, cost pressure is not a thread<\/p>\n<\/td>\n<\/tr>\n no dispute resolution clause necessary <\/strong><\/p>\n<\/td>\n dispute resolution clause necessary!<\/strong><\/p>\n<\/td>\n dispute resolution clause necessary! <\/strong><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Vietnamese law allows dispute resolution clauses in commercial contracts explicitly through the Law 54\/2010\/QH12 on Commercial Arbitration, (\u201eLCA\u201c). <\/em>An Once the decision is made regarding whether and where an arbitration tribunal should be used for disputes arising from the contract, the following points should be cleared:<\/p>\n The dispute resolution clause becomes effective if the requirements of Articles 16, 18 and 19 LCA are met, e.g. through a written agreement.<\/p>\n The question of whether or not to have a dispute resolution clause in contracts in Vietnam can be answered with a clear yes. However, deciding on the right place for Oliver Massmann<\/a> is a partner in the Hanoi office of U.S.-based international law firm Duane Morris LLP. He practices in the area of corporate international Interested in Vietnam: visit: www.vietnamlaws.xyz<\/p>\n","protected":false},"excerpt":{"rendered":" Why arbitration makes sense This article shows foreign businesses the necessity of dispute resolution clauses quite plainly and provides assistance in choosing appropriate alternatives to the Vietnamese civil courts. Disadvantages of Vietnamese courts Most contracts in North America and Europe specify in detail all of the parties\u2018 obligations and will be closely watched for the … <\/p>\n
\nThe contract\u2019s legal enforceability, however, is widely regarded as a given.<\/p>\n
\nalways specify the question \u201cwhat institution will decide any disputes and in which language and what national law is to be applied?\u201d<\/p>\nWhich arbitration court is right?<\/h4>\n
\nfor instance the Vietnamese International Arbitration Centre (VIAC), or an offshore arbitrational court, such as theSingapore International Arbitration Centre (SIAC).
\nTo decide which venue is the best fit, the following factors must be carefully considered:<\/p>\n
\nthe problem of cost pressure (see infra) is likely to be neglected. An international tribunal\u2019s decision is also more likely to be accepted by the parties, as a lack of
\ncompetence on the the arbitrator\u2019s part and any (remote) possibility of political pressure on the arbitrators is therefore eliminated.<\/p>\n
\nlocated in Vietnam, a foreign arbitrational court\u2019s decision must be enforced there – a tougher task than enforcing a domestic award. Indeed, Vietnam became a member of the
\nNew York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (NYC) in 1995, and therefore foreign arbitrational awards of the 149 member states can
\ngenerally be enforced. However, there is a risk of a substantial delay in completing enforcement, as an application to the Ministry of Justice and further explanations and a court
\ndate leading to an appealable decision are necessary for enforcement. Furthermore, the competent Vietnamese enforcement court may reject the arbitrational award. According to
\nArticle V of the NYC, this is possible in the case of an arbitrational award\u2019s violation of domestic laws or public orders. The Vietnamese Civil Code refers to this as
\nthe \u201cprinciples of Vietnamese laws\u201d, and the Vietnamese judiciary has made broad use of it (Tam Shu Ching et al. 2012). In one case, for example, rejecting the
\narbitrational award of a foreign company was based on a missing construction permit (Tyco Services Singapore Pte Ltd v Leighton Contractors Vietnam<\/em>).<\/p>\n
\nof arbitration at the VIAC is roughly $62,000 if one arbitrator is assigned to the case, as opposed to about $117,000 at the SIAC.\u00a0 Not only are the costs for an offshore
\narbitration substantially higher, but that option can create additional costs for parties, such as travel expenses for parties, witnesses and lawyers. Furthermore, the hourly
\nrates of local lawyers at the international arbitration court are usually higher than the rates of Vietnamese lawyers, (Shouzhi et al. 2009). The same applies to expert\u2019s
\nopinions and other experts. The risk of expensive litigation can put less liquid companies under pressure to accept even unfavorable settlements. Therefore, the cheaper onshore
\narbitration can often be more beneficial to companies with fewer financial resources.<\/p>\n
\nthe same level as foreign tribunals. The main reason for this is the comparatively low fee of an arbitrator in Vietnam. Decisions regarding business transactions of high
\ncomplexity or contracts focusing on highly specialized fields are more likely to be mutually accepted if the parties choose a more expensive foreign arbitrator with special
\nexpertise.<\/p>\n
\nexertion of influence by the state-owned party. In theory, the follow-up problem of the enforcement of judgment in Vietnam remains, but the current development shows that the
\npositive award strengthens a company\u2019s negotiating position with the business partner. The same applies to hidden state-owned enterprises – companies that are de facto
\ninfluenced by the government, for instance those that share ownership through state-owned enterprises\u2019 subsidiaries. The contractual partner\u2019s status as
\n\u201cstate-owned\u201d should always be considered very carefully.<\/p>\n
\ncourts are also able to issue interim measures. But as the case arises, an opening clause should be considered where Vietnamese courts or authorities such as the Market
\nManagement Bureau normally provide more effective interim relief.<\/p>\n\n\n
\n \n \n \n \n \n \n \n \n \n \n \n
\ninto a dispute resolution clause, e.g. making applicable interim measures\/injunctions through authorities like the Market Management Bureau<\/p>\n<\/td>\n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n How it is done<\/h4>\n
\neffective dispute resolution clause withdraws Vietnamese courts\u2019 jurisdiction of the particular case and establishes the appointed arbitral tribunal\u2019s jurisdiction.
\nThe LCA follows the UNCITRAL model law as an international standard for procedural rules, and the lawmakers\u2019 intention is indeed arbitration-friendly.<\/p>\n\n
\nshould also influence the selection of arbitrators, as they should have a legal background in the particular national law.<\/li>\n
\naccordingly.<\/li>\nConclusion<\/h4>\n
\ndispute resolution can involve much complexity, as a number of factors must be thoroughly taken into account. One hopes that 2010\u2019s arbitration-friendly LCA keeps its
\npromises as it is being implemented, and that the Vietnamese judiciary will reliably enforce domestic and foreign arbitrational awards alike. Doing so would send the right signal
\nto foreign investors with reservations about undertaking litigation in Vietnam.<\/p>\n
\n
\ntaxation and on power\/water projects, matters related to oil and gas companies and telecoms, privatization and equitization, mergers and acquisitions, and general commercial
\nmatters for multinational clients in relation to investment and doing business in Vietnam. Massmann is registered Arbitrator of the Vietnam International Arbitration Centre.
\nOliver Massmann is the General Director of Duane Morris Vietnam LLC. He can be reached at omassmann@duanemorris.com<\/a>. <\/em><\/p>\n