LAND LAW

Instead of obtaining the LUR in the form of capital contributions from the local partner to a JVC, a foreign investor may consider leasing the land directly from the Government after he/she establishes an FIC in Vietnam. This trend is becoming increasingly preferable to foreign investors given discrepancies among foreign and local partners in JVCs in recent years. Difficuties experienced by foreign investors in this option is that is not easy to find land in a desirable location or have the relevant lessor accept the lease (as opposed to the form of capital contributions).


LAND LAW

(April 2007 Update)


On 6 November 2003, the National Assembly of Vietnam passed the Land Law (the "Land Law"), effective as of 1 July 2004. The Government issued Decree 181 of the Government dated 29 October 2004 for providing guidance on the Land Law ("Decree 181”), as amended by Decree 17 dated 27 January 2006 ("Decree 17"). As those laws are not currently clear on a number of aspects, further guidelines are being drafted by the Government and relevant ministries.

1. Land Use Rights and Land Use Right Certificate

Private ownership of land is not permitted in Vietnam and the State/Government holds all ownership powers. However, the laws of Vietnam also recognise ownership deriving from holding Land Use Rights (“LUR”).

The Land Use Right Certificate ("LURC") is similar to a deed in most countries, however some differences and uncertainties should be noted. The LURC, unlike a deed, is not a certificate of ownership of land, but a certificate of ownership of the LUR. Unlike the guaranteed indefeasible deed, the cornerstone of land law in many developed legal systems, it is not clear how strong a LURC is in the face of challenges.

While the Land Law allows domestic companies to purchase the LUR from others, foreign investors are not allowed to do so. Foreign investors in Vietnam however could obtain the LUR (i) by way of capital contribution in the form of the LUR value by the local partner to a JVC or (ii) by way of land leased directly from certain permitted lessors, including the State.

LURC for Apartment Owners

LURs of the land an apartment is built on are owned jointly by the building's unit owners. Decree 181 sets out the procedure for issuing LURs to apartment owners as follows:

1.

the initial LUR certificate is issued to the developer;
2.

when the developer sells units in a building, the apartment owner receives an LURC stating the land is jointly owned and the developer's LURC is amended to reflect the joint ownership;
3.

separate LURCs may be issued to the developer or management company for common areas used by one or more apartment buildings; and
4.

when a purchaser receives an LURC for long-term use from a foreign-invested apartment, the investor must pay the difference between the amount of land already paid to the State and the land usage fee calculated by the relevant People's Committee at the time of payment.

2. Land Contribution by Local Parties to Joint Ventures

It is a matter of practice that Joint Ventures in Vietnam have been developed in which local partners contribute their portion of capital in the form of the LUR value (in this case, the land payment must not be sourced directly from the State budget). The reason behind this practice is that the relevant land, which is often located in desirable areas, have been in use by local entities (usually State-owned enterprises). Foreign investors can not obtain that land without jointly investing with the existing local user. In some practices, the foreign investors advance the land usage fees to the local party in the form of a foreign loan in order for the local party to pay the fees to the State.

Under the current Land Law, the Vietnamese party to a Joint Venture is able to make capital contributions in the form of the LUR only after it has received a land "allocation," rather than a land "lease" from the People's Committee of the relevant province or city and has paid in full the land usage fee for the "allocation" of the land. In the case where the land usage fee payment is deferred, the contribution of the LUR into foreign investment projects is still permissible as far as the deferment is allowed in writing by the relevant People's Committee (Article 98.1(b) of Decree 181).

There is, however, one exception under the Land Law where a Vietnamese party which "leases" land (as opposed to the "allocation") from the Government can make its contribution in the form of the LUR to a Joint Venture. This exception requires the two following conditions to be satisfied in accordance with Article 111.1(d) of the Land Law:

*

the Vietnamese Party has leased the relevant land before the effective date of the new Land Law, i.e. 1 July 2004; and
*

the land rentals have been prepaid in full for the whole lease term or for the majority of the term and the remaining prepaid term is of at least 5 years.

After the Joint Venture is incorporated as a result of the issuance of the investment certificate by the Licensing Authority, the LURC will be issued to and in the name of the Joint Venture.

Regarding the valuation of the LUR for the capital contribution into a Joint Venture, it appears that the current regime allows the Vietnamese party to negotiate with the foreign party on the value of the contributed LUR based on the prevailing market value. The land usage fee tariff schedule issued by the relevant provincial People's Committee will be used to determine the land usage fee payable by a Vietnamese party.

3. Land Lease

Instead of obtaining the LUR in the form of capital contributions from the local partner to a Joint Venture, a foreign investor may consider leasing the land directly from the Government after he/she establishes an FIC in Vietnam. This trend is becoming increasingly preferable to foreign investors given discrepancies among foreign and local partners in JVCs in recent years. Difficulties experienced by foreign investors are that is not easy to find land in a desirable location or have the relevant lessor accept the lease (as opposed to the form of capital contributions).

Lessors permitted to lease land to FICs

Previously, FICs in Vietnam could only lease land from the Government or sublease land from an infrastructure developer. In addition to these conventional lessors, Articles 93.3 of the current Land Law has allowed FICs, which are set up by foreign investors in Vietnam, to lease land from:

*

Vietnamese economic organisations, including State owned companies, private joint stock companies and limited liability companies;
*

overseas Vietnamese citizens; or
*

an existing FIC which leases land from the Government and develops infrastructure facilities on the land, provided that this existing FIC has paid the land rental for the whole land lease term.

It is noted that the Land Law only allows the lessor who has obtained the land under the "allocation" regime to lease his or her land to FICs. There is only one exception where the land obtained by the lessor under the "lease" regime can be subleased to FICs in accordance with Article 111.1(dd) of the Land Law. Under this regime, if the landlord has leased the relevant land before the effective date of the new Land Law, i.e. 1 July 2004, and the land rentals have been prepaid in full for the whole lease term or for the majority of the term so that the remaining prepaid term is of at least 5 years, the land can be leased to FICs.

Although the Land Law allows FICs to lease land from private lessors (such as private joint stock or limited liability companies), Decree 181 does not have any provision stipulating the procedure for such lease. Except for leases within IZs and EPZs, it is not certain as to specific procedures for FICs to lease land from domestic companies or from other existing foreign invested projects.

Lease term

The lease term must be consistent with the duration of the approved project provided that it must not exceed 50 years or, in some special circumstances, 70 years.
The extension of the lease term may be allowed by the Government upon expiry if the lessee wants to continue to use the land, provided that:

*

the lessee has complied with the land regulations during its land using period; and
*

the use of land is consistent with the approved land plan.

Foreign investors wishing to extend their lease term must obtain approval to do so under Decree 181. Foreign land users must apply for an extension six months before expiration of their LURs, and include in their applications their amended business or production plans approved by the relevant authorities. Though an investment certificate is extended, there is no corresponding guarantee that a LUR will be extended as well and extension of the LUR will still be subject to the discretion of the Government. It is not however clear what would happen to the assets owned by a land user in the event the lease term is not extended.

Rights of foreign investors to the land leased

The LUR of foreign investors shall vary depending on the payment arrangement of land rentals. Where land is being leased from the Government, the Land Law contemplates two payment arrangements of land rental:

*

annual rental payment (the “Annual Payment”); and
*

one-off payment of rental for the entire lease term (the “One-off Payment”).

Under a land lease for the Annual Payment, the rights of FICs are basically the same as the previous land laws: the FIC could use the land only and is not allowed to transfer, sub-lease or mortgage the LUR.

In addition to the LUR given under the Annual Payment regime, FICs adopting the One-off Payment regime have additional rights as follows:

*

rights to transfer LURs and assets attached to the land (foreign investors with an Annual Payment plan may only transfer assets attached to the land);
*

rights to sublease land and assets attached to the land;
*

rights to contribute LURs and assets attached to the land as capital of joint ventures;
*

rights to mortgage or guarantee LURs and assets to credit institutions in Vietnam during the term of the lease;

Another additional right of residential housing developers is to sell or lease houses to others (foreign investors with Annual Payment plans may only lease houses to residents). However, under Article 2.8 of Decree 17, with respect to urban land, the transfer of the LUR to households and individuals in the form of sales of the project site without residential houses constructed thereon would be prohibited. That project site however can be transferred to a corporate entity for the latter to continue the project. This transfer is subject to one condition, i.e. the construction of the completed infrastructure on the site has been completed in accordance with the approved project.

One drawback regarding rights for foreign investors opting to make a lump sum payment is that upfront cost may not make economic sense.

4. Land Price

Land Price is determined in three ways:

1.

by the relevant People’s Committee;
2.

via auction; or
3.

by land users upon transfer/lease, sublease of LURs or contribution of LURs as capital.

The State determines the land price based on the actual value of the land under normal circumstances. If there is a large discrepancy between their calculations compared to the market price the State must adjust the price. The provincial People's Committee issues an official land price for each specific type of land on the first of January every year. The official land price must not be 20% higher than the maximum price or 20% lower than the minimum price in the land price framework provided by law. The State determines the price for the purposes of:

1.

assessing land use tax, income tax for the transfer of LURs, land use registration fees, compensation when LURs are withdrawn by the State, penalties for those that violate the Land Law causing harm to the State, and land rentals;
2.

putting a project that involves land out to tender; and
3.

calculating LUR value when land is allocated without a land usage fee.

5. Lease of Commercial Property

As an alternative to leasing a piece of land, service or software companies may consider leasing an office in a commercial building. The procedure for the lease of such an office is quite simple and is not subject to any approval by Vietnamese authorities.

Another alternative is to lease an office or factory from another company located in an IZ or EPZ in accordance with Official Letter 4738 of the MPI dated 15 July 2005.

6. Notarisation of Land Contracts

All documents related to land must be notarised. This could cause delays and increase the complexity of some land transactions since notarisation can be a time-consuming process. When a notary reviews an agreement he may require additional changes to be made, and require the parties to submit additional paperwork for review.

7. Land Clearance

Under the old land law, foreign investors had to pay compensation for and site clearance of land withdrawn by the State for foreign investors' use. This was a heavy burden making land prices in Vietnam extremely high since foreign investors would pay for land twice (first for land clearance, and second for land rental). Further, unsatisfactory compensation provided for by the old law led to claims from the land users and unnecessary delays in the implementation of projects involving foreign investors.

This has now changed. Under the current Land Law, foreign organisations and individuals, and overseas Vietnamese investing in Vietnam do not have to pay compensation and assistance for the resettlement of residents. Land recovery by the State is quite limited for economic development, and will only be recovered in certain special cases.

The cases are for IZs, HTZs, economic zones, Group A projects and for 100% FOCs which cannot locate in IZs. The State, under Decree 197 implementing the Land Law, must take charge of site clearance and compensation to displaced land users, when withdrawing land for use by foreign organisations and individuals and overseas Vietnamese. When the State clears land for domestic parties, they are still responsible for negotiating the clearance of the current land users. It is not particularly clear how this provision applies to a JVC, though in practice, when a JVC falls under one of the special cases where clearance is available, the State will recover land and compensate land users as stated above.

8. Withdrawal of Land from Foreign Investors

The Land Law grants power to the Government to reclaim land leased or allocated to parties, including foreign investors. Among the circumstances whereby land will be withdrawn from foreign investors are where:

1.

the land is used in an inefficient way or incorrect purpose;
2.

the land user intentionally destroys the land;
3.

the land user intentionally fails to discharge financial obligations to the State;
4.

the land has not been used for 12 consecutive months from the date of handover of the land; or
5.

the land-using schedule of the project has been delayed for more than 24 months as opposed to the progress originally committed by the investor under the project documentation.

It should be noted that under the current investment law, a "severe breach" is grounds for withdrawal of an investment certificate. A breach which is grounds for withdrawal of land should be considered a "severe breach", and would also be grounds for withdrawal of an investment certificate.

Refund for Assets and Recovered Property

When the State withdraws property for the reasons stated above, the land user is entitled to a refund equal to or less than the remaining value, set by a Valuation Council, of the capital invested on the land, including land usage fees, land rent, and assets. If the land is further allocated or leased to other users, the defaulting party will receive an amount equal to the remaining value. If the land is allocated or leased after auction, the defaulting user will receive an amount equal to the net auction price or remaining value, whichever is lower.

9. Mortgage over Land Use Rights

While private ownership of land is not permitted, Vietnamese law expressly recognises mortgages over LURs in favour of credit institutions in Vietnam, including foreign bank branches in Vietnam. Unfortunately, Vietnamese laws do not have any reference to the creation of security interests over land or land use rights in favour of offshore entities and this is usually understood to mean that LURs cannot be mortgaged in favour of offshore financial institutions.

The laws of Vietnam are not entirely clear regarding whether an onshore security agent is able to take a mortgage over LURs for and on behalf of offshore finance parties. In practice, this agency arrangement has been adopted with specific approval from the Government for at least one recent financing transaction.

To be eligible for giving a mortgage over LURs, it should be noted again that a foreign invested lessee is required to pay land rental in advance for the whole period of the land lease. A mortgage over LURs is also available in the event the lease was entered into before 1 July 2004 and the prepayment of land rental has been made for at least 5 years.

In practical terms, there are limits to the value of the entitlement to mortgage land use rights due to the absence of reliable enforcement procedures. In addition, the comparatively short term of a land lease (maximum 50 years, or 70 in limited circumstances) means that it does not constitute a particularly attractive form of security for mortgage purposes, where internationally a longer term (i.e. 99 years) is the norm.

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INTELLECTUAL PROPERTY

s of 1 January 2006, the new Civil Code came into force in place of the old Civil Code and as of 1 July 2006 the Law on Intellectual Property, as codifying the current government regulations on intellectual property, will come into force. Both pieces of legislation become the principal legislation that governs protection of intellectual property rights. Such new legislation has been enacted in an attempt by Vietnam to adopt the WTO standard for intellectual property protection


INTELLECTUAL PROPERTY

(April 2007 Update)


On 1 January 2006, the new Civil Code came into force, replacing the old Civil Code and on 1 July 2006 the Law on Intellectual Property, as codifying the current government regulations on intellectual property, came into force. These two pieces of legislation are the principal legislation governing protection of intellectual property rights. Such new legislation has been enacted in an attempt by Vietnam to adopt WTO standards for intellectual property protection.

In addition to these laws, Vietnam is also a signatory of and, therefore subject to, the provisions of the Paris Convention, the Madrid Agreement, Madrid Protocol and the Stockholm Convention of 1967 (which established the World Intellectual Property Organisation). Vietnam also recently joined the Berne Convention for the Protection of Literary and Artistic Works with effect from 26 October 2004 and the Geneva Convention for the Protection of Producers of Phonograms against Unauthorised Duplication of their Phonograms with effect from 6 July 2005.

Though embodied in the intellectual property laws, the industrial property regime is regulated and implemented separately from the copyright regime. Vietnam's industrial property regime is administered principally by the MOST acting through the NOIP while the copyright regime is administered by the Ministry of Culture and Information, acting through the Copyright Department.

1. Protection of Intellectual Property Rights in Vietnam

Generally, intellectual property rights are protected in Vietnam upon registration on a first to file priority basis, except for trade secrets, geographic indications and trade names (which are entitled to legal protection as far as they fulfill their own conditions of formation and usage). Registration is not a prerequisite for copyright protection although it is prima facie evidence for protection.

Below is a summary of the various types of intellectual property rights protected in Vietnam and the duration of the protection:



Type


Brief Description


Duration of Protection

Patent for Invention


A technical solution presenting worldwide novelty, an inventive step applicable in socio-economic fields


20 years from the date of application

Patent for Utility Solution


A technical solution new in comparison with existing technology and achievable in current economic technological conditions


10 years from the date of application

Industrial Design


The external appearance of a product embodied by lines, three dimensional forms, colours or a combination of there, novel and inventive throughout the world and capable of serving as a pattern for an industrial or handcrafted product


5 years from the date of application (renewable for an additional 2 periods of 5 years = 15 year max)

Layout Design of Integrated Circuit


A three dimensional disposition of circuit elements and their interconnections in the integrated circuit which is original and not widely known in the relevant field


10 years since the date of application (or the earlier of the expiration of: (i) 10 years from its first commercial use; and (ii) 15 years from its creation)

Trademark


Marks used to distinguish goods or services of one person from goods and services of the same kind of another person. They may take the form of words, images or any combination presented in one or more colours


10 years from the date of application (renewable for successive 10 year periods without limit)

Geographic Indication


Information indicating territorial origin of a product with characteristics or qualities pertaining to the territory


Perpetuity from the certification of protection

Trade Name


Names of individuals or entities used in business activities


As long as its formation and usage

Trade Secret


Confidential information capable of applying in trade and gaining economic advantages


As long as its formation and usage

New Plant Variety


New plant variety as created by selection or development which is of distinctiveness, uniformity and stability for plantation and has a recognizable name among relevant species


20 years from the certification of protection (25 years for trees and vines)

Copyright


Moral and material rights in respect of original literary, artistic and scientific works including software


Author's life plus 50 years (except for movies, photographs, plays, applied fine art works, which enjoy 50 year protection)

Copyright-related rights


Moral and material rights in respect of performance show, audio record, visual record, radio program and satellite program-coded signal


50 years


2. Trademarks

Trademarks are generally protected by registration however, certain marks (including logos) are not registrable if they are:

*

not distinctive;
*

widely used;
*

descriptive of the goods or services in question; or
*

misleading, deceptive or identical to or confusingly similar to existing registrations

2.1 Priority rights

Vietnam adopts a first to file rather than first to use priority system, so the earlier application for a trademark establishes a right of first priority. The date of priority is generally the date of application but this can be earlier if a qualifying application has been made in another member country of the Madrid Agreement.

Trademarks that have been internationally registered in accordance with an international treaty can also be established in Vietnam by the trademark being accepted for protection by the trademark office. Applicants who wish to rely on international treaties in establishing a right of priority must make an express statement to that effect in their application for protection, and must present evidence in support of their priority claim.

2.2 Registration procedure

Vietnam has adopted the international classification of goods and services for the purposes of trademark registration although it is not a member of the Nice Agreement. A trademark search can be conducted to establish whether the mark or any similar mark has already been registered before applying for a trademark in Vietnam.

Applications can be made either for international registration (including Vietnam) through the World Intellectual Property Organisation or directly in Vietnam. Registration of a trademark in Vietnam does not by itself expose or increase exposure of the registered owner to any legal liability in Vietnam or to Vietnamese taxation. It should however be noted that trademarks not used within any 5 year period after registration may run the risk of being de-registered.

2.3 "Well-known" trademarks

Trademarks may still be protected in Vietnam in the absence of "first-to-file" priority. A trademark will be deemed "well-known" if it has wide public recognition, based on the following criteria:

*

number of customers;
*

location for sales;
*

sales turnover;
*

the number of years in continuous use;
*

popular goodwill;
*

the number of countries where the trademark has been protected or recognised as well-known;
*

the value of any licence;
*

number of assignments, if any; or
*

capital contribution.

"Well-known" trademarks are protected for perpetuity upon recognition in Vietnam.

3. Patents

3.1 Invention and utility solution

An invention is defined as a technical solution which is new in comparison to existing technology, which is of a creative character and is applicable to various social and economic fields.

Scientific ideas, principles and discoveries, educational, teaching, training and organisational methods and systems, aesthetic appearance of products without technical features, computer software, mathematical models and diagrams are all excluded from patent protection.

An applicant unable to secure protection for an invention would have an alternative patent protection for a utility solution (which is essentially an invention without involving an inventive step).

3.2 Priority rights

Priority in applications for patent protection is determined by the date on which the NOIP receives the application, or in accordance with the applicable international treaties. Applicants who wish to rely on international treaties to establish a right of priority must make an express statement to that effect in their application and present evidence in support of their priority claim.

Vietnam is a signatory to the Patent Cooperation Treaty ("PCT"). The signatories to the PCT have agreed to permit an applicant to wait for up to 30 months after the initial filing of a patent application in one country to begin prosecuting the application in other countries. Vietnamese law extends this period to 31 months.

3.3 Registration procedure

Patent applications can be made either for international registration under the PCT procedure or directly in Vietnam.

Direct application in Vietnam will only be possible if the invention or utility solution has not been made public anywhere in the world in any form of use or through an enabling description before the priority date. A patent application must be submitted to the NOIP.

The NOIP will publish the application in the industrial property gazette after preliminary examination and acceptance of the application. A substantive examination will only be carried out upon request by the applicant or a third party. A substantive examination is to determine the patentability of the invention or utility solution and its scope of protection.

4. Industrial designs

An industrial design is defined as having worldwide novelty in the same way as an invention which also involves a substantial distinction and uniqueness to a person having ordinary skill in the relevant area. Excluded from the protection of industrial designs are mere functional or technical features of a product's appearance, external features of civil or industrial construction, features of intangible products and designs of aesthetic products.

A technical design should not be disclosed in any form, in any jurisdiction until the date of filing for protection. This is to maintain its worldwide novelty.

Priority rights over protection of industrial designs are achieved the same way as for trademarks and patents.

Since international applications are not available for protection of industrial designs, applicants need to register in Vietnam through the NOIP.

5. Copyright

5.1 Owners and authors of copyright

There is a distinction between owners and authors of works. An author is a person who creates all or part of a literary, artistic or scientific work, while those who translate, adapt or edit works are deemed to be the authors of such works.

Owners of works may be authors or co-authors, authorities or organisations which delegate a duty to an author to create a work, individuals or organisations which contract with an author for the creation of a work, heirs who inherit a work from an author who was also the owner of a work and individuals to whom and organisations to which ownership rights over a work are transferred by contract.

Rights over a work include personal rights (including the right to name a work and to permit others to use the work) and property rights (including the right to receive royalties and to rent out the work). These rights are divided into three types: (i) rights of an author; (ii) rights of an owner; and (iii) rights of an author who is concurrently the owner of a work, who therefore holds full personal and property rights over a work.

5.2 Establishment of copyright

Copyright arises from the moment a work is created in a definite form. The Civil Code provides that copyright protection in respect of foreign individuals and entities will be limited to works which are first published or disseminated in Vietnam or which are created and take a definite form in Vietnam. Under the "30 day rule", works of foreign authors must be published in Vietnam within thirty days of first publication in any other country (except for first publication in Vietnam). This "30 day rule" is an impediment to copyright protection for foreign individuals and entities, as currently foreign authors who first publish their works in another country will currently have to rely on international or bilateral treaties to which Vietnam is a signatory or enters into for copyright protection within Vietnam.

Vietnam and the United States signed a bilateral treaty on copyright protection with Vietnam, which overrides the "30 day rule" for US nationals. Vietnam also acceded to the Berne Convention for the Protection of Literary and Artistic Works which has enabled Vietnam to extend its national treatment in copyright protection to all country members of the Berne Convention.

5.3 Registration of copyright

Authors, co-authors and owners of works have the right to apply for the registration and protection of copyright and ownership of such works to the Copyright Department under the Ministry of Culture and Information. Such registration is prima facie evidence rather than a requisite of copyright protection.

The application must be supported by evidence of the applicant's authorship and/or ownership of the work. Where the application is in order the applicant will be issued with a Copyright Certificate within 15 days of receipt of the application.

The Ministry of Culture and Information has primary responsibility for the protection of copyright in Vietnam and is assisted at the local level by a network of Culture and Information Inspectors.

6. Transfer of Intellectual Property Rights

6.1 Industrial property

Owners of industrial property that is protected in Vietnam (except for “geographic indications” may license the right to use or transfer ownership of such objects to a third party. Exclusive licensees of the right to use industrial property may further sub-license their right to use.

6.2 Registration requirement

Licence or assignment of industrial property rights must be made by a written contract. A licensing or assignment agreement must include certain provisions set forth by law as such particulars of the parties, price, rights and obligations and scope, term and territory for licensing. Assignment of certain types of industrial property, including inventions, utility solutions, industrial designs, layout designs of integrated circuit and trademarks, must be registered with the NOIP. Although, the licence of those industrial property rights is binding against the licensor and the licensee without being conditional upon registration by the NOIP, registration of such licence must be registered with the NOIP for binding against any third party.

6.3 Duration

The duration of licensing contracts is limited to the valid duration of the certificate of protection for each type of industrial property, which may be renewed.

6.4 Prohibited terms

Certain terms that restrict the licensee's rights may not be included in the licensing contract, especially those that do not come from, or protect, the rights of the licensor. These include:

*

prohibitions on the licensee's innovation or improvement of the licensed objects of industrial property (except for trademarks), or any obligation of the licensee to transfer such improvement to the licensor free of charge;
*

direct or indirect limits on the licensee's exports to territories where the licensor is neither the owner of the corresponding industrial property right nor the exclusive importer of the same (e.g. where the licensor grants exclusive licence of the industrial property);
*

any obligation of the licensee to purchase all or certain proportions of materials, accessories or equipment from the licensor or another supplier, who is appointed by the licensor without product quality assurance; and
*

prohibitions on the licensee's claim in respect of the validity of the industrial property right or the licensor's right to license.

6.5 Other statutory obligations and restrictions

The licensor or assignor must guarantee the validity of the industrial property rights and deal with any dispute with a third party. The licensor also needs to take appropriate measures against any infringement by a third party which may cause damage to the licensee.

The licence or assignment of the trademark must not cause confusion in relation to the characteristics and origin of the goods or services bearing the trademark. The current regulations prohibit the licence or assignment of industrial property rights for the purpose of squeezing out competitors and attempting to monopolise the market.

6.6 Licence of copyright and related rights

Authors and owners of copyrights may transfer all or part of the property rights over a work to others under a contract or under the laws on inheritance. The personal rights of an author are not generally transferable but an author who is concurrently the owner of a work has a limited right to transfer some of his/her personal rights.

7. Enforcement of Intellectual Property Rights

7.1 Course of action

The remedies for industrial property infringement fall into two categories - judicial and administrative. The judicial remedy is in principle straightforward. An owner or registered user of industrial property is entitled to commence proceedings in court for infringement of their intellectual property rights and the courts have the power to issue an injunction preventing the infringement from continuing and to award damages. The competent authorities have the powers to enforce such an injunction. However, the court has a duty to conciliate which can be time consuming and are therefore more likely to pursue an award of damages.

Vietnam has a more powerful executive than judiciary, when compared with western jurisdictions and, as a result, administrative remedies are likely to be more efficacious. Proceedings should first be filed with the NOIP for verification of the infringement. The customs authorities, the market management authorities and the economic police have the power to regulate industrial property control of goods and take necessary action to seize infringing products. The courses of action available to them include powers of search, sealing up of premises, temporary detention and suspension of production and sale.

7.2 Administrative penalties for infringement

Infringement of rights over industrial property objects shall be subject to penalties in the form of either a "warning" or a fine. Other sanctions may also be applied such as suspension of business licence, confiscation of violating means or materials, forcible restoration of original state, dismantling of violating goods and compensation for damages.

Penalties must be applied within one year, or two years for business activities which infringe legal rights of registered trademarks, appellations of origin or industrial designs, following the date of the infringement. After these statutory time limits have passed, infringers will not be subject to penalties.

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ENVIRONMENT

The environmental impact assessment report must be made filed together with the feasibility study of the project. The contents of an environment impact assessment report must include project specifications, operational technology of the project , measures to minimise negative effects on the environment, an undertaking to apply environment protection measures during the construction and operation phases, and opinions of the local commune People's Committee and the population community where the project is carried out. These opinions may be in agreement or disagreement with the project from an environmental protection perspective and must be set forth in the report for the relevant appraising body's consideration.


ENVIRONMENT

(April 2007 Update)


1. Environment Impact Assessment Reports

Under the Law on Environment Protection ("Environment Law") passed by the National Assembly on 29 November 2005 and effective from 1 July 2006, the requirements on strategic environment assessment reports and environmental impact assessment reports are as follows:

1.1 Strategic Environment Assessment Reports

Projects that are subject to strategic environment assessment reports include strategies and plans on national socio-economic development at the national or provincial level. The agency responsible for building a national strategic project must prepare and submit a strategic environment assessment report to the relevant appraisal body.

The appraisal is one of the grounds for approving the project. A strategic environment assessment report must include the following contents:

1.

general descriptions of the objectives, size and features of the project;
2.

descriptions of the natural, economic, social and environmental conditions of the project;
3.

a prediction of possible negative effects on the environment;
4.

sources of data and appraisal methods; and
5.

proposed solutions and directions for the implementation of the project.

The MONRE is responsible for forming a Strategic Environment Assessment Report Appraisal Board with regard to projects belonging to the authority of the National Assembly, the Government and or Prime Minister. The relevant ministries have a responsibility to form Strategic Environment Assessment Report Appraisal Boards with regard to the projects under their respective authority. Provincial People’s Committees are responsible for forming Strategic Environment Assessment Report Appraisal Boards with regard to the projects under their respective authority or provincial People’s Councils’ authority.

1.2 Environmental Impact Assessment Reports

Article 18.1 of the new Environment Law provides for a list of the projects that are subject to environmental impact assessment report requirements. These projects include, inter alia, projects of national importance such as urban area development projects, large scale projects for exploitation of natural resources, and projects for the development of IZs, HTZs and EPZs. Appendix I of Decree 80 implementing the Law on Environment dated 9 August 2006 ("Decree 80") provides a more comprehensive list of projects requiring environmental impact assessment reports, including all telecommunications infrastructure construction projects, projects on building and repairing ships and projects on exploitation of oil and gas.

The environmental impact assessment report must be made filed together with the feasibility study of the project. The contents of an environment impact assessment report must include project specifications, operational technology of the project, measures to minimise negative effects on the environment, an undertaking to apply environment protection measures during the construction and operation phases, and opinions of the local commune People's Committee and the population community where the project is carried out. These opinions may be in agreement or disagreement with the project from an environmental protection perspective and must be set forth in the report for the relevant appraising body's consideration.

To obtain the opinion of the community, the project owner has to send a document containing brief contents of the project, environmental impact of the project, measures to minimize such impacts to the People’s Committee and National Front Committee at commune level. A dialogue may be launched if required by the People’s Committee or the National Front Committee.

An environmental assessment report may be appraised by an appraisal board or an environment assessment service agency. The MONRE is responsible for providing the conditions and guidelines for environment service agencies. The MONRE is authorised to form the environment impact assessment report appraisal board, or select an environment impact assessment service agency in respect of projects belonging to the authority of the National Assembly, the Government or the Prime Minister or inter-provincial or inter-ministerial projects. Other ministries are authorised to form environment impact assessment boards or select environment impact assessment service agencies with regard to projects under their respective authority. Provincial People's Committees are responsible for forming environment impact assessment report appraisal boards, or selecting environment impact assessment report appraisal service agencies with regard to the projects under their respective authority and provincial People's Committee’s authority.

The agency organising the appraisal has to inform the project owner about the appraisal result within 3 days of receiving such a result from the appraisal council or the appraisal service agency.

2. Environment Protection Undertaking

Pursuant to Article 24 of the Environment Law, projects that are not subject to the compulsory environment impact assessment reports must provide an undertaking to protect the environment. The contents of the undertaking must include: (i) the project site; (ii) the form and scale of production, trading and services, materials and raw materials used for the project; (iii) likely waste to be produced from the project; and (iv) an undertaking to apply measures to minimise and treat waste and comply with the laws on environment protection. The undertaking must be registered with the local district People's Committee where the project is located before commencement of the project.

3. Financial Obligations

The Environment Law provides for the following financial obligations in relation to environment protection:

1.

Environment tax: applicable to organisations and individuals producing goods that have negative environmental and health effects. The Government will propose tax rates to the National Assembly to decide the list of goods subject to environment tax.
2.

Environment protection fees: organisations and individuals discharging waste, the effect of which would cause negative effects to the environment, must pay environment protection fees. The MOF will publish the environment protection fees in co-operation with the MONRE.
3.

Natural resource exploitation and restoration funds: organisations and individuals exploiting natural resources must place environmental deposits at a credit institution operating in Vietnam or at the environment protection fund of the place where the exploiting activities are carried out (see (iv) below). The exploiting organisation or individual is entitled to interest on that deposit. The Environment Law authorises the Prime Minister to promulgate regulations on environment deposit.
4.

Environment protection funds: an environment protection fund is a financial agency established in provinces and State agencies. Environment protection funds' financial resources come from the State budget, environment protection fees, compensation for environmental damage, administrative monetary penalties, and contributions from domestic and foreign organisations and individuals. The Prime Minister determines the organisation and operation of the national environment protection fund, environment protection funds of ministries, governmental bodies and State corporations. Provincial People's Committees determine the establishment of local environment protection funds.

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EMPLOYMENT

Following the promulgation of the Labour Code in June 1994 (as amended), a series of implementing regulations have been issued to govern particular areas of labour law, including labour contracts, employment procedures , working hours and salary (referred to collectively as the "Labour Code"). The Labour Code can be complex, and some foreign firms have found it difficult to comply with its requirements.


EMPLOYMENT

(April 2007 Update)



Following the promulgation of the Labour Code in June 1994 (as amended), a series of implementing regulations have been issued to govern particular areas of labour law, including labour contracts, employment procedures, working hours and salaries/remuneration (referred to collectively as the "Labour Code"). The Labour Code can be complex, and some foreign firms have found it difficult to comply with its requirements.

1. Recruitment

Under the Labour Code, FICs are allowed to recruit Vietnamese employees directly or through a recruitment centre. Before recruiting, FICs are required to make a public announcement (on either local or central mass media) and post at their head office their recruitment requirements such as job description, qualifications, number of labourers to be recruited, contract term, salary and working conditions. Within seven days of each recruitment, FICs are required to provide a list of recruited labourers to the DOLISA.

International or foreign organisations and companies, including representative offices and branches in Vietnam, are required to recruit Vietnamese employees through a recruitment centre. In the event that the recruitment centre fails to supply the required candidates within 15 days of request, the representative office or branch is entitled to recruit employees directly.

Where highly technical, managerial or other qualifications are required for which Vietnamese personnel are not available, a FIC may recruit expatriates. However, there must be a training programme to allow Vietnamese employees to eventually replace such expatriates. Vietnamese law recently imposed a cap on the total number of expatriate employees, which cannot now exceed 3% of the total workforce. However, an FIC may, in limited circumstances and on a case by case basis, employ more expatriates if it obtains approval from the Chairman of the provincial People's Committee. Certain employers are not subject to the 3% cap. However, they can only employ foreigners if this is approved by the Chairman of the provincial People's Committee.

2. Labour Contracts

A labour contract must, with the exception of contracts with a term of less than 3 months, be in writing and signed directly between an employee and the legal representative of the employer. The contract must be made in the standard form issued by the MOLISA. The contract must contain the following details: work to be carried out, working hours and length of break, wage, work place, term of contract, health and safety provisions, and social insurance. The standard form also contains a provision allowing the employer to specify further employment terms and conditions.

The contents of a labour contract must be in compliance with the laws of Vietnam and the collective labour agreement of the relevant company if there is one.

Obligations of employees

The MOLISA standard form employment contract does not contain provisions designed to protect the interests of employers. To overcome this problem, a company should consider the following steps

1.

specify additional employment terms and conditions for particular employees, including major obligations such as non-disclosure of business information and trade secrets; non-competition (working for or advising the employer's competitors); and code of conduct (receipt of gifts, financial incentives, and so on); and
2.

create a set of working rules ("Working Rules") which set out the obligations and requirements applicable to all employees (which provisions would generally be too voluminous to include in the (rather short) standard contracts).

Signing of a labour contract together with the employer's Working Rules maximises the protection for employers and provides them with remedies under law. In the absence of these documents, it may be difficult for an employer to dismiss the employee who breaches the labour regulations.

Types of labour contracts

The Labour Code introduced three types of labour contracts:

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non-fixed term labour contract;
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fixed term labour contract (from 12 to 36 months); and
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"seasonal" labour contract (less than 12 months).

One problem concerning non-fixed term labour contracts is that a company can only terminate such a contract in the very limited circumstances provided for in the Labour Code. Many companies previously entered into multiple one-year labour contracts to allow termination upon expiry. However, the recent amendment to the Labour Code only permits a company to enter into more than two fixed-term labour contracts with an employee in the following circumstances:

1.

where the first fixed-term labour contract has expired but the employee continues to work, a new labour contract must be signed within 30 days from the expiry date of the first contract;
2.

if the parties fail to sign a new labour contract by the expiry of that 30-day period and the employee continues to work, the first fixed-term labour contract will automatically become a non-fixed term labour contract;
3.

if a new fixed-term labour contract is signed, the duration of this second contract must not exceed 36 months; and thereafter, if the employee continues to work, a non-fixed term labour contract must be signed.

Probationary period

A probationary period can be applied before execution of a labour contract. During the probationary period, either party can terminate the employment contract without prior notice. The probationary period must be:

1.

no more than 60 days, for positions requiring college level qualifications;
2.

no more than 30 days, for positions requiring vocational level qualifications; and
3.

no more than 6 days for manual employment labour.

3. Termination of Employment

Unilateral termination

The Labour Code only allows unilateral termination of a labour contract in limited circumstances, irrespective of any mutual agreement or other circumstances. There are different procedures for termination by employers and employees. Generally, a party terminating a labour contract unilaterally must give prior notice of termination to the other party.

Unilateral termination by an employee

An employee who signs a labour contract with a fixed term of 12-36 months, or for seasonal work or a specific task of less than 12 months, is entitled to unilaterally terminate the contract prior to expiration if the employee:

1.

is not assigned to the work or workplace, or working conditions that are not as agreed under the labour contract;
2.

is not paid the full amount or at the time specified in the labour contract;
3.

is subject to maltreatment or forced labour;
4.

cannot continue their employment due to adverse personal or family difficulties;
5.

is elected to a full-time position in a representative public office or is appointed to an office in the State apparatus;
6.

is sick or involved in an accident requiring medical treatment for either three consecutive months in respect of a fixed-term labour contract of 12 months to 36 months, or a quarter of the contract term in respect of a seasonal job or a specific job with a term less than 12 months; or
7.

in the case of female employees, is pregnant and must stop working based on the advice of a doctor.

An employee who signs a non-fixed term labour contract is entitled to unilaterally terminate the contract whenever he/she wishes so, provided that a 45 day prior notice is duly given to the employer.

Unilateral termination by an employer

It is difficult for employers to unilaterally terminate labour contracts in Vietnam. During the term of a labour contract, unilateral termination by an employer is permitted only in the following circumstances:

1.

the employee regularly fails to perform his contractual duties;
2.

the employee is dismissed for disciplinary reasons;
3.

the employee has been sick for an extended period (6 months or 12 months depending on the term of the employment contract);
4.

the employer is forced to make cuts in the production and workforce due to force majeure events such as fire or natural disaster; or
5.

the company or organisation ceases operations.

The most common circumstance for unilateral termination is dismissal for disciplinary reasons. However, there are legal restrictions as well as procedural requirements of which employers should be aware when dismissing employees (see below). In addition, under items (i), (ii) and (iii) above, an employer must obtain the trade union's opinion prior to unilateral termination.

Dismissal

Dismissal is permitted only when the employee has committed one (or more) of the following acts (prescribed by Article 85 of the Labour Code):

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theft;
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embezzlement;
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disclosure of technological and business secrets;
*

any act that causes severe losses to the company's assets or interest;
*

repeating a breach while a disciplinary sanction remains in place for an earlier breach (this is only applicable where the sanction in question involves either a delay in awarding a salary rise to the relevant employee or the transfer of the relevant employee to another job);
*

repeating a breach after being demoted for the earlier breach; or
*

absence for 5 working days or more in a month or 20 working days in a year without justifiable reason.

Circular 19 of MOLISA dated 22 September 2003 provides some flexibility to employers in this regard by allowing them to set the monetary threshold applicable to the first four types of offences listed above and damage in the amount higher than such threshold will justify dismissal. While companies should pay more attention to the drafting of detailed dismissal provisions in their Working Rules, it should be noted that Official Letter 1593 dated 27 May 2005 indicates that the employee's act must have actually caused the damage to the company's assets or interests. In the absence of such a causal relationship, a dismissal based on the concept of severe damage could be challenged.

Companies should exercise caution when dismissing employees. The laws and practice of Vietnam differ from those in certain other countries. The concept of employee conflict of interests or employee loyalty is not well developed. For example, in certain other countries, an employee may be prevented from taking commission from the company's suppliers or working concurrently for both the employer and its competitors. In these countries, breaches of such corporate ethics could constitute grounds for termination. However, in Vietnam, in the absence of clearly worded obligations in the contract, the court would not interpret the Labour Code against the employee in this regard.

Dismissal procedures

Even when a company believes that it has a valid cause for dismissal, it is required to comply with the following procedures:

*

there must be a disciplinary meeting among all the relevant parties, including a representative of the trade union (if any);
*

the company must provide evidence of the employee's violation, and the employee should be given an opportunity to defend himself;
*

minutes must be taken in any meeting regarding the matter and all the parties present at the meeting must sign the minutes;
*

the company must obtain the trade union's agreement to the dismissal. If the trade union does not agree, the company must report this to the DOLISA, and delay the dismissal for another 30 days; and
*

dismissal must be made within a time limit of 3 months (or 6 months in special circumstances) from the date of violation.

All dismissal circumstances must be recorded in the Working Rules of a company and such Working Rules must be registered with the DOLISA. The court often interprets the Labour Code in favour of employees and a court can reverse a dismissal based on procedural violations.

Retrenchment

A company may retrench its employees where there is an organisational restructuring or technological change, including:

*

partial or complete changes of machinery or equipment or replacement by advanced technological process in order to achieve increased capacity;
*

changes of product lines or structure of products leading to a reduction in the number of employees required; or
*

merger or dissolution of a number of departments within the company.

Where one of the above circumstances arises, which results in the redundancy of an employee who has worked for the company for 12 months or more, the Labour Code requires the company to retrain the affected employee and to assign him/her to a new job that may be available at the company. If no new job is available, the company may terminate the employment of the redundant employee. It is unclear under the current Labour Code whether training is compulsorily required, even where the company is aware that no new job is available even after training.

The retrenchment must strictly follow procedural requirements, otherwise it would be deemed unlawful.

Result of unlawful termination of labour contract by employer

If an employer unlawfully terminates a labour contract, the employer is obliged to offer to reinstate the terminated employee into their old job in accordance with their old contract and compensate him/her for an amount equivalent to his/her salary and salary allowances (if any) for the days he/she was prohibited from working due to the termination plus at least two months salary and salary allowances (if any).

If the employee does not want to return to work for the employer, he/she will be entitled to receive severance pay equivalent to a half month salary for each year of his/her service in addition to the foregoing compensation.

If the employer does not want the employee to return to work, the employer will be obliged to pay the employee severance pay and compensation (as set out above) and an additional amount to compensate the employee for agreeing to terminate their labour contract. In practice, the employee could make use of this provision to ask for a high compensation amount in return of his/her agreement to terminate their labour contract.

4. Wages, Overtime Payments, and Statutory Minimums

The Labour Code allows foreign invested projects to denominate and pay wages to Vietnamese employees in Dong. Salaries for foreigners may be denominated and paid in foreign currencies.

The Government decides and publishes a minimum wage which varies, depending on geographical regions and types of work. In particular, FICs must not pay salaries to their employees lower than the statutory minimum wage levels applicable to untrained labourers. The current minimum wage is VND870,000 per month (approx. US$55) for employees within the urban districts of Hanoi and Ho Chi Minh City and VND790,000 per month (approx. US$50) for employees within the urban districts of Hai Phong, Bien Hoa, Vung Tau, Thu Dau Mot town and suburban districts of Thuan An, Di An, Ben Cat and Tan Uyen in Binh Duong Province. For the rest of the country, the minimum wage is VND710,000 (approx. US$45). With respect to employees who have obtained vocational training (including vocational training conducted by the relevant FIC itself), FICs are required to pay a salary at least seven per cent above the statutory minimum wage.

Overtime on a normal working day (six days of the week and non-public holidays) must be at least one and half times the normal hourly rate. On non-working days (1 day a week) overtime pay is at least twice the normal hourly pay, while overtime on public holidays and paid annual leave is three times the normal pay rate. Overtime may not exceed 4 hours a day or 16 hours a week, up to 200 hours in a year or 300 hours a year in special circumstances, for which the approval of the provincial People's Committee may be required.

A normal working week is 48 hours, comprising six 8-hour working days, but this may be extended by mutual agreement. Employees working in dangerous, noxious, or especially toxic jobs (as defined by MOLISA) will have their work day shortened to 6 or 7 hours.

An employee working for at least 12 months is entitled to annual leave of 12 days in addition to public holidays. Especially certain hazardous and toxic jobs are entitled to either 14 or 16 days annual leave as determined by the Government. An employer may set the schedule of annual leave after consulting with the Executive Committee of the local trade union and notifying his employees. Employees will be compensated for their untaken leave prior to departure from work.

An employee is entitled to paid leave for the following personal reasons: marriage (3 days' leave); marriage of son or daughter (1 day's leave); and death of parents, spouse's parents, spouse, son or daughter (3 days' leave). Female employees are entitled to maternity leave of at least 4 months, with an allowance equal to 100% of the salary to be paid by the Social Insurance Fund. At least 2 months of the maternity leave must be taken post-birth.

5. Work Permits

Expatriates working in Vietnam for 3 months or more must obtain a work permit. A work permit’s term should correspond with the length of the labour contract, which is capped at 36 months but allows extensions at an employer's request.

Before signing a labour contract with an expatriate, an FIC must apply to MOLISA or its authorised agency to obtain a work permit for that expatriate. MOLISA or its authorised agency is obliged to give its decision within 15 days of its receipt of such application. Clear reasons must be provided if the application is refused. In addition, a work permit can be withdrawn in certain circumstances, including for a breach of the laws of Vietnam by the expatriate.

Five groups of foreign employees are exempt from necessary work permits: (i) foreign employees entering Vietnam to work for less than 3 months and to resolve emergency situations for which no Vietnamese or foreigners in Vietnam is qualified; (ii) board members; (iii) heads of representative or branch offices in Vietnam; (iv) foreign lawyers certified to practise in Vietnam; and (v) foreign employees who are seconded to Vietnam to perform a contract (other than labour contracts) entered into between a foreign company or organisation and a company or organisation in Vietnam.

Seven days prior to the date of commencement of work, foreigners who are exempted from work permit requirements must be registered at the DOLISA where the employer's head office is located. The registration must state the name, age, nationality and passport number of the employee, the dates of commencement and termination of employment, and a description of the work to be done.

6. Collective Labour Agreement

An FIC must negotiate a collective labour agreement if requested by the trade union at the company. Such an agreement may only be signed if more than 50% of the employees agree to the provisions of the agreement.

The collective labour agreement covers matters such as wages for different categories of employees and working conditions. A copy of the collective labour agreement must be filed with the DOLISA within 10 days of the signing of the agreement and will come into effect from the date agreed by the parties and stated in the agreement, or from the signing date where no such date is specified. The term of the collective labour agreement can be of 1 to 3 years subject to renewals thereafter.

7. Working Rules

A company is required to issue Working Rules if it has 10 or more employees. The company's employees must be publicly notified of the Working Rules. The Working Rules are expected to form the basis on which the company disciplines employees. Grounds for termination prescribed by the Labour Code are rather restrictive, but include "conduct seriously detrimental to the assets or well being of the enterprise." A set of written and posted Working Rules serves as a good benchmark for such "detrimental conduct". The Working Rules should contain provisions relating to the following:

*

hours of work and rest;
*

organisational hierarchy within the company;
*

occupational safety and hygiene;
*

the protection of the property and technological and business secrets of the company; and
*

acts and conduct in respect of labour discipline, disciplinary measures and measures concerning material liability.

Within 6 months of the date of operation, a company is required to register its Working Rules (which are only effective from the date of such registration) with the DOLISA. In the absence of registered Working Rules, a company would find it very difficult to dismiss employees.

8. Trade Unions

Within 6 months of the commencement of a company's operations, a provincial federation of trade union must set up a provisional trade union organisation at the company, representing and protecting the rights and interests of employees and the workforce.

An employer must recognise a trade union's status once it is validly organised. There are strict rules protecting the trade union and its members from any coercion or discrimination from employers regarding activity within the trade union. The employer is responsible for ensuring an environment conducive to the activities of the trade union.

9. Employment Funds

Social Insurance Fund

Contribution to the State Social Insurance Fund is a statutory obligation of both the employer and employee in all contractual employment relationships longer than three months. The Social Insurance Fund provides benefits such as pensions, salaries during sick days, salaries and treatment for labour-related accidents and occupational illnesses, maternity benefits, and death benefits.

*

Employer pays 15% of the monthly salary pool to the Social Insurance Fund.
*

Employee pays 5% of his/her monthly salary to the Social Insurance Fund.

Health Insurance Fund

The Health Insurance Fund covers 100% of medical expenses, except for cases where high value treatments are involved. In such cases, the Health Insurance Fund covers 100% of medical expenses incurred by working employees provided that they are less than VND 7 million and 60% of such expenses if above VND 7 million (but not more than VND 20 million in any event).

An employer is obliged to pay 2% of the monthly salary pool to the Health Insurance Fund. Each employee must also contribute by paying 1% of his or her monthly salary to the Health Insurance Fund.

Provision Fund for Retrenchment Allowances

A company is required to place 1-3% of the total wages into a Retrenchment Allowance Fund. When an employee loses his or her job due to restructuring or technological advances affecting a company, the employer has the responsibility to retrain the employee. If a new job cannot be created, the employee is entitled to severance pay of one month's salary for each year employment, with at least two months guaranteed.

10. Labour Disputes

An individual employee or an entire class of employees may initiate court proceedings in relation to a labour dispute. Where an action is commenced by a class of employees, it is called a “collective action”. There is a one year statute of limitation for "collective actions". Collective actions are treated as disputes between an employer and the class’ representative. The statute of limitation for individual actions depends on the dispute. For disputes over unilateral termination, dismissal, compensation for termination and payment of social insurance the statute of limitation is 1 year. For disputes in labour export operations the statute of limitation is 3 years. For all other disputes, the statute of limitation is 6 months.

Individual labour disputes

The Labour Code does not define “individual labour dispute”. Logically, one may rely on the definition of “collective labourers” to distinguish an individual labour dispute from a collective labour dispute: “Collective labourers are labourers working in the same organisation or a part of the enterprise.” Presumably, any dispute that does not involve “collective labourers” is deemed to be an individual labour dispute.

If an individual labour dispute arises, it must first be referred to, and settled by, the labour reconciliation council at the relevant enterprise (the “Enterprise Reconciliation Council”) or the Labour Conciliator (Article 165a). If this fails, either party may refer the dispute to the relevant court for hearing. Individual labour disputes cannot give a rise to a labour strike under the law.

Collective labour disputes

Collective labour disputes are classified into collective labour disputes over rights (“Disputes over Rights”) and collective labour disputes over interests (“Disputes over Interests”).

Disputes over Rights are defined as those arising out of the implementation of labour laws and regulations, the collective labour agreement, registered internal labour rules or other lawful rules and agreements in an enterprise. Disputes over Rights will first be referred to the Enterprise Reconciliation Council (or the Labour Conciliator). If reconciliation fails, the dispute is referred to the Chairman of the district People’s Committee for settlement. If this second step fails, the dispute can finally be brought to the People’s Court or give rise to a labour strike, subject to the decision of the collective labourers.

By contrast, Disputes over Interests are defined as those arising out of new labour conditions and benefits other than the objects of Disputes over Rights. Disputes over Interests will first be referred to the Enterprise Reconciliation Council (or the Labour Conciliator). If reconciliation fails, the dispute is referred to the provincial Labour Arbitration Council for settlement. Failure in settlement by the Labour Arbitration Council can give a rise to a labour strike by the collective labourers.

Labour strikes

A lawful labour strike must be conducted by the [provisional] Trade Union in the enterprise (or the representative appointed by the collective labourers in the absence of the Trade Union). A labour strike will lawfully be carried out if (i) in an enterprise of less than 300 employees, at least 50% of the total employees agree to the strike; or (ii) in an enterprise of 300 employees or more, at least 75% of the compulsorily consulted persons agree (including the Trade Union’s members, heads and deputy heads of the Trade Union’s divisions and/or production teams). Before and during the labour strike, the employer is entitled to commence legal action before the People’s Court for settlement of the Dispute over Rights or judgment on the lawfulness of the strike. The right to take legal action is vested in both the employer and relevant employees even for 3 months after the strike terminates.

Employees’ liability for unlawful strikes

The policy on salaries payable to employees during a strike has recently been changed. Labourers who take part in a strike will not be paid during that strike. Those who do not strike but have to cease working because of the strike will still be entitled to the work-suspended salary pursuant to Article 62.2 of the Labour Code. The Labour Code attempts to balance the interests of both the employer and employees conducting the strike. From the employees’ perspective, collective labourers are entitled to strike to protect their rights and interests; the employer is not allowed to terminate labour contracts with those employees, or otherwise seek retribution against them. From the employer’s perspective, certain sanctions are imposed on employees who participate in unlawful strikes or abuse strikes, eg labourers who deliberately continue striking after the court opines on the unlawfulness of the strike will have to compensate for any damage that the employer has incurred due to the strike. However, it is difficult to determine the level of compensation under the Labour Code and Civil Code.

Complaints

An employee has the right to lodge complaints directly, or through legal representatives, to a competent administrative body regarding an employer's questionable behaviour rather than institute civil proceedings. Civil proceedings may not be carried out concurrently with a complaint. If not satisfied with the resolution of the complaint by the administrative agency, the employee may then appeal to the DOLISA within thirty days. He still may appeal to the MOLISA if not satisfied with the DOLISA decision.

The statue of limitation for complaints is 90 days from the date on which the employee or his/her representative receives a labour decision from, or is aware of the questionable labour act of, the employer. The employer must notify the complainant in writing about the acceptance of the complaint within ten days. Generally, an initial complaint must be resolved within thirty days of acceptance, with an extra fifteen days permitted for complicated cases.

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DISPUTE RESOLUTION

The laws of Vietnam emphasise the need for parties to settle their disputes by conciliation and mediation. Until the legal framework is further developed, the practical importance of this approach to dispute resolution cannot be over-emphasised. Both foreign and local parties are encouraged to seek the assistance of relevant authorities to arrive at an amicable solution to any dispute, although no formal system of mediators and conciliators has yet been developed.


DISPUTE RESOLUTION

(April 2007 Update)



1. Background and Problem Areas

Although Vietnam is in the process of building a more internationally acceptable dispute resolution framework, such framework remains at an early stage. As such, in common with other developing countries, formal dispute resolution and enforcement will continue to be a concern for investors in the short term for the following reasons:

*

the laws and regulations of Vietnam are still relatively unclear and undeveloped in many important areas, not only in relation to substantive matters such as the rights and obligations of parties to a contract but also in relation to procedural matters such as enforcement of rights;
*

there is no systematic publication of judgments or judicial decisions;
*

the Vietnamese courts and arbitration centres have only recently been legislated for and are still underdeveloped in many respects;
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the independence of the judiciary is not guaranteed;
*

judges and arbitrators generally have little experience in dealing with or settling complicated disputes;
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while the incorporation of foreign laws to govern contracts is permitted in certain circumstances under the laws of Vietnam, there is currently little practical possibility of such laws being applied in Vietnam;
*

choice of foreign courts is of limited value as foreign court judgments are generally not enforceable in Vietnam; and
*

despite the enforceability of certain court judgments and arbitral awards, the actual enforcement process is uncertain, expensive and time-consuming.

2. Conciliation and Mediation

The laws of Vietnam emphasise the need for parties to settle their disputes by conciliation and mediation. Until the legal framework is further developed, the practical importance of this approach to dispute resolution cannot be over-emphasised. Both foreign and local parties are encouraged to seek the assistance of the relevant authorities to arrive at an amicable solution to any dispute, although no formal system of mediators and conciliators has yet been developed. A settlement agreement reached between the parties during mediation or conciliation is currently treated in the same way as a normal contractual agreement, with the usual contractual remedies available for a breach of its provisions. However, where the litigants are required to attend conciliation meetings chaired by a judge, pre-trial settlement agreements reached in this forum and recognised by a judge’s decision are held to be final and enforceable against the parties.

It is not uncommon for the authorities to assist foreign parties by applying administrative pressure on the Vietnamese parties if the merits of the foreign party's case are clearly established. Well-drafted and detailed documentation will greatly improve the foreign party's position in this respect.

If conciliation and mediation fail, the parties may, under certain circumstances, refer the matter to various forums, including international arbitrators, commercial arbitrators in Vietnam, Vietnamese courts or foreign courts. It should be noted, however, there are certain restrictions on the availability of such forums.

3. International Arbitration

In 1995, Vietnam ratified the New York Convention. Shortly thereafter, the Ordinance on Foreign Arbitral Awards was passed providing for domestic enforcement of foreign arbitral awards. This was subsequently repealed by provisions of the new Civil Proceedings Code ("CPC"), which took effect from 1st January 2005.

General

Under the CPC, foreign arbitral awards are defined as arbitral awards rendered outside Vietnam and also arbitral awards rendered by non-Vietnamese arbitrators within Vietnam. A Vietnamese court will only consider an application for recognition and enforcement of a foreign arbitral award where the award has been made in or by arbitrators of a country being a party to the New York Convention or, in the case of a country not being a party to the New York Convention, to the extent a country grants reciprocal treatment to Vietnam.

An organisation or individual which wins a foreign arbitral award may petition a Vietnamese court for recognition of the award and permission to enforce it, provided that: (i) in respect of an organisation, the losing party has its head office in Vietnam; (ii) in respect of an individual, the individual resides or works in Vietnam; or (iii) the enforcement relates to property which is in Vietnam at the time the petition is made. An award recognised by a Vietnamese court will have the same legal effect as a judgment given by a Vietnamese court and can be enforced in Vietnam.

It used to be the case under the Ordinance on Foreign Arbitral Awards that recognition and enforcement of arbitral awards were limited to disputes arising out of or in connection with commercial legal relations, which was generally interpreted as being limited to sales contracts and trade-related contracts. The CPC has significantly broadened the scope of recognition and enforcement of arbitral awards in relation to business and commercial disputes (i.e. most commercial relations) bringing the Vietnamese legal position in line with international practice and the intent of the New York Convention.

Grounds for rejection of foreign arbitral awards

A Vietnamese court may reject an application for recognition and enforcement of a foreign arbitral award if the respondent can provide evidence proving that:

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the parties lacked the capacity to sign the arbitration agreement in accordance with the law applicable to each party;
*

the arbitration agreement is invalid under the applicable law;
*

the respondent did not receive due notice of appointment of arbitrators or the arbitration proceedings or for other legitimate reasons the respondent could not exercise its rights in the proceedings;
*

the foreign arbitral award was made where no settlement was requested or was beyond the request of the disputing parties;
*

the composition of the arbitration body and/or the arbitration proceedings was not in accordance with the arbitration agreement of the parties or the applicable law;
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the award is not yet binding on the parties; or
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the award has been overruled or suspended by competent authorities of the countries where the award was made or whose law was the governing law.

In practice, Vietnamese courts have, on many occasions, refused to recognise and enforce several foreign arbitral awards on the basis that the underlying contract (including the arbitration provision) was invalid due to the fact that the signatory to that contract was not duly authorised to sign it.

In addition, a Vietnamese court may reject an application for the recognition and enforcement of a foreign arbitral award if it decides that the dispute should not be resolved by arbitration under the laws of Vietnam, or that the recognition and enforcement of the award is contrary to the "basic principles of the laws of Vietnam". This concept is not expressly defined by law.

Interestingly, the procedures prescribed by law in relation to the recognition and enforcement of foreign arbitral awards appear to grant only the respondent (i.e. the party who is subject to enforcement of the arbitral award) the right to participate in the court hearing. The applicant (i.e. the party who is seeking recognition and enforcement of the arbitral awards) does not appear to enjoy a similar right.

4. Foreign Courts

Under the laws of Vietnam, FICs may not be able to refer their disputes to a foreign court.

Judgments issued by foreign courts are not enforced in Vietnam unless Vietnam has signed a bilateral treaty with the relevant country regarding enforcement of that country's court judgments. To date, Vietnam has entered into bilateral treaties with a few countries including Russia, Cuba, Bulgaria, Hungary and France in relation to the enforcement of civil judgments issued by foreign courts. With the exception of the treaty with France, civil judgments are those relating to non-commercial disputes and therefore these bilateral treaties are neither useful nor applicable to commercial disputes. The CPC now allows the Vietnamese courts to recognise and enforce court judgments from a foreign country on the basis of reciprocity (comity), although it is not yet clear how this will be implemented in practice.

5. Domestic Arbitration

In the past, arbitrators in Vietnam were members of economic arbitration centres and the Vietnam International Arbitration Centre ("VIAC"), both of which were established in the 1990s. However, the operation of these arbitration centres was very limited due to the fact that their arbitral awards were not enforceable in practice. For example, less than 20 commercial disputes were reported to have been brought before these arbitration centres each year.

Since the issuance of the Ordinance on Commercial Arbitration on 25 February 2003, Vietnam has significantly improved its legislation on the operation of commercial arbitrators in Vietnam. It is expected that more commercial arbitration centres will be established in the near future.

Under the Ordinance on Commercial Arbitration, commercial disputes may be resolved by an arbitration tribunal organised by an arbitration centre or set up by the parties (ad hoc arbitration). The arbitration tribunal may consist of three arbitrators or a single arbitrator as agreed by the parties.

Commercial arbitrators in Vietnam have jurisdiction to arbitrate commercial disputes. The Ordinance on Commercial Arbitration has adopted a broad interpretation of "commercial disputes" to include various disputes relating to the sale and purchase of goods, provision of services, distribution, business representation and agency, custodianship, leasing or hiring, hire purchase, construction, consultancy, licensing, investment, finance, banking, insurance, exploration and exploitation, transportation and other commercial activities.

For the first time, the laws of Vietnam allow parties to a dispute with "foreign elements" to: (i) appoint foreigners as their arbitrators provided that they are qualified to act as arbitrators in their own countries and (ii) to agree on the application of a foreign substantive law, foreign arbitration rules, foreign language for arbitral proceedings and an appropriate location for arbitral proceedings inside or outside Vietnam.

The Ordinance on Commercial Arbitration expressly confirms that arbitral awards issued by commercial arbitrators in Vietnam will be enforced in Vietnam. Unlike arbitral awards given under the New York Convention, arbitral awards given by the commercial arbitrators under the Ordinance on Commercial Arbitration do not need to be recognised by a Vietnamese court. Following the arbitration proceeding, a successful claimant is entitled to bring the relevant arbitral award to the relevant enforcement agency for enforcement unless such arbitral award is cancelled by a Vietnamese court.

Although the Ordinance on Commercial Arbitration gives parties to a dispute an opportunity to request a relevant Vietnamese court to cancel an arbitral award, the court may only review procedural matters and cannot re-hear the dispute. The court may, at the request of a party to the dispute, cancel an arbitral award given under the Ordinance on Commercial Arbitration in the following circumstances:

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the parties do not have an arbitration agreement;
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the arbitration agreement is void (for example, the party to the relevant agreement does not have the authority to sign such an agreement);
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the composition of the arbitration tribunal or the arbitral proceedings is not in accordance with the agreement of the parties;
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the dispute does not fall under the jurisdiction of the relevant arbitration tribunal;
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the relevant arbitrators are in breach of their obligations; and
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the arbitral award is contrary to the public interest of Vietnam.

Unless otherwise stipulated by law, the statute of limitation for arbitration proceedings is two years from the date of the dispute. The parties have 30 days after the arbitral award is given to apply to the court for cancellation of the award.

The Ordinance on Commercial Arbitration imposes the following restrictions on the governing law for arbitration proceedings:

*

disputes between Vietnamese entities must be resolved in accordance with the laws of Vietnam; and
*

disputes involving a "foreign element" may be resolved in accordance with any law agreed between the parties to the dispute, provided that the selection and the application of that law is not contrary to the basic principles of the laws of Vietnam. For this purpose, a "foreign element" means: (i) one party to the dispute is a foreign entity; or (ii) the basis of the dispute arises outside of Vietnam; or (iii) the assets subject to dispute are located outside of Vietnam.

6. Vietnamese Courts

The Vietnamese court system consists of the Administrative Court, Economic Court, Civil Court, Labour Court and Criminal Court. Each type of court has different jurisdiction depending on the type of dispute. The Economic Court has jurisdiction over most commercial and financial disputes.

Vietnam has unified its court procedures for the different courts under the CPC. Under the CPC, all disputes, whether civil, commercial or labour, are now subject to the same set of procedural rules. A dispute may, depending on the type of dispute and the value of the dispute, either be heard at the district court or the provincial court at first instance. The recognition of foreign judgments and foreign arbitral awards fall under the jurisdiction of the provincial court.

Generally speaking, court procedures in Vietnam can be divided into three distinct stages: first instance, appeal and review (second appeal). Most cases go to both first instance and appeal, as parties are entitled to appeal against a judgment within 15 days of the judgement and first instance judgments are not enforceable until the case has been disposed of by the appellate court. This is different from most countries where court judgments, even at first instance, are immediately enforceable and appellate review normally stays enforcement upon the appellant furnishing a bond or other security ensuring enforcement if the appellant fails on appeal. As there is no such security requirement in Vietnam, appeals are often used as a delaying tactic to avoid enforcement.

Under the laws of Vietnam, anyone may petition for review (second appeal) of a case (on the grounds of legal errors or newly discovered evidence) whether they are a party to the proceedings or not, although this can be a very cumbersome process). The decision to grant such a review is made administratively by either the Chief Judge or Chief Procurator of a competent court or Procuracy. The grant of review can also be accompanied by an order for stay of enforcement. The review takes place in closed court rooms where the parties are not permitted to submit arguments. The non-transparent nature of this process, plus the long period available for review (for example, 12 months for a petition for review of legal errors), increases the uncertainty attributed to Vietnam's litigation system. The highest judicial tribunal in Vietnam, the Judicial Council of the Supreme People's Court, is not always the court for second appeal, therefore a case can be opened for review more than once.

The new CPC has introduced some features of a more adversarial litigation system in particular, provisions on procedural issues like burden of proof, interim relief (such as temporary injunctions) and declaratory judgments. Parties are now required to take the initiative in adducing evidence to support their cases and the court no longer assumes the role of an inquisitor of truth. However, one of the defects of the new CPC is that it does not contain comprehensive rules relating to evidence and discovery.

The CPC and its guiding regulations now provide for a much more comprehensive set of rules on the application of these important remedies. In addition, the CPC also allows temporary measures to be requested even before the court formally accepts a case for resolution.

Decisions and judgments issued by Vietnamese courts are enforceable in Vietnam. Foreign investors should be aware of certain statutes of limitation and the time-consuming process for court proceedings. In general, the CPC provides that the statute of limitation for initiating court proceeding is two years from the date the dispute arises although the entire court proceedings for a dispute may take several months or even several years, subject to provisions in other laws. Although the laws of Vietnam set strict time limits for courts to dispose of cases (for example, two months to four months for first instance proceedings), as discussed earlier, the possibility of lengthy appeals and reviews makes court proceedings very time-consuming. In practice, some disputes have been heard and reviewed in various court proceedings for a period of several years

Parties in dispute should not expect a Vietnamese court to uphold the choice of foreign law governing the case brought before the Vietnamese court. Vietnamese judges may not apply foreign law as a matter of practice and have no authority to call foreign lawyers or legal experts to a hearing.

7. Enforcement Process

Following the court or the arbitration proceeding, the successful claimant is required to initiate the enforcement process by sending an application to the enforcement authority.

The statute of limitation for filling an application for enforcement of court’s judgement or decision is three years from the effective date of the court judgment or decision.

It should be noted that the enforcement process is very cumbersome and expensive in practice and it may take several months or even to several years to achieve an outcome, although new legislation is currently being drafted (expected to take effect early 2007) which aims to streamline the process and provide for more effective enforcement remedies.

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COMPETITION

The Competition Law deal with two specific issues: practices in restraint of competition and unfair competitive practices. Companies familiar with Western antitrust laws and trade regulations will find that Vietnamese Competition Law draws on some similar concepts.


COMPETITION LAW

(April 2007 Update)



The Competition Law deals with two specific issues: practices in restraint of competition and unfair competitive practices. Companies familiar with Western antitrust laws and trade regulations will find that Vietnamese Competition Law draws on some similar concepts.

1. Unfair Competition

Vietnamese Competition Law broadly defines "unfair competition activities" as activities which contravene normal standards of business ethics to customers, other companies, or the State. The Law enumerates specific activities that are considered "unfair competition activities", including:

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infringement of an owner's business secrets, including breaches of confidential agreements;
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coercion of customers or other business counterparts;
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misleading information an other companies;
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misrepresentation in relation to trade name, slogan, symbol, packaging design, geographic indications and other factors;
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deceptive advertising and promotion;
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discrimination against enterprises by professional associations;
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illegal multi-level selling or pyramid schemes

2. Practices in Restraint of Competition

Under the Law, activities in restraint of competition are defined as those which will reduce, deviate or restrain competition in the market including agreements in restraint of competition, abuse of a dominant or monopoly position in the market and economic concentration.

All enterprises are prohibited from entering into agreements which restrict the entry or development of other businesses, exclude other enterprises from the market or collaborate to manipulate bids. Other agreements restraining competition are prohibited only where the parties to the agreement have a combined market share of 30% or more of the relevant market. It is not clear how subsidiaries of parent companies count towards market share.

Parties with a combined market share of 30% or more are prohibited from entering into:

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agreements fixing prices directly or indirectly;
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agreements dividing markets or distribution of supplies;
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agreements limiting or controlling the volume of products or services in production or supply;
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agreement for the restraint of technical or technological development or for the restraint of investment;
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agreements imposing conditions on other businesses to enter into contracts for the sale of goods or services, or forcing other businesses to accept contractual obligations which are not related to the subject matter of the contract.

Exemptions are generally available where a prohibited agreement provides economic benefits to consumers that outweigh the restriction on competition, these exemptions are specified by the MOT upon recommendation by the Competition Commission. An exemption must be obtained before execution of the agreement and lasts for the duration of time the exemption granted for only. These exemptions include:

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rationalising organisation structure, business model, raising business efficiency;
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promoting technical and technological advances, raising goods and service quality;
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promoting the uniform application of quality standards and technical norms of different kinds of products;
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harmonising business, goods delivery and payment conditions, which have no connection with prices and price factors;
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enhancing the competitiveness of small-and medium-sized enterprises;
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enhancing the competitiveness of Vietnamese enterprises on the international market.

3. Monopolies and Market Dominance

The Competition Law defines a monopoly as a company holding a position in the market with no competitor of the same goods or services. A company is deemed to be in a dominant position in the market if it holds a share of 30% or more or is capable of restricting competition significantly. A group of companies is considered holding a dominant position in the market if they attempt to restrain competition in one of the following circumstances:

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two companies hold a combined market share of 50% or more in the market in question;
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three companies hold a combined market share of 65% or more in the market in question; or
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four companies hold a combined market share of 75% or more in the market in question.

Market dominance and monopolies are not prohibited by the Law, it is the abuse of these positions that is unlawful. A dominant company or group of companies is prohibited from the following activities considered to be an abuse of dominance or monopoly position:

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artificially lowering prices to exclude competitors;
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fixing prices unreasonably ("unreasonably" is defined in Article 27 of Decree 116 dated 15 September 2005) or setting minimum prices which cause damage to customers;
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limiting production, distribution, market scale or obstructing technological improvements which, in each case, cause damage to customers;
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imposing discriminatory condition for similar transactions to cause inequality in competition;
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imposing conditions precedent before signing the contract on contractual parties or imposing conditions on other enterprises unrelated to the purpose of the contract; and
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preventing new competitors from entering the market.

Monopolies are subject to the same prohibitions for parties in a dominant position listed above. They are also prohibited from imposing unfavourable conditions on customers and abusing the monopoly position to unilaterally unreasonably modify or cancel a contract.

The Law defines a relevant market of products as a "market of goods or services which are interchangeable in terms of characteristics, user purposes and prices”. A geographical market is a "specific geographical area in which goods or services which exist are interchangeable under similar conditions of competition, and which are considerably differentiated from neighbouring areas" determined by the Competition Commission.

4. Economic Concentration

When a merger, consolidation, acquisition (with some exceptions), joint venture, or other type of "economic concentration" results in a market share of between 30% to 50%, the Competition Commission must be notified, unless the concentration results in a small or medium enterprise.

An economic concentration resulting in a market share of 50% or above is prohibited, unless the concentration results in a small or medium sized enterprise or an exemption is granted. Exemptions are available when one of the parties is at risk of being dissolved or insolvent or where economic concentration enhances export, socio-economic development or technical progress. So far, enhancement of export, technical progress, and socio-economic development interpretation remains at the discretion of the Competition Commission and MOT.

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