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:

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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;
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there is no systematic publication of judgments or judicial decisions;
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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;
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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;
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choice of foreign courts is of limited value as foreign court judgments are generally not enforceable in Vietnam; and
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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;
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the arbitration agreement is invalid under the applicable law;
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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;
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the foreign arbitral award was made where no settlement was requested or was beyond the request of the disputing parties;
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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:

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