Commercial contracts in Vietnam – get your dispute resolution clause right

The legal enforceability of contracts in Europe and North America is widely regarded as a given. But contracts between foreign investors and Vietnamese entities or with a reference to Vietnam that establishes Vietnamese jurisdiction should always explicitly answer the questions “what institution will decide any disputes and in which language, and what national law is to be applied?”

Without a dispute resolution clause, Vietnamese courts will have jurisdiction over disputes, which could cause significant problems. Besides the unfortunately persistent risk of corruption, the Vietnamese judiciary, despite improvement efforts, continues to struggle with a lack of adequate judicial legal training, paltry salaries, short office terms of five years, and a wider perception of the ‘rule of law’ as the ‘rule of the single-party state’. Additionally, companies may prefer to see delicate affairs arbitrated, rather than disputed as matters of public record.

Vietnamese law allows dispute resolution clauses in commercial contracts explicitly through the Law 54/2010/QH12 on Commercial Arbitration (LCA).An effective dispute resolution clause withdraws Vietnamese courts’ jurisdiction of the particular case and establishes the appointed arbitral tribunal’s jurisdiction.

Selecting an appropriate arbitration venue is a key component in designing any dispute resolution clause. A company may decide upon a Vietnamese arbitrational court, such as the Vietnamese International Arbitration Centre (VIAC), or an offshore counterpart, such as the Singapore International Arbitration Centre (SIAC). To decide which venue is the best fit, companies should consider factors such as the size of the project; the location of the contractual partner’s assets that may be seized when enforcing a possible arbitrational award; the cost of arbitration in the potential venues; the complexity and specialty of the subject matter; and whether a state-owned enterprise is involved, including a “hidden” state-owned enterprise – one that is de facto influenced by the government.

In special cases, where intellectual property is concerned, the contracts must ensure that no official interim measures are cut off by the arbitration clause. Arbitration courts are also able to issue interim measures. But as the case arises, an opening clause should be considered where Vietnamese courts or authorities such as the Market Management Bureau normally provide more effective interim relief. 

These factors are matched with corresponding recommended jurisdictions in the accompanying table.

Once the decision is made regarding whether and where an arbitration tribunal should be used, parties should clear the following points: the applicable law, which can be chosen freely in cases with a foreign element according to the LCA; the court’s language, which can also be chosen freely; the number of arbitrators; and appointing a particular arbitrator, which is important in cases that require experts.

It is clear that deciding on the right place for dispute resolution of Vietnam-related contract matters can involve much complexity. One hopes that 2010’s arbitration-friendly LCA keeps its promises as it is being implemented, and that the Vietnamese judiciary will reliably enforce domestic and foreign arbitrational awards alike. Doing so would send the right signal to foreign investors with reservations about undertaking litigation in Vietnam.

By Oliver Massmann, partner, Duane Morris 

Choice of jurisdiction

Vietnamese jurisdiction

Onshore Arbitration at Vietnam International Arbitration Center (VIAC)

Offshore Arbitration

generally advised against

project size under $5m

project size over $5m

Only in special cases regarding intellectual property,
an opening clause can be considered to be
implemented into a dispute resolution clause,
eg making applicable interim measures/injunctions through authorities like the Market Management Bureau

seizable assets of the contractual partner are located in Vietnam

seizable assets of the contractual partner are located abroad

less complex legal questions

more complex legal questions

contract affects more general legal fields, eg purchase law

contract affects legal fields that require a decision from highly specialized legal professionals

contractual partner is not a (hidden) state-owned enterprise

contractual partner is a (hidden) state-owned enterprise

own financial strength is smaller, cost pressure can be a thread

own financial strength is higher, cost pressure is not a thread

no dispute resolution clause necessary

dispute resolution clause necessary

dispute resolution clause necessary