Dispute resolution in Vietnam and experiences for preparation of dispute resolution term in contracts

In accordance with Vietnamese law, in addition to negotiation conducted by the parties to a dispute, there are currently three methods of dispute resolution (“DR”) for a commercial or economic dispute: (i) commercial mediation; (ii) commercial arbitration; and (iii) litigation at the Court.

Mediation method

Commercial mediation is a new DR method agreed upon by the involved parties with the assistance of a commercial mediator acting as an intermediary in accordance with Decree 22/2017/ND-CP (“Decree 22”) having been promulgated by the Government recently. Commercial mediation cannot be carried out without a mediation agreement by the parties. This agreement may be established by the parties before or after the occurrence of a dispute or at any time during the process of dispute settlement. Under Decree 22, after the mediation agreement is established, the commercial mediation proceedings will be conducted according to the following order: (i) Selection of commercial mediators; (ii) Conduct of mediation; (iii) Reaching mediation results; (iv) Recognition of mediation results; and (vi) Termination of the mediation process.

This DR mechanism is quite unique and different from the arbitration method and the Court in that, during the mediation process, the mediator will not issue any award or judgment declaring which party is the winner or the loser, except to recording a mediation result if the dispute between the parties is mediated successfully. Nor is mediation a compulsory stage before the parties can bring the dispute to an arbitration body or Court for settlement. This means that one of the parties to a dispute may directly submit the dispute to the arbitration body or the Court for settlement without mediation process.

Arbitration method

In principle, dispute resolution by arbitration can save a lot of time, give flexibility and convenience to the parties as compared to the method of litigation at the Court. For an arbitration centre in Vietnam to officially settle a dispute, the relevant parties must have an arbitration agreement and this agreement may be made either prior to or after the occurrence of a dispute. The arbitration proceedings will be based on the rules of the arbitration centre, which are considered more flexible than the Court proceedings.

Generally, these proceedings comprise the following basic steps: (i) Submission of a request for arbitration and payment of the arbitration fee; (ii) Establishment of an arbitration tribunal; (iii) Submission of a statement of defence by the respondent; (iv) Conduct of dispute resolution hearings; (vi) Issuance of an arbitral award within thirty (30) days from the final hearing conducted by the arbitration tribunal.

Under the Vietnamese laws, the arbitral award will be final and of full force and effect as from the date of its issuance. However, according to Article 68.2 of the 2010 Law on Commercial Arbitration (the “CA Law”), an arbitral award may be set aside in certain cases. In reality, a dispute will be settled completely by arbitrators within three to four months from the date of acceptance of the request.

Method of resolution by Court with litigation proceedings

Dispute resolution procedures by the Court is regulated by the 2015 Code of Civil Procedure (the “COCP”), including quite a number of complicated steps. Basically, litigation at the Court consists of two stages, namely the First Instance and the Appeal.

Under the COCP, the First Instance stage consists of the following steps: (i) Submission of the statement of claim; (ii) Payment of advance first instance Court fees; (iii) Submission of written opinions; (iv) Holding meetings to check the delivery of, access to and disclosure of evidence; and (v) Conducting the First Instance Court sessions.

After finishing the First Instance stage, in case one of the parties to the dispute or the Procuracy appeals, the Court will continue dispute resolution according to the appellate proceedings. This stage comprises the following steps: (i) Application of the appeal; (ii) Payment of advance appellate Court fees; (iii) Submitting opinions in writing; and (iv) Opening an appellate hearing.

Pursuant Article 203 and Article 286 of the COCP, the time limits for preparation for trial in the First Instance stage or Appellate stage involving commercial dispute will be from two (02) months to three (03) months from the day on which the cases are accepted. Afterwards, the time limit for trial in the First Instance stage or Appellate stage will be from one (01) month to two (02) months from the day on which the preparation for the trial stage is finished, unless the dispute is postponed or suspended in some cases as specified by the law.

However, in fact, the time limit for settling disputes in Vietnam is often longer and different from case to case, depending on the workload of the Courts at each point of time and the cases involving foreign elements or not.

Enforcement stage

Under the prevailing laws, after: (i) the Judgment of the Appeal Court takes legal effect, the Judgment of the issued First Instance Court is not appealed or protested against according to the appellate procedures; (ii) the issued Arbitral award is not set aside by the Court in cases specified in Article 68.2 of the Law on Commercial Arbitration; or (iii) Result of successful out-of-Court mediation is recognized by the Court, the parties to the dispute who have been accepted by the Court or the arbitrator in part or in whole of the request in the Lawsuit petition will move to the enforcement stage to request the judgment execution body to execute the Judgment/Award  in reality.

Experience for preparation of the DR article in contracts

It can be seen that the parties are now able to select one of several different DR methods as mentioned above. However, not all enterprises are aware of these methods and the advantages and disadvantages of each type to apply to suit their circumstances. Many enterprises, especially small and medium enterprises, have not paid due attention to drafting the DR article in the contract. The most common problem is that the parties do not have an agreement on the DR article or an agreement on a certain DR method, for example, they have an arbitration clause but fail to regulate it clearly. Consequently, when a dispute arises, it is very difficult to resolve it because there are many problems that cannot be anticipated by the parties. For illustration, we cite a case concerning a foreign company that we have consulted.

Company X (Singapore) has signed some sale contracts with Company Y in Vietnam for purchase of goods. Among these contracts, some have no provision on DR, some prescribe that any arising dispute will be resolved by arbitration but fail to specify the name of any arbitration centre. Later in the course of business, a dispute between the parties arose and Company X wanted to initiate lawsuits against Company Y in Vietnam.

Thus, in the first case, the contract does not provide any DR clause, Company X may (i) initiate institutions against Company Y at a Vietnamese Court pursuant to the general procedures; or (ii) initiate claims at a commercial arbitration on condition that Company X and Company Y must have a new arbitration agreement when a dispute takes place.

In the second case, the contract provides that the dispute will be resolved by arbitration but fails to name the arbitration centre. If Company X decides to initiate a lawsuit in a Vietnamese court, the court may refuse to accept the dispute for resolution because the parties have an arbitration agreement under Article 6 of the CA Law. If Company X initiates claims at an arbitration centre in Vietnam, the parties will agree on the form of arbitration or a specific arbitration organization for settling the dispute. Otherwise, the form and arbitration organization of dispute settlement will be decided at the request of the plaintiff, which is Company X, according to the Article 43.5 of the CA Law.

If the parties cannot reach an agreement after a dispute arises, the worst circumstance would be the dispute for each contract to be resolved separately by the court and/or the arbitrators respectively due to the difference on the DR terms. This will take a lot of time and cost to both parties.

In both above cases, the most reasonable solution that we have proposed is that the parties should agree to choose the method of commercial mediation or commercial arbitration for settling the dispute definitively because of the good points of this DR method: they could save a lot of time and costs and above all, the results of mediation or arbitration are enforced in accordance with then law.

By and large, the DR article is really important in the contract that enterprises should take great pains to draft if they want to avoid such unwanted legal risks as described above. It is highly recommended that the contract specifies the authority of settling a dispute (the Court or the Commercial Arbitration?). If it is the Commercial Arbitration, the parties should refer to the sample arbitration articles of such prestigious arbitration centers in Vietnam as the VIAC.

DIMAC is a professional law firm in Vietnam that has experience in assisting with the preparation of clear dispute terms and helping their corporate clients effectively use the dispute resolution methods mentioned above, thus ensuring the best benefits to and saving time and costs for them.