Keep calm and find an alternative method to settling legal disputes in Vietnam

Dear Marijn,

My name is Azad and I work for a Turkish manufacturing company. We’ve been operating in Vietnam since 2008 and throughout the years we’ve been involved in a few minor business disputes. Once, we even started court proceedings in Ho Chi Minh City, but when we realized that it could take a very (very) long time, we decided to drop the case and we managed to find an amicable solution with the other party. I wonder whether arbitration would have been a better option for our company. Could you please tell me a bit more about that?

The issue that you described is very common because not many foreign investors like to use the Vietnamese courts to settle their disputes. One of the reasons for that are the lengthy court proceedings in Vietnam, and the (perceived) lack of independence of the judges is another one. Compared to “traditional” proceedings at a court, arbitration is considered an “alternative” method of dispute resolution. Other examples of such alternative methods include: mediation, conciliation and expert determination.

Arbitration can be defined as a process by which the parties agree to submit a dispute to a non-governmental decision-maker, selected by or for the parties, to render a binding decision, resolving a dispute in accordance with neutral procedures, offering each party an opportunity to present their case. I realize that this is a rather long and complicated definition, so let me try to break it down for you. The first important element to keep in mind is that arbitration is “consensual” by nature. In other words, the parties must have agreed, for example via an arbitration clause in their contract, to submit the dispute to arbitration. The second element is the involvement of a non-governmental decision-maker, which clearly distinguishes arbitration from court proceedings. Finally, the fact that arbitration often results in a final and binding decision (in legal terms: an “arbitral award”), separates it from mediation and conciliation.

There are various kinds of arbitration. In your case, I assume we are talking about arbitration between two or more private companies. However, arbitration between a foreign investor and a host State is also possible. You can think of an expropriation dispute relating to a big construction project. When States arbitrate against each other, we are talking about “Stateto-State arbitration” or “interstate arbitration.” This kind of arbitration often involves disputes over territorial and maritime boundaries, and the recent arbitration in The Hague about China’s territorial claims in the East Sea is a good example.

Now why would your company choose to go with arbitration instead of court proceedings? One of the main advantages of arbitration is that it offers a neutral forum for parties to settle their dispute. Instead of having to choose between either the Vietnamese courts or the Turkish courts, you may now choose to settle your dispute in a neutral place, for example in Switzerland, Singapore or in Hong Kong. A related advantage of arbitration over court proceedings is that you would be free, at least to a large extent, to determine the rules of the arbitration and even to choose your own arbitrators. In practice, there is a wide selection of specialized institutions, rules and arbitrators available to tailor the arbitration proceedings to your specific needs. Obviously, this is in sharp contrast with the fixed, and sometimes burdensome, court proceedings. Another key characteristic of arbitration is that there is normally no appeal possible against an arbitral award. Furthermore, arbitration is usually private and confidential, and it is potentially faster and cheaper than court proceedings. Please bear in mind, however, that arbitration may involve costs that you would not necessarily find in court proceedings, such as arbitrator fees, rental costs for hearing facilities and travel expenses if you decide to hold the hearings abroad.

Unfortunately, arbitration in Vietnam has yet to reach its full potential. One of the reasons for that is related to the so-called “recognition and enforcement” of foreign arbitral awards. Thanks to the 1958 New York Convention, of which Vietnam has been a member since 1995, foreign arbitral awards are generally enforceable in most jurisdictions around the world. However, in Vietnam it has proven to be extremely difficult to enforce a foreign arbitral award, for example if one was rendered by the ICC International Court of Arbitration in Paris.

An alternative option, which is becoming more and more popular, is arbitration at the Vietnam International Arbitration Centre (VIAC). Generally speaking, foreign investors consider that arbitration at VIAC is more flexible, efficient and faster than proceedings at the Vietnamese courts. Compared to international arbitration, VIAC proceedings are potentially faster and cheaper, which is especially attractive for smaller disputes. Furthermore, the procedure for enforcement of a VIAC arbitral award is more straightforward than the procedure for recognition and enforcement of a foreign arbitral award.

Every month, Marijn Sprokkereef answers legal questions from Oi readers.

If you have any legal questions you want answered, send them to legal@oivietnam.com.

BIOMarijn Sprokkereef is an associate of Audier & Partners, an international law firm with offices in Vietnam (Ho Chi Minh City and Hanoi), Myanmar and Mongolia. Audier & Partners provides advice to foreign investors on a broad range of legal issues.