2011 06 September

Improved Commercial Dispute Resolution System in Vietnam

#August 2011 #Vietnam

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Despite the Government’s rigorous efforts to improve the transparency and efficiency of its adjudication system, many (foreign) investors have tended to select the services of international arbitration centres for resolving disputes.

Key Problems associated with Commercial Dispute Resolution in Vietnam

Major problems associated with commercial litigations in Vietnam is that Vietnamese the judicial system is somewhat lacking in experience and development of complex commercial litigation skills and procedures. Lengthy and complicated judicial procedures also discouraged people to seek judicial remedies.

However, the Vietnamese judicial system has been undergoing substantial reorganization and has developed very rapidly. In the past few years, significant developments that provided much greater certainty as to civil proceedings and commercial arbitration proceedings have made a gradual impact on those foreign investors’ negative perceptions.

As many foreign investors, are still sceptical of the Vietnamese arbitration system we would like to highlight recent changes to Vietnamese commercial arbitration system herein.

Government’s Efforts to Improve the System

Seven years after Vietnam first introduced comprehensive legislation on arbitration, a new law on commercial arbitration was finally passed by the National Assembly on 17 June 2010 (“LCA”), which replaced the Ordinance on Commercial Arbitration of 25 February 2003 and came into force on January 1st of this year. LCA made a significant impact on commercial arbitration activities, particularly international commercial arbitration, in Vietnam. The LCA is expected to successfully change the flow of legal settlement in Vietnam by facilitating and encouraging the use of arbitration as a form of dispute resolution. Some major changes under the LCA include following: extended scope, flexibility in regard to governing law, language and nationality of arbitrators, and the possibility of interim relief.

  • LCA applies to (1) disputes arising from any commercial activities with no limitation (meaning any activities which generate profits); (2) any disputes where at least one of the parties is engaged in commercial activities; or (3) other disputes which the law stipulates shall be resolved by arbitration.
  • In a dispute with a foreign element, the arbitration tribunal is free to apply foreign law chosen by the parties.
  • Arbitral tribunals are now able to choose the foreign language for the arbitral proceedings whenever disputes involve a foreign element or a foreign-invested enterprise established in Vietnam.
  • Foreign arbitrators who satisfy the conditions prescribed in LCA can be admitted to panels of arbitrators of arbitration centres and be appointed by parties, by arbitration centres or by the Vietnamese courts to hear a dispute.
  • Arbitral awards are regarded as final (subject to the parties’ right to dispute awards under specific grounds).
  • LCA empowers arbitration tribunals to issue certain types of interim relief orders at the request of a party (e.g., injunctive relief).
  • LCA provides explicitly for the establishment and operation of both branches and representative offices of foreign arbitration organizations in Vietnam. The former may conduct arbitration proceedings in accordance with the law, while the latter, like other representative offices, will be limited to promotional activities and may not conduct arbitrations.

Any increase in popularity of Vietnamese arbitration system among Foreign Parties?

Vietnam currently has seven commercial arbitration centres with a total of more than 200 arbitrators. However, only 2.5% of cases are dealt with by means of arbitration, compared to 97.5% of cases judged by the courts. Further, for those disputes in which arbitration is the chosen form of dispute resolution, the parties often utilize the services of foreign arbitration outside Vietnam. Introduction of LCA may, however, change such tendencies and encourage parties to resolve their disputes within Vietnam. Moreover, difficulty in enforcing foreign arbitral awards or foreign judgments in practice may have a further impact on decisions to choose a domestic arbitration system.