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VIETNAM
LITIGATION
REVIEW APRIL
2018
©2018 LE & TRAN. All rights reserved. Attorney Advertising.
The Distinct Characteristics
of Arbitration –
Should You Choose
Arbitration instead of the
Court for Dispute Resolution?
Violation of Delivery
Deadline in the Contract
for Purchase
and Sale of Goods
The Dissolution of an
Enterprise due to Failure
to Fulfill its Obligation
to Report
Court Updates
Q&A Concerning
Judgement Enforcement
index
STEPHEN LE HOANG CHUONG
Partner in Charge
hoangchuong.le@letranlaw.com
Why We Win
4
6
8
10
11
Although Vietnamese legal texts are ambiguous and corruption
still too prevalent in the justice system, seeking redress before a
Vietnamese court is not doomed. There is a proven way to make
justice prevail.
We will never take a case to trial if unfair tactics are at play. This is
because in such case, the justice system fails, and so does everyone
involved. A broken court process can never bring justice to the
parties. It’s that simple.
Corruption only wins when all stakeholders give in to unfair practices.
We never do. Not only we defend procedural fairness on behalf of
our clients, but we impose it on every actor involved the dispute.
Opposing counsel’s unfair tactics do not impress us and we never
respond to such unprofessional behavior. Instead, we use tactics to
expose them and force them to get into line.
2 © 2018 LE & TRAN
The
DISTINCT
CHARACTERISTICS
of Arbitration
Should you choose
Arbitration instead of The Court
for Dispute Resolution?
3© 2018 LE & TRAN
LEGAL INSIGHTS
Similar to judicial
proceedings in a court,
arbitration is a form of
dispute resolution. The
process involves one or
more arbitrator(s) acting
as independent, impartial
adjudicator(s) who issues
a final binding judgment
to end the dispute.
Arbitration, however,
has some unique
characteristics that are
distinct from adjudication
in court:
A dispute can be subject to arbitration if it arises from commercial activities and there is a
valid agreement between the parties to resolve such dispute by arbitration; otherwise, the
dispute may be subject to the court’s jurisdiction.
Usually, an agreement to resolve disputes by arbitration is directly stated in the contract
between the parties, and is often referred to as the “arbitration clause”. Arbitration centers
usually offer a model arbitration clause on their websites for the parties’ reference and as
a starting point in the drafting process. For instance, the Vietnam International Arbitration
Centre (“VIAC”) has the model arbitration clause as follows:
“Any dispute arising out of or in relation with this contract shall be resolved by arbitration
at the Vietnam International Arbitration Centre (VIAC) in accordance with its Rules of
Arbitration.”
Having a dispute decided by arbitration offers some notable advantages over adjudication
by a court. Particularly:
1.	 Time spent on resolving a dispute will be shorter. It may take years to obtain a final
judgment from a court; but if arbitration is utilized, it may take less than a year. The
reasons for this are:
(i)	 Arbitration centers will only accept commercial disputes in the event that there
is an arbitration agreement among the parties. Therefore, the number of cases
resolved by arbitration is much fewer than those adjudicated by the courts (e.g. in
2016, VIAC only received 155 cases, while the courts in Ho Chi Minh City received
65,164 cases); and
(ii)	 Arbitrators do not work as full-time judges and only accept disputes and receive
remuneration when there is a request from the parties (i.e. the parties will select
their arbitrators during the arbitration proceedings). Hence, an arbitration center
can maintain a list of hundreds of arbitrators who will participate in cases on the
parties’ request without incurring significant operational expenses.
2.	 The parties have the flexibility to select arbitrators that have qualifications and
expertise suitable to the case. For example, the parties may select arbitrators who
are foreign lawyers for cases relating to foreign laws or those having expertise in
construction, shipping, technology, etc. that correspond to the subject matter of the
dispute.
3.	 Higher level of confidentiality compared to court proceedings. Arbitrators are
obliged to keep the dispute to which they are assigned confidential. Arbitration
hearings are not open to the public like court trials and only the relevant parties may
join. Thus, the parties can keep the dispute confidential and minimize any negative
impacts to their reputation or standing in the business community.
Advantages of dispute resolution by arbitration
Which cases may the parties resolve a dispute by
arbitration?
4 © 2018 LE & TRAN
LEGAL INSIGHTS
Apart from the advantages set forth above, arbitration does
have certain drawbacks.
1.	 Arbitrators have very little oversight by other authorities,
so their decisions may not strictly follow legal regulations
but instead, may involve novel reasoning and attempt
to equitably balance the benefits/disadvantages for all
parties.
2.	 Arbitration fees are significantly higher than court
fees. To take one example, for a commercial dispute
valued at VND1,000,000,000 (around USD43,966),
the arbitration fee of the VIAC is VND85,800,000
(around USD3,772); while the first-instance court fee is
VND42,000,000 (around USD1,847) and the appellate
court fee is VND2,000,000 (around USD88).
3.	 Arbitral awards are final and cannot be appealed. The
award by the arbitrator(s) may only revoked by the court
in certain rare cases, such as when there are serious
violations of litigation procedures or the fundamental
principles of the Vietnamese laws.
Disadvantages of dispute resolution by
arbitration
To utilize the advantages as well as limit the disadvantages of
arbitration, the parties should consider selecting arbitration
to resolve their future disputes (by adding an arbitration
clause to their agreements) in the following cases:
1.	 The parties want to prioritize a quick dispute resolution
rather than a thorough but time-consuming one;
2.	 The parties aim to preserve confidentiality during the
dispute resolution; and prevent their transactions and
the fact that they are in a dispute from becoming public
knowledge; and
3.	 The dispute is related to a field that requires persons
who have the corresponding expertise to resolve (e.g.
an intellectual property dispute).
Disputes that should be resolved by
arbitration
5© 2018 LE & TRAN
LEGAL INSIGHTS
The term of “Delivery Deadline of Goods” is a fundamental term and is almost always provided in the contract for the purchase
and sale of goods. It helps to ensure that the buyer gets the goods at the necessary point in time to conduct its business plans.
In principle, under Article 37[1]
of the 2005 Law on Commerce, the seller has the responsibility for delivery of goods at the agreed
time. In other words, in case the delivery deadline expires and the seller could not deliver the goods on time, the seller is deemed
to be in violation of the contract and the buyer is entitled to refuse to receive the goods or to refuse to make the relevant payment.
In this event, the contract cannot be continued unless otherwise is agreed by the parties.
There is currently no provision for automatic termination
under the relevant laws.
The 2005 Law on Commerce has no regulation regarding
this issue. Therefore, under Article 4.3[2]
of the 2005 Law
on Commerce, the regulations of the 2015 Civil Code shall
be applied. Specifically Article 422 of the 2015 Civil Code
provides as follows:
“Article 422. Termination of the contract
A contract shall terminate in the following cases:
1.	 The contract was completed;
2.	 By agreement of the parties;
3.	 The individual having entered into the contract dies
or the legal entity, having entered into the contract,
ceases its existence during the period the contract
must be performed by such individual or legal entity;
4.	 The contract is rescinded or unilaterally terminated;
5.	 The contract cannot be performed because its
object no longer exists;
6.	 The contract is terminated under Article 420 of this
Code [3]
;
7.	 Other cases as prescribed by law.”
Therefore, the law has no provision allowing the contract to be
automatically terminated just because the term of performing
an obligation of a party has ended. In other words, in case a
party violates the delivery deadline of the goods and there is
no other agreement between the parties, the contract is still
legally enforceable, though it is deemed to have ended in
fact (the seller cannot continue to deliver the goods and the
buyer does not continue to receive the goods).
Therefore, is it possible to conclude that
the contract for purchase and sale of
goods is automatically terminated if the
seller does not deliver the goods on time?
Under the 2005 Law on Commerce, the buyer is entitled to
apply one of the following remedies:
Right of enforcement of the contract under Article 297[4]
of
the 2005 Law on Commerce: In the event the buyer still is
in need of the goods, it may purchase the goods from a third
party as a replacement and request the seller to reimburse
the difference in price and other relevant expenses (for
instance: freight charges). When the seller completes such
payments, the contract shall be terminated as “completed”
under Article 422.1, the 2015 Civil Code.
Unilateral termination of contract performance under Article
311[5]
of the 2005 Law on Commerce: The contract shall
completely terminate from the date the seller receives a notice
of termination from the buyer. The parties shall only perform
their reciprocal obligations related to the obligations performed
by the other party before the date of the contract termination.
Rescission of the contract under Article 312[6]
and Article
313[7]
, the 2005 Law on Commerce: rescission of the contract
shall allow the buyer (i) to rescind a specific delivery and
continue to receive subsequent deliveries or (ii) to rescind all
the deliveries already made, return the goods, and claim the
purchase money in case the goods delivered are integrally
connected (integrated goods).
It should be noted that the application of these remedies
requires the buyer to comply with conditions and procedures
as prescribed by law, including sending a formally written
notice to the other party. Therefore, when it is realized that
the seller has violated the delivery deadline, the buyer needs
to promptly consider applying one of the above remedies to
protect its lawful rights and interests. Delay in applying the
remedies may affect the interests of the buyer in the future.
Therefore, under these circumstances,
what actions should a buyer take who
desires to terminate the contract and
refuse to receive the goods?
Violation of Delivery Deadline
in the Contract for Purchase
and Sale of Goods
6 © 2018 LE & TRAN
LEGAL INSIGHTS
Company A signed a purchase and sale contract with Company
B, which included a delivery deadline of May 2013 and a deposit
of approximately $300,000 USD. When the delivery deadline
expired, Company B had only delivered less than half of the
goods which were agreed upon. Between the time of contract
and the time that the delivery deadline expired, there had been
a substantial decrease in the price of such goods. Therefore,
Company A no longer desired to continue to receive the goods.
Company A could have unilaterally terminated the contract,
required Company B to return the deposit, and have claimed
a “deposit compensation”[9]
as prescribed by law. However,
Company A incorrectly believed that the contract had expired,
and therefore did not provide notice to Company B about the
termination of the contract. Instead, Company A only verbally
negotiated with Company B, and even continued to receive a late
delivery of the goods which Company B had already produced.
After many sessions of negotiation, Company B still did not want
to return the deposit. Therefore, Company A filed a complaint
against Company B with the Vietnam International Arbitration
Center to claim the deposit, a deposit compensation and
damages in accordance with Vietnamese Law. However, because
there was no document from Company A stating that it wanted
to terminate the contract and had not refused the continued
deliveries when Company B violated the delivery deadline, the
Arbitral Tribunal considered the negotiation between Company
A to Company B to be an extension of the terms of the contract.
Accordingly, the Arbitral Tribunal considered that Company A
was partially at fault in this situation and only ordered Company B
to return the remaining deposit without any other compensation.
Because of the delay in applying its legitimate commercial
remedies, Company A gave up its rights to require Company B to
perform its contractual obligations, specifically having to pay the
deposit compensation. Although Company B was the violating
party, it did not have to bear any further legal responsibility.
The following is a specific example[8]
of
the consequences of delay in applying
the proper commercial remedies:
[1]	 Article 37, the 2005 Law on Commerce provides:
“Article 37. Delivery Deadline of Goods
1.	 The seller must deliver goods in the time of delivery of goods agreed in the contract;
2.	 In the event that there is only an agreement of the Delivery Deadline of Goods without a specific time, the
seller may deliver goods at any time under such Delivery Deadline of Goods and must notify the buyer of
the delivery in advance;
3.	 In case there is no agreement for the Delivery Deadline of Goods, the seller must deliver goods within a
reasonable time after entering into the contract.”
[2]	 Article 4.3, the 2005 Law on Commerce provides, in part:
“Article 4. Application of the Law on Commerce and relevant laws
[…]
3.	 Commercial activities, which are not provided in the Law on Commerce and other relevant laws, shall
comply with the regulations of the Civil Code.”
[3]	 Article 420, the 2015 Civil Code provides:
“Article 420. Performance of the contract when there is a fundamental change of circumstances
1.	 There is a fundamental change of circumstances when the following conditions are fully satisfied:
a.	 There is a change of circumstances due to an objective event occurring after the contract is entered
into;
b.	 At the time of entering into the contract, the parties could not foresee the change of circumstances;
c.	 The change of circumstances is so important that if the parties knew about it in advance, the contract
would not have been entered into or would have been entered into with completely different contents;
d.	 The continuation of the contract performance without modifying its contents will cause serious damage
to a party; and
e.	 The party who receives benefits under the contract, has applied all necessary measures in the best of
its ability in compliance with the characteristics of the contract, but fails to prevent or minimize the effect
on its benefits.
2.	 In case there is a fundamental change of circumstances, the party who receives benefits under the contract
may request the other party to renegotiate the contract within a reasonable time.
3.	 In the event the parties cannot agree on modification of the contract within a reasonable time, either party
may request the Court:
a.	 To terminate the contract at a specified time;
b.	 To modify the contract to balance the lawful rights and interests of the parties in the context of a
fundamental change of circumstances.
The Court only is entitled to modify the contract in the event that the termination of the contract will
result in greater damage than the expenses incurred in performing the modified contract.
4.	 In the course of negotiating the modification or termination of the contract, or while the Court is handling
the case, the parties shall continue performing their contractual obligations, unless the parties agree
otherwise.”
[4]	 Article 297, the 2005 Law on Commerce provides:
“Article 297. Right of enforcement of the contract
1.	 Right of enforcement of the contract is defined as a remedy under which the aggrieved party requests the
violating party to properly perform the contract, or applies other remedies so the contract is performed and
the violating party shall be responsible for any arising expense.
2.	 In the event that the violating party fails to fully deliver goods or to properly provide the service under the
contract, it shall fully deliver goods or properly provide the service under the contract. In case the violating
party delivers goods or provides services in poor quality, it shall eliminate the defects of the goods or the
shortcomings of the service, or deliver other goods as a replacement or properly provide the service under
the contract. The violating party must not use money or other types of goods or services as a replacement,
unless it is agreed to by the aggrieved party.
3.	 In the event that the violating party fails to comply with Clause 2 of this Article, the aggrieved party is entitled
to purchase goods or receive provision of services as a replacement for the type of goods or services
stated in the contract from another party, and the violating party shall be responsible for the difference in
price and relevant expenses, if any; or by itself eliminate the defects of the goods or shortcomings of the
services, and the violating party shall accordingly pay for actual and reasonable expenses that arise.
4.	 The aggrieved party shall receive the goods or provision of services and make payments to such goods or
services in case the violating party already fulfilled all obligations in compliance with Clause 2 of this Article.
5.	 In the event that the violating party is the buyer, the seller is entitled to request the buyer to make payment,
to receive the goods or to fulfill its other obligations in compliance with the contract and this Law.”
[5]	 Article 311, the 2005 Law on Commerce provides:
“Article 311. Legal consequences of termination of contract performance
1.	 In the event that a contract performance is terminated, it shall be ended from the date a party receives
the termination notice. The parties shall no longer perform their contractual obligations. The party that has
performed its obligations may request from the other party a payment or performance of its reciprocal
obligations.
2.	 The aggrieved party may claim damages under the provisions of this Law.”
[6]	 Article 312, the 2005 Law on Commerce provides:
“Article 312. Rescission of a contract
1.	 Rescission of a contract shall include rescission of a part of the contract or rescission of the entire contract.
2.	 Rescission of the entire contract shall mean the complete annulment of all contractual obligations for the
entire contract.
3.	 Rescission of part of the contract means the annulment of the performance of specific parts of the contract
while the other parts remain in full force and effect.
4.	 Except for cases of liability exemption under Article 294 of this Law, the remedy of rescission of contracts
shall be applied in the following cases:
a.	 There is an occurrence of an act of breach which the parties have agreed shall be a condition resulting
in the rescission of the contract;
b.	 Where one party commits a substantial breach of the contractual obligations.“
[7]	 Article 313, the 2005 Law on Commerce provides:
“Article 313. Rescission of the contract in case of delivery of goods or provision of services in installments
1.	 Where the parties to a contract agree on delivery of goods or provision of services in installments, and
one party fails to perform its obligations regarding the delivery of goods or provision of services and such
failure constitutes a substantial violation of such delivery of goods or provision of services, the other party
shall be entitled to declare the rescission of the contract for such delivery of goods or provision of services.
2.	 In case a party fails to perform its obligation for an installment of delivery of goods or provision of services,
which is deemed to be the basis for the other party to conclude that a substantial breach of the contract will
occur with regard to subsequent of goods or provisions of services, the aggrieved party shall be entitled
to declare the rescission of the contract applicable to such subsequent deliveries of goods or provisions
of services, provided that such (aggrieved) party must exercise that right within a reasonable time.
3.	 Where a party has declared the rescission of a contract as it applies to a single delivery of goods or
provision of services, such party is still entitled to declare the rescission of the contract as it applies to
subsequent deliveries of goods or provision of services which have been implemented or which are yet to
be implemented if the interrelationship between the deliveries of goods [or provisions of services] results
in the delivered goods or provided services not being able to be used for their proper purpose as originally
intended by the parties at the time they entered into the contract.”
[8]	 Specific example provided exclusively by LE & TRAN.
[9]	Under Article 328.2, the 2015 Civil Code, a “deposit compensation” shall mean a compensation applied to the
party receiving the deposit when it violates the contract or refuses to sign the contract.
7© 2018 LE & TRAN
Judgment No.144/2017/HC-PTdated July 20, 2017 of theHigh-level People’s Court
at Ho Chi Minh City
The Dissolution
of an Enterprise
due to FAILURE
to fulfill its
OBLIGATION
TO REPORT*
8 © 2018 LE & TRAN
Plaintiff: 	 TH Sea Food Processing Company Limited (the “Company”).
Defendant: Business Registration Office, Department of Planning and Investment of Soc Trang
Province (the “BRO”).
The judgments of both the first-
instance court and appellate court
were reasonable and in compliance
with the 2005 Law on Enterprise
(being effective at that time) as well
as the current law (i.e. the 2014 Law
on Enterprise). According to Article
9.6, the 2005 Law on Enterprise
(or Article 8.6, the 2014 Law on
Enterprise), enterprises has the
obligation to report to the BRO and
the failure to fulfil such obligation
could lead to revocation of the ERC
under Article 165.2, the 2005 Law on
Enterprise (or Article 211.1, the 2014
Law on Enterprise).
Obligation to report to the
administrative authorities is very
important for all enterprises
in Vietnam. During business
operations, enterprises are not only
required to report to the business
registration authority (i.e. the BRO
in the above case), but also other
administrative authorities relating
to tax, compulsory insurance, labor
and employment, etc. However, in
practice, many enterprises do not
pay close attention to such
obligations and some are even
under the misunderstanding that
they are only required to report
when receiving a request from the
authorities. Obligation to report
is required by the law and if an
enterprise fails to submit its reports
within the prescribed time limits, it
may be subject to monetary fines
and other sanctions, which may
also include revocation of related
business licenses.
Summary of facts
Le & Tran’s assessment
PRACTICAL ADJUDICATION AND ASSESSMENT
On June 28, 2013, the BRO issued
Notice No.97/TBHD-DKKD to request
the Company to review and update
its registered information within 30
days from the date of the issuance
of the Notice. However, the deadline
expired without the BRO receiving
any response from the Company.
On August 21, 2013, the BRO issued
Notice No.234/PDKKD which
requested the Company to report
on their business operations from
the beginning of 2013 to the date
of issuing Notice No.234/PDKKD;
this notice also stated that if the
BRO did not receive a report from
the Company within 03 months from
the date of this second notice, the
Enterprise Registration Certificate
(the “ERC”) of the Company would
be revoked.
As a result of not receiving any
report from the Company in
accordance with Notice No.234/
PDKKD, on December 24, 2013,
the BRO issued Notice No.562
requesting the legal representative
of the Company to appear in
person at the BRO and provide an
explanation within 30 days from
the day of issuing said Notice. It
was also stated that if the legal
representative did not appear in
order to provide an explanation
prior to the deadline, the BRO
would issue a decision on revoking
the ERC in compliance with the
law. Nevertheless, the legal
representative of the Company
failed to appear.
On February 25, 2014, the BRO
issued Decision No.378 revoking
the ERC of the Company and
ordering the Company to proceed
with procedures for dissolution
within 06 months from the day of
issuing the Decision. On June 03,
2015, the BRO issued Notice No.261
on the dissolution of the Company
(and the removal of the Company’s
name from the business registration
records) on the grounds that its ERC
had been revoked, and due to the
fact that the BRO had not received
the application file for dissolution nor
the Company’s explanation on why
the Company could not submit such
application file.
On July 04, 2016, the Company filed
a lawsuit in the People’s Court of
Soc Trang Province requesting that
the Court repeal Decision No.378
and Notice No.261. The Company
claimed that it failed to fulfill its
reporting obligations due to not
receiving the related notices from
the BRO.
Following adjudication of the matter,
both the first-instance court and the
appellate court concluded that the
Company had the obligation to report
to the BRO under the law; regardless
of whether the BRO sent the notices
or not. Thus, whether or not the
Company did receive the notices of
the BRO was irrelevant. Further, the
abovementioned documents issued
by the BRO, as well as the revocation
of the ERC, were in compliance with
the law.
(*): https://congbobanan.toaan.gov.vn/2ta40407t1cvn/chi-tiet-ban-an
9© 2018 LE & TRAN
On January 15, 2018, the Supreme People’s Court issued Official Letter No.26/TANDTC-TCCB requesting
other courts to give their comments on the plan for reorganizing the specialized courts.
Under this plan, at the provincial level, Ha Noi City, Ho Chi Minh City, Dong Nai Province and Binh Duong
Province will have the highest number of specialized courts, i.e. 06 courts, which include (i) criminal courts, (ii)
civil courts, (iii) economic courts, (iv) administrative courts, (v) labor courts and, (vi) family and juvenile courts.
For other provinces, each province will be allocated between 03 to 05 specialized courts, depending on the
number of judges it currently has.
At the district level, each district having 700 cases or more per year will be allocated between 02 to 04
specialized courts, depending on the average number of cases per year. Districts having less than 700 cases
per year will not have specialized courts.
Plan for reorganization of specialized courts
The Supreme People’s Court is gathering comments on a draft Code of Conduct for the purpose of developing
basic ethical standards for judges in Vietnam.
The draft Code of Conduct includes 3 chapters and 17 articles. It provides 7 ethical standards for judges,
including (i) independence, (ii) impartiality and objectiveness, (iii) integrity, (iv) fairness and equity, (v)
appropriateness, (vi) dedication and punctuality, and (vii) qualification and diligence.
The Code of Conduct also provides for the appropriate conduct for judges in different situations, both inside
and outside of the court.
Gathering comments on the draft Code of Conduct for judges
in Vietnam
To improve the quality and effectiveness of mediation and dialogue at the people’s courts, the Supreme
People’s Court has issued Plan No.11/KH-TANDTC dated January 22, 2018 to implement a pilot project for
06 months at 06 people’s courts in Hai Phong Province. In each of these courts, a division specialized for
mediation will be established to help the parties reach an amicable settlement of their disputes. The related
court staff will also be provided with training from foreign experts to improve their mediation skills.
Pilot project on renovation and enhancement of mediation and
dialogue in the resolution of civil and administrative disputes.
COURT UPDATES
10 © 2018 LE & TRAN
In the event that a
judgment debtor
makes a payment,
will such payment be
offset first against the
late interest or the
principal?
Unless otherwise agreed by the
parties or provided in the judgment,
the money collected from the
judgment debtor shall be used to
pay the principal first; then, after fully
paying the principal, the remaining
amount will be used to pay the
interest arising from late payment.
How long is the
judgment debtor
allowed to voluntarily
fulfil its obligations
under the judgment?
For 10 days following the date the
judgment debtor receives or is duly
notified of the decision on judgment
enforcement, the judgment debtor
will be allowed to voluntarily fulfil its
obligations under such decision. If
the judgment debtor fails to fulfil its
obligations within the 10-day time
period, the judgment enforcement
agency can apply coercive measures
against the judgment debtor.
When will the
judgment enforcement
agency commence
verifying the financial
situation of the
judgment debtor in
order to enforce the
judgment?
The deadline for the judgment
enforcement agency to start such
process is 10 days after the judgment
debtor fails to fulfil its obligations
within the voluntary enforcement
period mentioned above.
Q&A CONCERNING JUDGEMENT ENFORCEMENT
11© 2018 LE & TRAN
LE & TRAN Building
No.9, Area 284 Nguyen Trong Tuyen Street, Ward 10, Phu Nhuan District, Ho Chi Minh City
T: ( +84 28 ) 38 42 12 42 F: ( +84 28 ) 38 44 40 80 E: info@letranlaw.com
www.letranlaw.com

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LeTran.Litigation Law Review.April.2018

  • 1. VIETNAM LITIGATION REVIEW APRIL 2018 ©2018 LE & TRAN. All rights reserved. Attorney Advertising.
  • 2. The Distinct Characteristics of Arbitration – Should You Choose Arbitration instead of the Court for Dispute Resolution? Violation of Delivery Deadline in the Contract for Purchase and Sale of Goods The Dissolution of an Enterprise due to Failure to Fulfill its Obligation to Report Court Updates Q&A Concerning Judgement Enforcement index STEPHEN LE HOANG CHUONG Partner in Charge hoangchuong.le@letranlaw.com Why We Win 4 6 8 10 11 Although Vietnamese legal texts are ambiguous and corruption still too prevalent in the justice system, seeking redress before a Vietnamese court is not doomed. There is a proven way to make justice prevail. We will never take a case to trial if unfair tactics are at play. This is because in such case, the justice system fails, and so does everyone involved. A broken court process can never bring justice to the parties. It’s that simple. Corruption only wins when all stakeholders give in to unfair practices. We never do. Not only we defend procedural fairness on behalf of our clients, but we impose it on every actor involved the dispute. Opposing counsel’s unfair tactics do not impress us and we never respond to such unprofessional behavior. Instead, we use tactics to expose them and force them to get into line. 2 © 2018 LE & TRAN
  • 3. The DISTINCT CHARACTERISTICS of Arbitration Should you choose Arbitration instead of The Court for Dispute Resolution? 3© 2018 LE & TRAN
  • 4. LEGAL INSIGHTS Similar to judicial proceedings in a court, arbitration is a form of dispute resolution. The process involves one or more arbitrator(s) acting as independent, impartial adjudicator(s) who issues a final binding judgment to end the dispute. Arbitration, however, has some unique characteristics that are distinct from adjudication in court: A dispute can be subject to arbitration if it arises from commercial activities and there is a valid agreement between the parties to resolve such dispute by arbitration; otherwise, the dispute may be subject to the court’s jurisdiction. Usually, an agreement to resolve disputes by arbitration is directly stated in the contract between the parties, and is often referred to as the “arbitration clause”. Arbitration centers usually offer a model arbitration clause on their websites for the parties’ reference and as a starting point in the drafting process. For instance, the Vietnam International Arbitration Centre (“VIAC”) has the model arbitration clause as follows: “Any dispute arising out of or in relation with this contract shall be resolved by arbitration at the Vietnam International Arbitration Centre (VIAC) in accordance with its Rules of Arbitration.” Having a dispute decided by arbitration offers some notable advantages over adjudication by a court. Particularly: 1. Time spent on resolving a dispute will be shorter. It may take years to obtain a final judgment from a court; but if arbitration is utilized, it may take less than a year. The reasons for this are: (i) Arbitration centers will only accept commercial disputes in the event that there is an arbitration agreement among the parties. Therefore, the number of cases resolved by arbitration is much fewer than those adjudicated by the courts (e.g. in 2016, VIAC only received 155 cases, while the courts in Ho Chi Minh City received 65,164 cases); and (ii) Arbitrators do not work as full-time judges and only accept disputes and receive remuneration when there is a request from the parties (i.e. the parties will select their arbitrators during the arbitration proceedings). Hence, an arbitration center can maintain a list of hundreds of arbitrators who will participate in cases on the parties’ request without incurring significant operational expenses. 2. The parties have the flexibility to select arbitrators that have qualifications and expertise suitable to the case. For example, the parties may select arbitrators who are foreign lawyers for cases relating to foreign laws or those having expertise in construction, shipping, technology, etc. that correspond to the subject matter of the dispute. 3. Higher level of confidentiality compared to court proceedings. Arbitrators are obliged to keep the dispute to which they are assigned confidential. Arbitration hearings are not open to the public like court trials and only the relevant parties may join. Thus, the parties can keep the dispute confidential and minimize any negative impacts to their reputation or standing in the business community. Advantages of dispute resolution by arbitration Which cases may the parties resolve a dispute by arbitration? 4 © 2018 LE & TRAN
  • 5. LEGAL INSIGHTS Apart from the advantages set forth above, arbitration does have certain drawbacks. 1. Arbitrators have very little oversight by other authorities, so their decisions may not strictly follow legal regulations but instead, may involve novel reasoning and attempt to equitably balance the benefits/disadvantages for all parties. 2. Arbitration fees are significantly higher than court fees. To take one example, for a commercial dispute valued at VND1,000,000,000 (around USD43,966), the arbitration fee of the VIAC is VND85,800,000 (around USD3,772); while the first-instance court fee is VND42,000,000 (around USD1,847) and the appellate court fee is VND2,000,000 (around USD88). 3. Arbitral awards are final and cannot be appealed. The award by the arbitrator(s) may only revoked by the court in certain rare cases, such as when there are serious violations of litigation procedures or the fundamental principles of the Vietnamese laws. Disadvantages of dispute resolution by arbitration To utilize the advantages as well as limit the disadvantages of arbitration, the parties should consider selecting arbitration to resolve their future disputes (by adding an arbitration clause to their agreements) in the following cases: 1. The parties want to prioritize a quick dispute resolution rather than a thorough but time-consuming one; 2. The parties aim to preserve confidentiality during the dispute resolution; and prevent their transactions and the fact that they are in a dispute from becoming public knowledge; and 3. The dispute is related to a field that requires persons who have the corresponding expertise to resolve (e.g. an intellectual property dispute). Disputes that should be resolved by arbitration 5© 2018 LE & TRAN
  • 6. LEGAL INSIGHTS The term of “Delivery Deadline of Goods” is a fundamental term and is almost always provided in the contract for the purchase and sale of goods. It helps to ensure that the buyer gets the goods at the necessary point in time to conduct its business plans. In principle, under Article 37[1] of the 2005 Law on Commerce, the seller has the responsibility for delivery of goods at the agreed time. In other words, in case the delivery deadline expires and the seller could not deliver the goods on time, the seller is deemed to be in violation of the contract and the buyer is entitled to refuse to receive the goods or to refuse to make the relevant payment. In this event, the contract cannot be continued unless otherwise is agreed by the parties. There is currently no provision for automatic termination under the relevant laws. The 2005 Law on Commerce has no regulation regarding this issue. Therefore, under Article 4.3[2] of the 2005 Law on Commerce, the regulations of the 2015 Civil Code shall be applied. Specifically Article 422 of the 2015 Civil Code provides as follows: “Article 422. Termination of the contract A contract shall terminate in the following cases: 1. The contract was completed; 2. By agreement of the parties; 3. The individual having entered into the contract dies or the legal entity, having entered into the contract, ceases its existence during the period the contract must be performed by such individual or legal entity; 4. The contract is rescinded or unilaterally terminated; 5. The contract cannot be performed because its object no longer exists; 6. The contract is terminated under Article 420 of this Code [3] ; 7. Other cases as prescribed by law.” Therefore, the law has no provision allowing the contract to be automatically terminated just because the term of performing an obligation of a party has ended. In other words, in case a party violates the delivery deadline of the goods and there is no other agreement between the parties, the contract is still legally enforceable, though it is deemed to have ended in fact (the seller cannot continue to deliver the goods and the buyer does not continue to receive the goods). Therefore, is it possible to conclude that the contract for purchase and sale of goods is automatically terminated if the seller does not deliver the goods on time? Under the 2005 Law on Commerce, the buyer is entitled to apply one of the following remedies: Right of enforcement of the contract under Article 297[4] of the 2005 Law on Commerce: In the event the buyer still is in need of the goods, it may purchase the goods from a third party as a replacement and request the seller to reimburse the difference in price and other relevant expenses (for instance: freight charges). When the seller completes such payments, the contract shall be terminated as “completed” under Article 422.1, the 2015 Civil Code. Unilateral termination of contract performance under Article 311[5] of the 2005 Law on Commerce: The contract shall completely terminate from the date the seller receives a notice of termination from the buyer. The parties shall only perform their reciprocal obligations related to the obligations performed by the other party before the date of the contract termination. Rescission of the contract under Article 312[6] and Article 313[7] , the 2005 Law on Commerce: rescission of the contract shall allow the buyer (i) to rescind a specific delivery and continue to receive subsequent deliveries or (ii) to rescind all the deliveries already made, return the goods, and claim the purchase money in case the goods delivered are integrally connected (integrated goods). It should be noted that the application of these remedies requires the buyer to comply with conditions and procedures as prescribed by law, including sending a formally written notice to the other party. Therefore, when it is realized that the seller has violated the delivery deadline, the buyer needs to promptly consider applying one of the above remedies to protect its lawful rights and interests. Delay in applying the remedies may affect the interests of the buyer in the future. Therefore, under these circumstances, what actions should a buyer take who desires to terminate the contract and refuse to receive the goods? Violation of Delivery Deadline in the Contract for Purchase and Sale of Goods 6 © 2018 LE & TRAN
  • 7. LEGAL INSIGHTS Company A signed a purchase and sale contract with Company B, which included a delivery deadline of May 2013 and a deposit of approximately $300,000 USD. When the delivery deadline expired, Company B had only delivered less than half of the goods which were agreed upon. Between the time of contract and the time that the delivery deadline expired, there had been a substantial decrease in the price of such goods. Therefore, Company A no longer desired to continue to receive the goods. Company A could have unilaterally terminated the contract, required Company B to return the deposit, and have claimed a “deposit compensation”[9] as prescribed by law. However, Company A incorrectly believed that the contract had expired, and therefore did not provide notice to Company B about the termination of the contract. Instead, Company A only verbally negotiated with Company B, and even continued to receive a late delivery of the goods which Company B had already produced. After many sessions of negotiation, Company B still did not want to return the deposit. Therefore, Company A filed a complaint against Company B with the Vietnam International Arbitration Center to claim the deposit, a deposit compensation and damages in accordance with Vietnamese Law. However, because there was no document from Company A stating that it wanted to terminate the contract and had not refused the continued deliveries when Company B violated the delivery deadline, the Arbitral Tribunal considered the negotiation between Company A to Company B to be an extension of the terms of the contract. Accordingly, the Arbitral Tribunal considered that Company A was partially at fault in this situation and only ordered Company B to return the remaining deposit without any other compensation. Because of the delay in applying its legitimate commercial remedies, Company A gave up its rights to require Company B to perform its contractual obligations, specifically having to pay the deposit compensation. Although Company B was the violating party, it did not have to bear any further legal responsibility. The following is a specific example[8] of the consequences of delay in applying the proper commercial remedies: [1] Article 37, the 2005 Law on Commerce provides: “Article 37. Delivery Deadline of Goods 1. The seller must deliver goods in the time of delivery of goods agreed in the contract; 2. In the event that there is only an agreement of the Delivery Deadline of Goods without a specific time, the seller may deliver goods at any time under such Delivery Deadline of Goods and must notify the buyer of the delivery in advance; 3. In case there is no agreement for the Delivery Deadline of Goods, the seller must deliver goods within a reasonable time after entering into the contract.” [2] Article 4.3, the 2005 Law on Commerce provides, in part: “Article 4. Application of the Law on Commerce and relevant laws […] 3. Commercial activities, which are not provided in the Law on Commerce and other relevant laws, shall comply with the regulations of the Civil Code.” [3] Article 420, the 2015 Civil Code provides: “Article 420. Performance of the contract when there is a fundamental change of circumstances 1. There is a fundamental change of circumstances when the following conditions are fully satisfied: a. There is a change of circumstances due to an objective event occurring after the contract is entered into; b. At the time of entering into the contract, the parties could not foresee the change of circumstances; c. The change of circumstances is so important that if the parties knew about it in advance, the contract would not have been entered into or would have been entered into with completely different contents; d. The continuation of the contract performance without modifying its contents will cause serious damage to a party; and e. The party who receives benefits under the contract, has applied all necessary measures in the best of its ability in compliance with the characteristics of the contract, but fails to prevent or minimize the effect on its benefits. 2. In case there is a fundamental change of circumstances, the party who receives benefits under the contract may request the other party to renegotiate the contract within a reasonable time. 3. In the event the parties cannot agree on modification of the contract within a reasonable time, either party may request the Court: a. To terminate the contract at a specified time; b. To modify the contract to balance the lawful rights and interests of the parties in the context of a fundamental change of circumstances. The Court only is entitled to modify the contract in the event that the termination of the contract will result in greater damage than the expenses incurred in performing the modified contract. 4. In the course of negotiating the modification or termination of the contract, or while the Court is handling the case, the parties shall continue performing their contractual obligations, unless the parties agree otherwise.” [4] Article 297, the 2005 Law on Commerce provides: “Article 297. Right of enforcement of the contract 1. Right of enforcement of the contract is defined as a remedy under which the aggrieved party requests the violating party to properly perform the contract, or applies other remedies so the contract is performed and the violating party shall be responsible for any arising expense. 2. In the event that the violating party fails to fully deliver goods or to properly provide the service under the contract, it shall fully deliver goods or properly provide the service under the contract. In case the violating party delivers goods or provides services in poor quality, it shall eliminate the defects of the goods or the shortcomings of the service, or deliver other goods as a replacement or properly provide the service under the contract. The violating party must not use money or other types of goods or services as a replacement, unless it is agreed to by the aggrieved party. 3. In the event that the violating party fails to comply with Clause 2 of this Article, the aggrieved party is entitled to purchase goods or receive provision of services as a replacement for the type of goods or services stated in the contract from another party, and the violating party shall be responsible for the difference in price and relevant expenses, if any; or by itself eliminate the defects of the goods or shortcomings of the services, and the violating party shall accordingly pay for actual and reasonable expenses that arise. 4. The aggrieved party shall receive the goods or provision of services and make payments to such goods or services in case the violating party already fulfilled all obligations in compliance with Clause 2 of this Article. 5. In the event that the violating party is the buyer, the seller is entitled to request the buyer to make payment, to receive the goods or to fulfill its other obligations in compliance with the contract and this Law.” [5] Article 311, the 2005 Law on Commerce provides: “Article 311. Legal consequences of termination of contract performance 1. In the event that a contract performance is terminated, it shall be ended from the date a party receives the termination notice. The parties shall no longer perform their contractual obligations. The party that has performed its obligations may request from the other party a payment or performance of its reciprocal obligations. 2. The aggrieved party may claim damages under the provisions of this Law.” [6] Article 312, the 2005 Law on Commerce provides: “Article 312. Rescission of a contract 1. Rescission of a contract shall include rescission of a part of the contract or rescission of the entire contract. 2. Rescission of the entire contract shall mean the complete annulment of all contractual obligations for the entire contract. 3. Rescission of part of the contract means the annulment of the performance of specific parts of the contract while the other parts remain in full force and effect. 4. Except for cases of liability exemption under Article 294 of this Law, the remedy of rescission of contracts shall be applied in the following cases: a. There is an occurrence of an act of breach which the parties have agreed shall be a condition resulting in the rescission of the contract; b. Where one party commits a substantial breach of the contractual obligations.“ [7] Article 313, the 2005 Law on Commerce provides: “Article 313. Rescission of the contract in case of delivery of goods or provision of services in installments 1. Where the parties to a contract agree on delivery of goods or provision of services in installments, and one party fails to perform its obligations regarding the delivery of goods or provision of services and such failure constitutes a substantial violation of such delivery of goods or provision of services, the other party shall be entitled to declare the rescission of the contract for such delivery of goods or provision of services. 2. In case a party fails to perform its obligation for an installment of delivery of goods or provision of services, which is deemed to be the basis for the other party to conclude that a substantial breach of the contract will occur with regard to subsequent of goods or provisions of services, the aggrieved party shall be entitled to declare the rescission of the contract applicable to such subsequent deliveries of goods or provisions of services, provided that such (aggrieved) party must exercise that right within a reasonable time. 3. Where a party has declared the rescission of a contract as it applies to a single delivery of goods or provision of services, such party is still entitled to declare the rescission of the contract as it applies to subsequent deliveries of goods or provision of services which have been implemented or which are yet to be implemented if the interrelationship between the deliveries of goods [or provisions of services] results in the delivered goods or provided services not being able to be used for their proper purpose as originally intended by the parties at the time they entered into the contract.” [8] Specific example provided exclusively by LE & TRAN. [9] Under Article 328.2, the 2015 Civil Code, a “deposit compensation” shall mean a compensation applied to the party receiving the deposit when it violates the contract or refuses to sign the contract. 7© 2018 LE & TRAN
  • 8. Judgment No.144/2017/HC-PTdated July 20, 2017 of theHigh-level People’s Court at Ho Chi Minh City The Dissolution of an Enterprise due to FAILURE to fulfill its OBLIGATION TO REPORT* 8 © 2018 LE & TRAN
  • 9. Plaintiff: TH Sea Food Processing Company Limited (the “Company”). Defendant: Business Registration Office, Department of Planning and Investment of Soc Trang Province (the “BRO”). The judgments of both the first- instance court and appellate court were reasonable and in compliance with the 2005 Law on Enterprise (being effective at that time) as well as the current law (i.e. the 2014 Law on Enterprise). According to Article 9.6, the 2005 Law on Enterprise (or Article 8.6, the 2014 Law on Enterprise), enterprises has the obligation to report to the BRO and the failure to fulfil such obligation could lead to revocation of the ERC under Article 165.2, the 2005 Law on Enterprise (or Article 211.1, the 2014 Law on Enterprise). Obligation to report to the administrative authorities is very important for all enterprises in Vietnam. During business operations, enterprises are not only required to report to the business registration authority (i.e. the BRO in the above case), but also other administrative authorities relating to tax, compulsory insurance, labor and employment, etc. However, in practice, many enterprises do not pay close attention to such obligations and some are even under the misunderstanding that they are only required to report when receiving a request from the authorities. Obligation to report is required by the law and if an enterprise fails to submit its reports within the prescribed time limits, it may be subject to monetary fines and other sanctions, which may also include revocation of related business licenses. Summary of facts Le & Tran’s assessment PRACTICAL ADJUDICATION AND ASSESSMENT On June 28, 2013, the BRO issued Notice No.97/TBHD-DKKD to request the Company to review and update its registered information within 30 days from the date of the issuance of the Notice. However, the deadline expired without the BRO receiving any response from the Company. On August 21, 2013, the BRO issued Notice No.234/PDKKD which requested the Company to report on their business operations from the beginning of 2013 to the date of issuing Notice No.234/PDKKD; this notice also stated that if the BRO did not receive a report from the Company within 03 months from the date of this second notice, the Enterprise Registration Certificate (the “ERC”) of the Company would be revoked. As a result of not receiving any report from the Company in accordance with Notice No.234/ PDKKD, on December 24, 2013, the BRO issued Notice No.562 requesting the legal representative of the Company to appear in person at the BRO and provide an explanation within 30 days from the day of issuing said Notice. It was also stated that if the legal representative did not appear in order to provide an explanation prior to the deadline, the BRO would issue a decision on revoking the ERC in compliance with the law. Nevertheless, the legal representative of the Company failed to appear. On February 25, 2014, the BRO issued Decision No.378 revoking the ERC of the Company and ordering the Company to proceed with procedures for dissolution within 06 months from the day of issuing the Decision. On June 03, 2015, the BRO issued Notice No.261 on the dissolution of the Company (and the removal of the Company’s name from the business registration records) on the grounds that its ERC had been revoked, and due to the fact that the BRO had not received the application file for dissolution nor the Company’s explanation on why the Company could not submit such application file. On July 04, 2016, the Company filed a lawsuit in the People’s Court of Soc Trang Province requesting that the Court repeal Decision No.378 and Notice No.261. The Company claimed that it failed to fulfill its reporting obligations due to not receiving the related notices from the BRO. Following adjudication of the matter, both the first-instance court and the appellate court concluded that the Company had the obligation to report to the BRO under the law; regardless of whether the BRO sent the notices or not. Thus, whether or not the Company did receive the notices of the BRO was irrelevant. Further, the abovementioned documents issued by the BRO, as well as the revocation of the ERC, were in compliance with the law. (*): https://congbobanan.toaan.gov.vn/2ta40407t1cvn/chi-tiet-ban-an 9© 2018 LE & TRAN
  • 10. On January 15, 2018, the Supreme People’s Court issued Official Letter No.26/TANDTC-TCCB requesting other courts to give their comments on the plan for reorganizing the specialized courts. Under this plan, at the provincial level, Ha Noi City, Ho Chi Minh City, Dong Nai Province and Binh Duong Province will have the highest number of specialized courts, i.e. 06 courts, which include (i) criminal courts, (ii) civil courts, (iii) economic courts, (iv) administrative courts, (v) labor courts and, (vi) family and juvenile courts. For other provinces, each province will be allocated between 03 to 05 specialized courts, depending on the number of judges it currently has. At the district level, each district having 700 cases or more per year will be allocated between 02 to 04 specialized courts, depending on the average number of cases per year. Districts having less than 700 cases per year will not have specialized courts. Plan for reorganization of specialized courts The Supreme People’s Court is gathering comments on a draft Code of Conduct for the purpose of developing basic ethical standards for judges in Vietnam. The draft Code of Conduct includes 3 chapters and 17 articles. It provides 7 ethical standards for judges, including (i) independence, (ii) impartiality and objectiveness, (iii) integrity, (iv) fairness and equity, (v) appropriateness, (vi) dedication and punctuality, and (vii) qualification and diligence. The Code of Conduct also provides for the appropriate conduct for judges in different situations, both inside and outside of the court. Gathering comments on the draft Code of Conduct for judges in Vietnam To improve the quality and effectiveness of mediation and dialogue at the people’s courts, the Supreme People’s Court has issued Plan No.11/KH-TANDTC dated January 22, 2018 to implement a pilot project for 06 months at 06 people’s courts in Hai Phong Province. In each of these courts, a division specialized for mediation will be established to help the parties reach an amicable settlement of their disputes. The related court staff will also be provided with training from foreign experts to improve their mediation skills. Pilot project on renovation and enhancement of mediation and dialogue in the resolution of civil and administrative disputes. COURT UPDATES 10 © 2018 LE & TRAN
  • 11. In the event that a judgment debtor makes a payment, will such payment be offset first against the late interest or the principal? Unless otherwise agreed by the parties or provided in the judgment, the money collected from the judgment debtor shall be used to pay the principal first; then, after fully paying the principal, the remaining amount will be used to pay the interest arising from late payment. How long is the judgment debtor allowed to voluntarily fulfil its obligations under the judgment? For 10 days following the date the judgment debtor receives or is duly notified of the decision on judgment enforcement, the judgment debtor will be allowed to voluntarily fulfil its obligations under such decision. If the judgment debtor fails to fulfil its obligations within the 10-day time period, the judgment enforcement agency can apply coercive measures against the judgment debtor. When will the judgment enforcement agency commence verifying the financial situation of the judgment debtor in order to enforce the judgment? The deadline for the judgment enforcement agency to start such process is 10 days after the judgment debtor fails to fulfil its obligations within the voluntary enforcement period mentioned above. Q&A CONCERNING JUDGEMENT ENFORCEMENT 11© 2018 LE & TRAN
  • 12. LE & TRAN Building No.9, Area 284 Nguyen Trong Tuyen Street, Ward 10, Phu Nhuan District, Ho Chi Minh City T: ( +84 28 ) 38 42 12 42 F: ( +84 28 ) 38 44 40 80 E: info@letranlaw.com www.letranlaw.com