Mediation: an ideal solution for international business disputes in Vietnam?

February 2019 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

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The Department of Foreign Investment of the Ministry of Planning and Investment of Vietnam reported that, up to October 2018, there were 26,876 effective investment projects nationwide, with total registered capital of US$336.2bn. Furthermore, according to statistics from the General Statistic Office of Vietnam, by early 2018, there were 14,600 foreign direct investment (FDI) enterprises registered and operating in Vietnam, an increase of 54.2 percent on 2012. The number of FDI enterprises is growing by around 9.2 percent each year. Together with the surge of foreign investment and FDI enterprise is the inflation of business disputes between foreign investors and their partners in Vietnam and between investors and the FDI companies themselves. In addition, the Vietnamese government has participated in investment arbitrations which originally emerged from business disputes between members of joint ventures in Vietnam. Such escalations came from the unsuccessful resolution of internal business disputes by more traditional forms in the early stage.

With the promulgation of Decree No.22/2017/ND-CP on Commercial Mediation (the Decree) on 24 February 2017, a new channel for the resolution of business disputes has, however, been opened. More importantly, mediation is also facilitated by the new 2015 Civil Procedure Code, which enables the recognition of mediated settlement agreements by the court, effectively granting mediated settlement agreements the force of ordinary court judgments.

At the moment, legislation and support programmes are being built to facilitate the development of mediation. Thus, we see a bright future for mediation in Vietnam. It is expected to be an appropriate method of dispute resolution in the future and, as such, a wise choice for parties. This article will look into the advantages that the laws have given to mediation to see how promising such a method of dispute resolution would be in resolving international business disputes in Vietnam.

A commercial mediation framework which reflects international standards

As the first ever legislation specifically governing commercial mediation in Vietnam, the Decree is inspired by the UNCITRAL Model Law on International Commercial Conciliation. Certain modifications were made to the Model Law in order to match the specifics of the Vietnamese economy, legal system and political situation. Also, with reference to Directive 2008/52/EC of the European Parliament and Council of 21 May 2008 on Certain Aspects of Mediation in Civil and Commercial Matters, particularly Article 6 which governs the enforceability of agreements resulting from mediation, Chapter 33 of the 2015 Vietnamese Civil Procedure Code (CPC) creates the most favourable conditions for the enforcement of mediated settlement agreements.

With these regulations, Vietnam has taken its first steps toward the international trend governing the enforcement of mediated settlement agreements. This is very significant as UNCITRAL is also discussing an instrument on the enforcement of international commercial settlement agreements resulting from mediation, which is expected to have effects similar to those of the 1958 New York Convention on the recognition and enforcement of foreign arbitral awards.

A wide range of disputes which can be settled by mediation

Being a relatively new field in the Vietnamese legal system, the Decree is significantly influenced by the approach of the 2010 Law on Commercial Arbitration (LCA) as both mediation and arbitration are alternative dispute resolution methods. Similar to the scope of application of the LCA, the Decree stipulates that mediation is applicable to disputes of a commercial nature, disputes in which at least one party engages in commercial activity or disputes specifically designated by other laws to be eligible for settlement by commercial mediation. Under Vietnamese law, ‘commercial activities’ refers to activities for the purpose of generating profits, including, for example, sale and purchase of goods, provision of services, investment and commercial promotion. This is an open-ended definition which can cover almost all types of business disputes, such as disputes between parent and subsidiary companies or in joint ventures.

Win-win solutions which are achieved through qualified mediators and secured by judgment-like settlement agreements

Business disputes usually arise from companies’ internal matters and between parties who are business partners. Consequently, an amicable solution would be ideal because the parties can maintain their relationships without turning into enemies after aggressive fighting in adjudicative proceedings. However, when disputes arise, it is not always easy for the parties to find a mutual agreement, owing to conflicting interests and cultural clashes. Mediation conducted by qualified mediators can offer a cure.

In this regard, the Decree sets out a number of qualifications of mediators. Particularly, apart from the general moral standards, a mediator is required to have a university degree or higher qualification and at least two years of working experience in their respective discipline or industry. Furthermore, mediation skills, legal understanding and knowledge of business and commercial practice are also compulsory. Foreign mediators are also allowed to practise in Vietnam by having their names listed in the panel of a mediation centre, for example the Vietnam Mediation Centre (VMC), or as independent mediators after registering with the Department of Justice where they reside.

In order to enhance the quality of mediation and the skills of mediators, a number of training and accreditation courses have been held by the Chamber of Effective Dispute Resolution (CEDR), in cooperation with the VMC, and sponsored by the International Financial Corporation (IFC) of the World Bank Group. With such high-quality training, parties will be more confident in choosing mediation to resolve their disputes.

One of the foremost concerns of disputing parties is the enforceability of their mediated settlement agreement. Recognising this, Vietnamese law provides a mechanism under which parties can request a local court to recognise the results of the mediation as a judgment of the court and then it can be enforced by the State Agency for Enforcement of Civil Judgment. In case the parties wish to keep their disputes and settlement confidential, which is not unusual, the mediated settlement agreement still has the effect of a binding contract.

A promising future of not only commercial mediation but also court-annexed mediation

As a newly introduced alternative dispute resolution method, mediation receives due attention from legislators as well as the relevant authorities, including the Ministry of Justice and the Supreme Court of Vietnam. Apart from the promulgation of new legislation on commercial mediation, court-annexed mediation is also being piloted in 16 major provinces throughout Vietnam. Court-annexed mediation centres are established under provincial courts to conduct the mediation before a dispute can be commenced via ordinary proceedings. This is viewed as a solution to the problem of a heavy case load, which has impaired the effectiveness of the Vietnamese civil court system.

Conclusions

Clearly, mediation in Vietnam has received great support from not only the local authorities but also international organisations, beginning with a sound legal framework and training courses, as well as conferences and events. Built on such a firm foundation, we have strong belief that mediation will soon become an effective dispute resolution method that foreign investors, as well as their local partners, will be able to rely on. Furthermore, instead of competing with arbitration, mediation will support the multi-tiered dispute resolution with ‘Med-Arb’ and ‘Arb-Med-Arb’ regimes. This is just the begining of the story of mediation in Vietnam and we surely have a very bright future to look forward to.

Nguyen Ngoc Minh is a partner and Dang Vu Minh Ha is a senior associate at Dzungsrt & Associates LLC. Mr Nguyen can be contacted on +84 (0) 24 3772 6970 or by email: minh.nguyen@dzungsrt.com. Ms Dang can be contacted on +84 (0) 24 3772 6970 or by email: ha.dang@dzungsrt.com.

Nguyen Ngoc Minh and Dang Vu Minh Ha

Dzungsrt & Associates LLC