Choice of foreign arbitration in contract with Vietnamese counter-parties

Vietnam officially acceded to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards (1958 New York Convention) on 28 July 1995. Accordingly, by virtue of the 1958 New York Convention, if the parties to a dispute reside in countries, which are members of the 1958 New York Convention, then the parties should be able to refer their disputes to a foreign arbitration. In addition, Article 12.3 of the Investment Law provides that any dispute to which one disputing party is a foreign investor or a foreign invested company, or any dispute between foreign investors could be submitted to, among others, a foreign arbitration or an international arbitration. Outside the context of the 1958 New York Convention and Article 12.3 of the Investment Law, there is no express provision under Vietnamese law, which generally allows disputes with a Vietnamese party or relating to assets in Vietnam to be submitted to foreign arbitration.

Vietnam Business Law Blog

One can assume that where possible (i.e., not prohibited by international treaties) Vietnamese law will likely provide better treatment to Vietnamese investors over foreign investor. However, in the examples discussed below, foreign investors do get better treatment over Vietnamese investors:

  • Investor protection - The biggest advantage that many foreign investors have over Vietnamese investors is the ability of the foreign investor to make a claim against Vietnamese Government before international arbitration under various investment treaties that Vietnam has signed with several countries. Vietnamese investors have no ability to do so. The Government of Vietnam has indeed been subject to several investor-State disputes and is well aware of the risk that it can be sued if it mistreats foreign investors.

The Official Gazette (Công Báo) publishes legal instruments (văn bản quy phạm pháp luật) issued in accordance with the Law on Law. However, the Official Gazette also has a section which publishes “other legal documents” (Văn bản pháp luật khác). It is not clear if these “other legal documents”, which are not legal instruments, will have the force of law.

The Law on Legal Instruments (or Law on Laws) defines a legal provision (quy phạm pháp luật) to mean a general rule of conduct, with universal binding force, applied repeatedly to agencies, organizations, and individuals within the entire country or a specific administrative unit, as prescribed by a competent state agency in this Law and ensured by the State. A legal instrument (văn bản quy phạm pháp luật) is a document containing legal provisions issued in accordance with the Law on Legal Instruments and must be published on the Official Gazette. The Law on Legal Instrument prohibits the issuance of documents which are not a legal instrument but which contain legal provisions. Since the “other legal documents” published on Official Gazette are not issued in accordance with the Law on Legal Instruments, they should not contain a legal provision and should not have the force of law.

It is unclear whether indirect ownership or control is taken into account when determining a company is the parent company of another company. Under Article 195.1 of the Enterprise Law 2020, a company will be deemed to be a parent company of another company in one of the following circumstances:

  • the former owns more than 50% of the charter capital or the total number of ordinary shares of the latter;

  • the former has the right to directly or indirectly appoint “the majority or all directors of the Board, Director or the General Director” of the latter; or

  • the former has the right to amend the charter of the latter.

The above definition makes it unclear because indirect control is only clearly mentioned in the case of appointing Board directors and Director (General Director) (i.e. the second limb).

The most common form of security which is created over houses and buildings is mortgage (thế chấp). However, the Civil Code 2015 also provides for other forms of securities. In this blog, we will discuss whether other forms of securities could be created over houses and buildings.

Pledge (Cầm cố) – Unlikely

Pledge of property means the delivery by one party of “property” under its ownership to another party as security for the performance of an obligation. Since the term “property” includes both moveable properties and immovable properties, it is arguable that a pledge could be created over houses and buildings being immovable properties. However, Article 310.2 of the Civil Code 2015 provides that “Where an immoveable property is the subject matter of a pledge in accordance with law, the pledge of the immoveable property shall be enforceable against a third person as from the time of registration.”

Reference to “in accordance with law” suggests that pledge could only be created over an immovable property if a law specifically allows it. However, currently the Land Law 2024 and the Residentially Housing Law 2023 only specifically allow mortgages to be created over residential houses or assets attached to land.