4 points in relation to disputes in the commercial contract in Vietnam

Disputes in relation to a commercial contract (in brief, named as the commercial disputes) are understood as the disputes arising from one or more parties in relationship of the commercial contract who do not implement or implement in the wrong way to the agreements and commitments as recorded in the contract during the process of commercial operation.

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The commercial disputes often contains following basic elements:

• Having a commercial contractual relationship existing between the parties;
• Having the violation of obligations (or be deemed as violation of obligations) of a party in that relationship;
• Having the disagreement between the parties in relation to the violation or settlement of consequences arising from such violations;
• Dispute on commercial contract often deprives from the violation of contract.

For prevention of possibilities and risks of commercial disputes, the parties should keep in mind the following issues on the commercial disputes:

Firstly, the parties who are the subjects having the highest right to have self-determination in the dispute settlement (except for the contractual relationships affecting the interests of the State). This shows in selection of the parties for settlement of disputes based on their will, including the following methods:

• Negotiation: this is a disputes settlement method without intervention of the third party. Lawyers can participate in advising the parties on the strategies, goals, strengths and weaknesses of the negotiations then the parties can meet, agree and exchange to resolve the disagreement problems.
• Mediation: convincement to the parties in order to stop the conflicts in a satisfactory way. The fundamental difference between negotiations and mediations is the participation of the third party as a mediator settling the conflict between parties.
• Organizations of judge: If the negotiations and mediations appears to be ineffective, the parties may bring a lawsuit before the competent authority for the settlement. Currently, there are two main authorities in Vietnam which regularly handle and settle the commercial disputes:
• Arbitration: Is a method of resolving the commercial disputes, conducted by an arbitral council. Pursuant to Article 61.5 of the Law on Commercial Arbitration 2010, the arbitral award shall be deemed as final and valid as from the date of issuance. However, please note that pursuant to Article 5.1 of the Law on Commercial Arbitration 2010, the mechanism of the dispute settlement by the arbitration is only applied when the parties have a clear and specific agreement on the selection of arbitration in order to settle, otherwise, these disputes can only be resolved by the competent court;
• People’s Court: As a judicial authority of the Vietnamese State with the trial function. Pursuant to Article 30 of the Civil Procedure Code 2015, the court shall have its power to resolve the disputes in relation to the business and commercial activities, including the disputes arising from the commercial contracts. In difference to the arbitration settlement mechanism, pursuant to Article 17 of the Civil Procedure Code 2015, a case settled in court shall undergo two-level of adjudication regime including the first-instance and appellate procedures. Accordingly, the first-instance judgment or decision of the court may be appealed or protested for continuing with the appellate trial.

Subject to the level and complexity of the commercial disputes, the parties may consider the above options to adapt with the actual situation. Unless the other third parties participate in the dispute settlement process only for the purpose of support and a “catalyst” to reconcile the existing conflicts in the contractual relationship and cannot manage the final decision of parties in the commercial contract.

Secondly, the commercial disputes are always associated with the interest of the parties. These are two categories which is not be separated due to the commercial disputes arising from many different causes, including the subjective causes such as change of business strategies and objectives of the parties, imbalances of the enterprise finance,… or objective causes such as the market fluctuations, the force majeure events, the impact of change of legal policy,… which results in non-achievement of the final goal as expected by the parties for the execution of the commercial contract. This leads to the conflicts of interests and the potential of commercial disputes if not resolved promptly.

Thirdly, the authorities and the locations for dispute settlement are one of the issues that the parties should cautiously consider. In the relationship of the international commercial contract, the parties shall come from a variety of different countries.

Therefore, if the event lack of specified regulations, the determination of the competent authority to resolve the disputes is always a controversy matter due to the parties are considered to be difficult in order to understand the laws of the other country in protection of their rights before the opponents.

In addition, regarding the location of dispute settlement in which located in another country may take time and cost for travelling and participating in the arguments that such amounts may have more value than that of achieving by the parties when the disputes is resolved.

Currently, the international law has also been developed with a system of bilateral and multilateral international treaties that partially solves the multinational trade relationships. However, the international law generally only provides the most general regulations and be unable to fully provide all legal aspects of each specific commercial contract.

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Fourthly, regarding the statutory limitations on making a lawsuit in relation to commercial disputes, pursuant to Article 319 of the Commercial Law 2005, the statutory limitations on making a lawsuit on commercial disputes is two years as from the date of infringement of legitimate rights and benefits.

Therefore, when arising disputes, the parties should pay attention to the statutory limitations in order to promptly make a lawsuit to the judicial authorities, avoiding the prolonging of time which leads to lose the right of making a lawsuit.

If you would like further information on how our firm can assist you in addressing commercial disputes issues, please feel free to Contact Us.