Procedures for Resolving Construction Contract Disputes Involving Foreign Elements in Vietnam
1. What is a construction contract involving foreign elements?
A construction contract involving foreign elements refers to a construction agreement where:
At least one party is a foreign individual or legal entity;
Or the contract is signed, amended, executed, or terminated abroad;
Or the construction subject or asset is located abroad.
The definition of contracts involving foreign elements is provided in Article 663 of the 2015 Civil Code.
Understanding this concept is the first step in determining an appropriate dispute resolution process and avoiding confusion between domestic and international disputes.
2. Dispute resolution methods in Vietnam
2.1 Negotiation – Commercial Mediation
Negotiation: The parties directly discuss and attempt to resolve the dispute themselves. This is the first step, offering flexibility, but is not strictly regulated by law.
Commercial mediation: If the parties agree, they can invite a commercial mediator to assist. This method is governed by Decree 22/2017/ND-CP.
2.2 Commercial Arbitration – a popular choice in international contracts
Advantages: It is quick, confidential, less bound by formal procedural rules than court proceedings, and the arbitral award can be enforced abroad under the New York Convention.
Arbitration agreement: Should be clearly stated in the contract or a separate document, specifying the place of arbitration, applicable law, and language of proceedings.
Contract and arbitration language: Under Decree 37/2015/ND-CP, construction contracts must be in Vietnamese. If involving foreign elements, the contract should be bilingual (Vietnamese and a foreign language as agreed). If no agreement is reached, English is used by default.
Applicable law & arbitration:
Parties may agree to apply either foreign or Vietnamese law.
In the absence of agreement, Vietnamese law will apply (except for some PPP contracts or when it violates fundamental principles of Vietnamese law).
Arbitration law: The Law on Commercial Arbitration 2010 governs the qualifications of arbitrators and the rights and obligations of the parties.
2.3 People’s Court
If there is no arbitration agreement or arbitration is ineffective, a party may file a lawsuit at the People’s Court of Vietnam.
Determining jurisdiction: According to the 2015 Civil Procedure Code, indicators include: foreign individual or legal entity, disputes occurring abroad, or disputed assets located in Vietnam.
Notably: Under Article 470.1 of the 2015 Civil Procedure Code, Vietnamese courts have exclusive jurisdiction over disputes relating to rights over real estate in Vietnam, even if foreign elements are involved.
Statute of limitations: Based on Article 45 of Decree 37/2015/ND-CP and Article 429 of the Civil Code 2015, the statute of limitations is typically 3 years from the date the infringed party becomes aware of the violation.
Practical challenges:
Difficulty identifying foreign elements (subjects, objects…).
Court jurisdiction is not clearly defined for international agreement forms.
Practical limitations in judicial cooperation between Vietnam and certain countries.
3. Comprehensive process: from contract to dispute resolution
3.1 Before disputes arise – prevention from the drafting stage
Draft clear clauses: applicable law, dispute resolution forum (arbitration or court), language, and location.
Prepare documentation to prevent disputes: acceptance records, invoices, notices, etc.
3.2 When a dispute arises
1. Negotiation; record in writing if possible: Resolve in good faith
2. Commercial mediation: Under Decree 22/2017/ND-CP
3. Activate agreed dispute resolution mechanism: Arbitration or Court
4. Arbitration: Quick, confidential, internationally recognized
5. Court: If no agreement or inappropriate for arbitration
6. Enforcement of decision: Arbitration: New York Convention; Court: civil procedure law and international judicial cooperation treaties
3.3 When the contract lacks preventive provisions
It is still possible to request mediation, then proceed to arbitration or court litigation.
It is crucial to clearly identify foreign elements and apply appropriate legal regulations.
4. Conclusion
For construction contracts involving foreign elements in Vietnam, commercial arbitration is often preferred due to its efficiency, confidentiality, and international enforceability. However, in the absence of a specific arbitration agreement or where arbitration is not viable, disputes may be resolved through Vietnamese courts. Parties should be mindful of key issues such as jurisdiction, applicable law, language, statute of limitations, and the sufficiency of legal evidence.
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