Vietnam - Foreign disputes - the elephant in the room

International investment and trade disputes are set to increasingly become commonplace for investors in Vietnam as the nation becomes integrated into the global economy.

A recent high-profile case could be a taste of things to come.

The investor, South Fork Ltd Company, represented by US law firm Dardenne & Boyd, filed a lawsuit against the Binh Thuan People’s Committee (the “PC”) to the International Court of Justice (“ICJ” or “Court”).

The investor took action against the licence granted by the PC in November, 2007 to Duong Lam Joint Stock Company for exploitation of minerals on 120 hectares allegedly belong to South Fork. This was a pretext to claim for an indemnity of $3.75 billion from the PC for its costs and expenses for designs, re-planning and environmental pollution treatment of its project licenced in 2004 by the Ministry of Planning and Investment  (to South Fork to have since then developed a tourist park at Bac Binh district, Binh Thuan province) (the “Lawsuit”).

The Lawsuit status

To date, it has not yet been able to verify the authenticity of information about the case status and level of involvement of the PC in its capacity as a respondent in the Lawsuit. It has also not disclosed to the public as to whether the Court has formally accepted the request for arbitration or the investor has paid court fee, nor explained legal bases for appointment of the tribunal of three international arbitrators (the “Tribunal”) as reported by the press.  In reality, for a claim valued at $3.7 billion, the estimated arbitration fee (e.g. in case of the International Court of Arbitration of the International Chamber of Commerce (ICC)) may range from $4-6 million, exclusive of other expenses and attorney fees.

As such, unless otherwise exempted from the ICJ fees (covered by the United Nations) for the parties, the claimant must have strong legal arguments to initiate such an international lawsuit to claim for such “huge” indemnification. Nevertheless, according to the press release, the Lawsuit is revealed to have been initiated to later stages of arbitral proceedings than the premier stage where the court merely admitted the claim and gave notice to the respondent of the lawsuit. In this case, a tribunal of three internationally prestigious arbitrators, including Neil Kaplan who is familiar with international investment and trade disputes related to Vietnam, has been formed to deal with the case.

Our preliminary observation

It is our assumption that the Court and the American investor would have determined that the case is an international investment dispute falling under the governing jurisdiction of numbers of international agreements and treaties to which Vietnam is a signatory or member, including the US-Vietnam Bilateral Trade Agreement (2001), and its legal references such as the Agreement on Trade Related Investment Measures (World Trade Organization) (TRIMs), International Centre for Settlement of Investment Disputes (ICSID Convention signed on March 18, 1965 in Washington, the US) and the New York Convention 1958 on the Recognition and Enforcement of Foreign Arbitral Awards to which Vietnam has been a member since 1995.

If our above assumption is correct, the relevant Vietnamese authorities should soon and proactively participate in the Lawsuit with full and strict compliance with the requirements of the arbitral proceedings of the Tribunal at pre-arbitration stages to minimise legal risks that may inhibit the respondent from defending their position at later stage. A common practice in Vietnam is the claimant does not pay much attention to pre-arbitral proceedings because he/she relies on his/her strong arguments against the respondent’s rejoinder as far as his consideration of the nature and contents of the case are concerned. This dispute is under the jurisdiction of international arbitration and court and it follows other approaches as far as pre-legal proceeding stage is concerned. The Court initially declines to review right from wrong of the nature and contents of the case, but the formality of proceedings to deal with the preliminary legal issues as mentioned below.

A previous lesson for Respondents

A lawsuit worth highlighting is the one between Vietnam Airlines (VNA), a major airline carrier in Vietnam, versus Liberati (the “Petitioner”) a lawyer who used to work for Falcomar, a former ticket agent for VNA in Italy.  The lawsuit was initiated by Liberati’s petition against VNA for not paying him wages when he worked for Falcomar from September, 1991 to December, 1992.   From the beginning of the legal proceedings in 1994 until March 2000 when the Rome Tribunal rendered a verdict that VNA had to compensate the Petitioner a compensation equivalent to €4.3 million, since it was in the opinion that the Lawsuit was between Falcomar and the Petitioner, VNA did not take any defense nor counterclaim against the petition nor attended the hearings. Therefore, VNA was not aware of the verdict until it was informed by the Petitioner in May 2002 when the deadline for appeal ended.

In February 2004, due to VNA’s failure to timely response to the Petitioner’s request, the Petitioner had sought enforcement measures. As a result, over €1.3 million in the VNA’s account in France was frozen until the suit was settled and then the Paris Appeal Court issued a decision forcing VNA to pay nearly €5.2 million (€4.3 million plus interest) to the Petitioner.

Until then, on June 9, 2004, VNA promoted the work necessary to find evidence to counter the request of the Petitioner and later on claimed that it found confidential letters sent by the Petitioner to Falcomar containing positive information support VNA in avoidance of enforcing the verdict. Even so, in 2006, VNA had to fully pay €5.2 million to enforce judgment, not to mention other expenses VNA has to spend in this lawsuit.  In this case, would the respondent have sought legal assistance from the premier stage when it had received summons from the Rome tribunal, it would be able to significantly reduce such financial damages.

A valuable lesson for respondents from the above case is that full participation by the respondent right at the beginning gives it many advantages. These include the opportunity to timely respond to the formalities of the case as to whether it agrees with appointment of a tribunal with jurisdiction to deal with the case, it agrees or disagrees with the jurisdiction of the Tribunal as well as arbitral fee payment mechanism. A respondent can also see if it is lawful or unlawful to determine the status of the respondent and claimant, the claimant applies for an injunction that negatively affects the legitimate status of the respondent’s representative, related person and property, it should inspect and examine the claimant’s investment project in Vietnam in this stage or not. What rights of the respondent are reserved or required for defense or counter-claims can be determined and whether the competent Vietnamese courts has jurisdiction over the Lawsuit, which laws or international agreements and treaties are applicable to deal with the Lawsuit. The conciliation mechanism proposed for use can also be viewed and how to use dispute settlement principles for benefits of the disputants, the ultimate end of those is to consolidate strong arguments to defend the case.

In conclusion, a good preparation for preliminary legal issues would give the respondent, especially Vietnamese authorities regarding foreign investment management, an advantage to have an overall response. It should be noted that timeline for international arbitral proceedings under ICC international arbitration rules is tight and the parties shall comply with them accordingly. Any delay in producing reply, counterclaim against the claimant’s or tribunal’s demands will have unpredictable consequences.

Chau Huy Quang - Dr Nguyen Anh Tuan

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