In addition, foreign investors and their Vietnamese partners are generally permitted to choose either Vietnamese law or foreign law as the governing law of their contract. However, Vietnamese law will be applied whether there is a foreign law chosen by the parties if the contract is entered into in Vietnam and performed entirely in Vietnam or the contract relates to real property located in Vietnam.

Dispute settlement by Vietnamese courts

Dispute settlement by Vietnamese courts is well-known among Vietnamese. One reason contractual parties choose Vietnamese courts as the settlement body in their contracts is due to the ease of enforcement of decisions and judgments issued and the low cost of court fees. However, before selecting Vietnamese courts, the parties should take notice of the statute of limitation and the time-consuming process for court proceedings. Depending on the nature of the dispute, the statute of limitation for initiating court proceedings varies. In general, the statute of limitation for contract disputes is three (3) years from the date on which the party became aware that their lawful rights and interests had been infringed. For contract disputes involving foreign elements, the statute of limitation is determined in accordance with the law applicable to such contract. Although the laws set strict time limits for courts to dispose of cases (for example, two to four months for first instance proceedings), the possibility of lengthy appeals and reviews make court proceedings very time consuming. In practice, some disputes have been held for hearing and review for a period of several years.

Parties in dispute should not expect a Vietnamese court to uphold the choice of foreign law governing a case brought before the Vietnamese court. Vietnamese judges may not apply foreign law as a matter of practice and have no authority to call foreign lawyers or legal experts to a hearing.

Dispute settlement by Vietnamese arbitration

Governmental Decree No. 116/CP dated 5 September 1994 is the birth certificate of economic arbitration centers in Vietnam. For a long time, arbitration was not very popular among investors as there was no legal basis to compel the enforcement of arbitration awards. The scope for arbitration is likely to increase in the coming years, however, as Vietnam adopted a much improved legal framework with the 2010 Commercial Arbitration Law. Arbitration is available for disputes arising from commercial activities, which is broadly defined to mean activity for profit-making purposes comprising the purchase and sale of goods, provision of services, investment, commercial enhancement, and other activities for profit-making purposes. Recourse to arbitration may be agreed upon as a contractual clause or in a separate document, and it can also be agreed upon after a dispute. Courts may not accept jurisdiction over disputes that are expressly subject to a preliminary arbitration agreement, unless the agreement on arbitration is invalid or unrealizable.

Arbitral awards are final and binding, and may be challenged only in certain circumstances mainly involving procedural errors that arose during the process of arbitration or the awards are contrary to the basic principles of Vietnamese law. A party of the dispute may request a domestic arbitral award to be set aside within thirty days of the date the award was granted. The court’s decision on a petition to set aside an award may not be appealed and is final and valid for enforcement.

Foreign and international arbitration

Parties of commercial transactions with foreign elements are allowed to choose foreign or international arbitration to settle their dispute. However, foreign arbitral awards cannot be enforced in Vietnam until they are formally recognized by the Vietnamese court. The court’s judgment regarding enforcement of a foreign arbitral award is appealable.

In September 1995, Vietnam became a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the “New York Convention”). Thus, subject to limited exceptions, Vietnamese courts are required to recognize and enforce an arbitral award made in another New York Convention state as if it were a judgment of a Vietnamese court. In practice, however, the enforcement of foreign arbitral awards may be difficult and Vietnamese courts may refuse enforcement on quite technical and formal grounds.