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Vietnam’s rapidly growing economy has led to an increase in commercial disputes. However, according to the 2024 WJP Rule of Law Index, Vietnam only ranked 81 out of 142 countries in the world, and for civil justice, its ranking is only 96/142. This poses concerns for foreign investors when doing business in Vietnam. Generally, when a dispute occurs, parties may choose to resolve disputes by various methods such as litigation, arbitration, and mediation. But which mechanism is the best option for parties is a sharp question and it is essential to be aware of Vietnam’s legal framework for commercial dispute resolution to navigate the system effectively.

Vietnam is a civil law country and legislation is frequently amended and revised. There are currently around 266 Laws and Codes, and a project in Vietnam must comply with many different legislative documents and, sometimes, which documents are prevailing is arguable. This unpredictability makes it crucial for companies to stay informed about evolving legal regulations and enforcement trends.

In Vietnam, not all court judgments can be considered precedents. The absence of a binding precedent system means that judicial interpretations are often inconsistent, creating uncertainty for investors.

Negotiation, commercial mediation

Negotiation and mediation are widely encouraged as alternative dispute resolution (ADR) methods.

However, legal and cultural barriers remain significant. Negotiations are often conducted informally, outside the oversight of legal professionals, which can put foreign investors at a disadvantage. Nevertheless, recent practice shows that parties tend to obtain an independent legal opinion from lawyers to facilitate negotiations.

While mediation has been increasingly promoted as an effective mechanism, with more than 14 commercial mediation centres in Vietnam, its adoption remains limited due to concerns about enforceability.There is no guarantee that a settlement agreement will be upheld in court or enforced effectively. Pursuant to the report of the Vietnam Mediation Centre (VMC), from 2018 to 2023, it only handled 39 cases. However, in 2023, the VMC signed an MoU on co-operation in mediation with Singapore International Mediation Centre (SIMC) and the Korea International Mediation Centre (KIMC). This collaboration aims to enhance cross-border mediation capabilities, providing businesses with a more reliable mechanism for resolving disputes involving international parties.

With these developments, mediation is expected to become a preferred mechanism for resolving commercial disputes in the near future.

Court litigation and its challenges

Commercial disputes can be resolved at the Vietnamese court pursuant to the current 2015 Civil Procedure Code. Each year, the Vietnamese Court handles more than 400,000 civil and commercial cases. The huge caseload and administrative delays lead to procedural inefficiencies, and it can take years to pursue a case.

Another major issue with litigation in Vietnam is the perception of inconsistency in judicial decision making. As mentioned above, the lack of precedents may lead to conflicting decisions which depend on the interpretation and implementation of the judges handling the case. There is no court division specialised in specific fields such as maritime, construction, fintech, etc., and judges may find difficulties when resolving these kinds of disputes. This makes it difficult for businesses to predict legal outcomes and formulate appropriate legal strategies.

Enforcement of court judgments remains problematic, particularly when dealing with defendants who attempt to evade compliance through procedural loopholes. In 2024, the total number of applications for judgment enforcement was 1,021,783, an increase of 10.79% compared to 2023. Of these, 620,657 cases were successfully enforced. While these figures indicate progress, the increasing number of pending cases highlights persistent enforcement challenges.

These systemic shortcomings highlight the urgent need for judicial reforms, including clearer procedural guidelines, digital case management systems to expedite hearings, and enhanced judicial training.

Domestic arbitration

Arbitration is the most used method to resolve commercial disputes, after litigation, in Vietnam. Arbitration conducted in Vietnam is governed by the 2010 Law on Commercial Arbitration (LCA) and its bylaws. In line with the UNCITRAL Model Law on Arbitration, the LCA recognised basic doctrines of arbitration such as competence-competence, separability, waiver of right to object, etc., and also allows the tribunal to apply interim reliefs, summon witnesses, and collect evidence when resolving arbitration. This creates the legal framework to facilitate the efficiency and flexibility of the arbitration in Vietnam.

For institutional arbitration, there are now 49 arbitration centres in Vietnam, but the most prominent one is Vietnam International Arbitration Centre (VIAC). Notably, for institutional arbitration seated in Vietnam, its award will still be considered as “foreign arbitral awards” which must go through the recognition and enforcement process under the Civil Procedure Code of Vietnam.

One major issue in Vietnamese arbitration is the high rate of annulled arbitral awards. From 2020 to 2023, about 20% of applications for annulment were accepted by Vietnamese courts.

Notably, domestic courts may review the substantive issues of the case and sometimes overturn them based on violation of fundamental principles of Vietnamese laws, which is a broad and vague notion. This judicial intervention undermines the reliability of arbitration and discourages businesses from fully embracing it.

Enforcement of foreign awards

Vietnam is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1995, and signed 16 mutual legal assistance treaties allowing the recognition and enforcement of foreign arbitral awards of 172 member states, and foreign judgments from 16 countries to be enforced in Vietnam.

Further, under the EU-Vietnam Investment Protection Agreement (EVIPA), Vietnam is obligated to establish a mechanism within five years from the agreement’s entry into force that allows arbitral awards issued under the EVIPA to be directly enforceable, without requiring recognition by Vietnamese courts. However, as of now, there have been no significant updates regarding the implementation of this mechanism.

In practice, enforcement of foreign arbitral award and foreign court judgment faces difficulties such as procedural delays, inconsistent interpretation and application of the relevant provisions of different judges, and a tendency to protect local parties by the Vietnamese court. Regarding foreign court judgments, from 2012 to 2019, Vietnamese courts reviewed 26 applications, recognising and enforcing only 12, accounting for 46% of total applications, rejecting 19%, and the remaining cases were dismissed for various reasons including withdrawal by the applicants. Recognition and enforcement rates remain below 50%, but legal reforms and international co-operation are expected to improve outcomes.

According to a report from the Ministry of Justice (MOJ), from 2019 to 2023, the overall recognition and enforcement rate rose to 62% of total applications. This indicates a positive trend.

The most reasons invoked by the Vietnamese court to refuse the recognition of foreign arbitral awards are the improper service of arbitral documents to the award debtors, the capacity of the signatory, and violation of the fundamental principles of Vietnamese laws. To be specific, the Vietnamese courts often require the award creditor to provide evidence proving that the Vietnamese debtor did receive and was fully aware of the arbitral documents, or the person who signed the arbitration clause has authority to do so.

Regarding violation of fundamental principles of Vietnamese laws, due to this vague concept, the Vietnamese court may rely on it to review the merits of the case and consider any Vietnamese provisions as fundamental principles of Vietnamese laws. This has led to some unreasonable court decisions to refuse the recognition of foreign arbitral awards in Vietnam, which has received a lot of criticism.

Solutions and recommendations

Given the complexities of Vietnam’s dispute resolution landscape, businesses should take proactive steps to better protect themselves from legal uncertainties and enhance their ability to resolve disputes efficiently.

One key approach is ensuring meticulous contract drafting, particularly, parties should opt for ADR such as arbitration and mediation rather than litigation in Vietnam. By leveraging institutions such as the VIAC and VMC, companies can enhance the effectiveness of their dispute resolution processes while maintaining business relationships.

It is essential to engage with experienced legal professionals who can help navigate Vietnam’s evolving legal landscape, ensuring that contracts are well structured and enforcement risks are adequately assessed. Given the persistent challenges associated with litigation and arbitration, a legal expert could help the companies doing business in Vietnam to implement appropriate dispute resolution strategies to safeguard their business interests.