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The Forms Of Resolving The Commercial Disputes

The Forms Of Resolving The Commercial Disputes

Disputes are understood as disagreements or conflicts regarding rights and obligations among parties in a relationship regulated by law. Nowadays, disputes related to commercial activities are increasingly on the rise as business operations become more vibrant for profit-making purposes. Alongside business development strategies and profit maximisation, enterprises also need to focus on building operational strategies to minimise potential commercial disputes that could occur and harm the business. Furthermore, when disputes arise, choosing the appropriate form of dispute resolution is essential for enterprises to minimise risks affecting profits, credibility, and long-term cooperative relationships. Therefore, in this article, Phuoc & Partners would like to provide readers with an article regarding the forms of resolving commercial disputes that the enterprises should learn about and apply appropriately.

Commercial disputes

  1. Definition of commercial disputes

The commercial dispute was first defined in Article 238 of the Commercial Law 1997, which states, “Commercial disputes are disputes arising from the non-performance or improper performance of contracts in commercial activities.” The Commercial Law 2005 no longer uses the term “commercial disputes”, but it does use the terms “disputes in commerce” and “commercial disputes” in Articles 317 and 319 of this Law. Commercial disputes or disputes in commerce can be understood as disputes related to commercial activities – activities conducted for profit-making purposes, including the buying and selling of goods, provision of services, investment, trade promotion, and other profit-making activities[1]. Additionally, Article 30 of the Civil Procedure Code 2015 also mentions disputes related to business and commerce under the jurisdiction of the Court. Commercial disputes can be distinguished by several basic characteristics such as (1) disagreements or conflicts regarding rights and obligations among parties arising from commercial activities; (2) primarily occurring between traders; (3) often involving material elements and substantial value, or rights and interests that can be quantified into substantial material value.

According to Article 319 of the Commercial Law 2005, the statute of limitations for initiating legal proceedings regarding commercial disputes is two years from the time when the legitimate rights and interests are infringed, except in cases where after being complained, logistics service business traders do not receive notification of being sued at the Arbitration or Court within a nine-month period from the delivery date.

  1. Types of commercial disputes

Article 30 of the Civil Procedure Code 2015 divides commercial business disputes under the Court’s jurisdiction as follows:

  • Disputes arising from business or trade activities among individuals and/or organisations with business registration, which are all for the purpose of profits.
  • Disputes over intellectual property rights or technology transfers among individuals or organizations, which are all for the purposes of profits.
  • Disputes between persons who are not members of a company but involve in transaction in transfer of capital holding and the company and/or its members.
  • Disputes between a company and its members; disputes between a limited liability company and its manager or between a joint-stock company and members of its Board of Directors, its Director or its General Director, or among members of a company regarding the establishment, operation, dissolution, merge, consolidation, total division, partial division, property transfer and/or organisational transformation of the company.
  • Other civil disputes relating to business or trade activities, except for cases within the jurisdiction of other agencies and organisations as prescribed by law.

The Law on Commercial Arbitration 2010 enumerates disputes falling within the jurisdiction of arbitrators, including:

  • Disputes among parties which arise from commercial activities.
  • Disputes among parties at least one of whom conducts commercial activities.
  • Other disputes among parties which are stipulated by law to be settled by arbitration.

Forms of resolving the commercial disputes

  1. Negotiation

Negotiation between the parties is one of the forms of resolving commercial disputes stipulated in Article 317 of the Commercial Law 2005. Accordingly, the parties resolve disputes through mutual contact, understanding, settlement, concessions to resolve differences to eliminate disputes without the need for assistance or arbitration by a third party.

This is the option that should be prioritised by the parties when disputes arise and often brings the best efficiency as well as minimises the risks for the enterprises. The negotiation aims to serve the interests of the both parties, towards goodwill for long-term cooperation and stemming from the principle of freedom of determination, voluntary commitment to agreements between disputing parties. This form is the most commonly used because negotiation is not constrained by complex legal provisions, does not require much time and cost to participate in procedures as in Arbitration or Court proceedings. In addition, negotiation is also a lifesaver for enterprises in case the statute of limitations for litigation of the dispute has expired because through negotiation, the breaching party acknowledges all or part of the obligations as a basis to restart the litigation timeframe[2].

Negotiation depends on the will of both parties, which is both an advantage and a disadvantage of this form because it requires goodwill, honesty, and cooperation from the parties. Furthermore, agreements reached in this method are not enforceable but depend on the voluntary actions of the disputing parties. In cases where one of the parties does not have the goodwill to participate in negotiations, makes unreasonable demands, or lacks the consciousness to voluntarily fulfill the agreed-upon obligations, negotiation will not be successful, and the time-saving advantage of this form will be lost.

Lawyers participating in negotiations need to thoroughly study the case dossiers and prepare plans, and strategies before participating in negotiations. Usually, when negotiation seems to become too difficult to achieve, the parties then turn to the following dispute resolution methods.

  1. Mediation

In addition to arbitration, mediation is also a method to help parties resolve conflicts and reach a new agreement, enabling them to continue their transactions. There are typically two main mediation approaches, both aiming to assist the parties in resolving their disputes. Evaluative mediation involves the mediator assessing the fundamental issues of the dispute and guiding the parties toward a mediated agreement. Conversely, facilitative mediation is when the mediator does not evaluate the core issues of the dispute but instead supports the parties in better understanding each other, eliminating misunderstandings, and overcoming disadvantageous factors during negotiations to reach a successful mediated outcome. Mentally, the mediator must remain unbiased and refrain from making assumptions about anything before the disputing parties present their case.

Decree 22/2017/NĐ-CP defines commercial mediation in Article 3.1 as follows: “Commercial mediation is a method of resolving commercial disputes agreed upon by the parties and mediated by a commercial mediator as an intermediary to assist in resolving disputes according to the provisions of this Decree.” Parties may agree to mediate before, and after a dispute arises, or at any stage of the dispute resolution process. A successful mediation will lead to a mediated agreement, which must be documented in writing[3], legally binding like a contract, and binding on the parties according to civil law regulations. At that point, the parties may request recognition and enforcement of the mediated outcome in Court through civil procedure.

Furthermore, mediation is also conducted within litigation in courts and arbitration. Mediation in civil litigation is a mandatory procedure under the Civil Procedure Code 2015. In this case, the judge acts as the mediator, and the mediated outcome will be recognised by the Court. Mediation in arbitration proceedings is not a mandatory procedure; however, arbitrators and arbitration panels always encourage parties to mediate, and the mediated outcome is also recognised and enforceable.

  1. Arbitration

Commercial arbitration is a method of dispute resolution agreed upon by the parties and conducted according to the provisions of the Commercial Arbitration Law[4]. This method is carried out through the activities of arbitrators acting as independent third parties to end conflicts by issuing a binding decision that the disputing parties must adhere to.

However, to opt for arbitration as a dispute resolution method, the parties must have (i) an existing arbitration agreement that (ii) is legally valid and (iii) enforceable in practice, meaning it can be implemented[5]. When there is an arbitration agreement, the Court must decline jurisdiction over the case.

Parties may choose either ad hoc arbitration or institutional arbitration to resolve disputes. In Vietnam, parties can select international arbitration institutions such as the Singapore International Arbitration Centre (SIAC), the Hong Kong International Arbitration Centre (HKIAC), the Japan Commercial Arbitration Association (JCAA), the International Court of Arbitration of the International Chamber of Commerce (ICC), or domestic arbitration institutions like the Vietnam International Arbitration Centre (VIAC) and the Pacific International Arbitration Centre (PIAC). The arbitration tribunal’s decision is final and binding, with no possibility of appeal, and requires the parties to comply and fulfill their obligations.

However, while this method often saves time for the parties, the costs for arbitration can be quite high. Nevertheless, the confidentiality of arbitration proceedings is high as they are not made public.

  1. Filing a lawsuit at the competent Court

The final method of commercial dispute resolution is to initiate a lawsut at a competent court. The advantage of this method is that the court’s decision carries the highest level of enforceability among all forms of resolution, and the costs for the Court are not as high as in Arbitration. Conversely, resolving disputes through litigation also has its drawbacks, such as prolonged litigation time due to the need to adhere to all prescribed legal procedures and the possibility of appeals and motions. Additionally, dispute resolution through court litigation is usually conducted publicly, except for exceptional cases, which poses a risk of affecting the image and reputation of an enterprise in the market if the enterprise is found to be in violation.

Enterprises need to study and understand the nature of the dispute, the parties involved, and, depending on the specific circumstances, choose a suitable form of resolution to minimise costs and time spent on resolving the dispute while ensuring the normal business operations of their own business.

The above is an overview of our legal perspective on The forms of resolving the commercial disputesthat Phuoc & Partners share with readers. If you have difficulties in finding a Law Firm to advise and support in the relevant legal field, please contact us. Phuoc & Partners is a professional consulting firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Danang. Phuoc & Partners is also rated as one of the leading consulting firms specialising in business law in Vietnam that has leading practice areas in the legal market such as Labour and Employment, Taxation, Merger and acquisition, Litigation. We are confident in providing Clients with optimal and effective service.

[1] Article 3.1 of the Commercial Law 2005

[2] Article 157.1(a) of the Civil Code 2015

[3] Article 1.2 of Decree 22/2017/ND-CP

[4] Aarrtice 3.1. of Commercial Arbitration Law 2010

[5] Article 5 and 6 of Commercial Arbitration Law 2010