Eyeing the pitfalls of arbitral awards

Most legal jurisdictions recognise that employees within a company can sign a contract within the scope of their employment to bind the company to perform.

In contrast, in Vietnam, pursuant to the Civil Code, the only person that can bind and act on behalf of the company is the legal representative (or someone expressly authorised by the legal representative). The legal representative is usually the chairman of the board or the general director (equivalent to the president or CEO), and there can only be one legal representative per company.

The details of the legal representative are prominently recorded in the business registration certificate. In the context of international arbitration, this legal regime of limiting the power to bind a company to a single person has caused innumerable delays to the enforcement of arbitral awards in Vietnam, and in some cases, even non-recognition.

Foreign multinational corporations as well as smaller companies have lower level managers who negotiate and sign contracts which often contain dispute resolution provisions requiring the parties to finally resolve disputes through arbitration. In other words, the contracts are usually not signed by either the chairman of the board or the CEO. As such, when a dispute arises, the foreign party initiates arbitration against the Vietnamese party.  If it wins, the foreign party then proceeds to enforce the award in Vietnam by submitting an application to the Ministry of Justice, which is then forwarded to a local court with jurisdiction to hear the case. However, the foreign company soon learns that enforcing the award in Vietnam may be even harder than winning the award in the first place.

Under the New York Convention and Article 370 of the Civil Procedure Code 2004 (“CPC”), a Vietnamese court cannot re-adjudicate the merits of the underlying case. Instead, the court must enforce the arbitral award unless one or more of several recognised exceptions apply. In this context, the exception in question is the lack of capacity to sign. The Vietnamese debtor typically does not sign the agreement, so the foreign party must establish that the person who actually signed the contract was authorised to sign the contract containing the arbitration provision. The foreign party is then forced to go through a time-consuming process of finding the appropriate personnel to sign affidavits, to convene a board meeting, and to issue board resolutions to prove that the person who originally signed the contract was properly authorised.

However, even after jumping through all these hoops, it may not be enough. In a recent case, a court in Long An province refused to recognise an arbitration award because there was no proof that the signer was authorised to sign the contract prior to or at the time the contract was originally executed. This ruling is currently being appealed on other legal grounds.

While there are a number of counter legal arguments that can be made on the issue of capacity, a few practical solutions should substantially reduce the risks of non-recognition and avoid the delays associated with having to prove the legal capacity to enter a contract. The most obvious solution is to have either the chairman of the board or the highest executive officer sign the contract. This solution, however, may not be practical, especially for large companies that enter into many different contracts in many different locations around the world. Moreover, in certain jurisdictions, the signer is presumed to have read and understood the terms of the contract, triggering certain legal obligations and rights, which may not be favorable to the company if the chairman or the CEO signs an agreement that is unfamiliar to them.

Another solution is to create standard blanket written authorisations for employees who hold managerial roles and are in position to sign contracts. This authorisation will grant the employee in question the right to sign any and all agreements that are within the scope of his or her employment. This authorisation may be appended to each contract at the time of contract execution. The language granting the authorisation should not simply be in the form of a representation or warranty in the contract since the signer will still need to prove he or she was authorised to enter the contract in the first place.

In closing, this seemingly innocuous issue of capacity has befuddled many foreign companies seeking to enforce arbitral awards in Vietnam. A few thoughtful precautionary steps during the contract formation stage will remove a procedural defense that could prove fatal in Vietnam.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com

Biomedicine: The Pillar Industry of the World’s Economy

Vietnam’s biomedicine (BME) sector has attracted much attention over the past few years. In 2010 Vietnam hosted an international two-day conference, with experts from 21 countries. The conference attendees identified a tremendous need for BME in areas of rehabilitation, neurosurgery and orthopaedics.

At the present time Vietnam is importing the majority of its BME products, but it is also developing its own solutions used in therapeutics, diagnostics and vaccinations, which are being used in Vietnam as well as being sold abroad.

It is still early, but with a few modest commercial successes thus far, I expect more and more innovations and investment will be made in Vietnam’s BME industry.

In 2013, approximately 92% of Vietnam’s medical device market was supplied by imports, with most of the devices being supplied by Japan, USA, Singapore and China.

However, we are starting to see more Vietnamese companies becoming much more adept at developing their own BME products. Specifically, we are seeing more and more companies develop and manufacture products in Vietnam with sales in developed countries. For example, diagnostic products have been simplified yet are yielding more accurate information, competing with established international brands. We are also seeing an increase in use of stem cell therapy.

The country is also deploying more foreign trained experts into the education system to lead more research and development and innovation at universities. There is also a push for researchers to collaborate with the private sector to accelerate product development for commercial use domestically and globally.

The biomedical field in Vietnam is driven, in large part, by a desperate need to care for 92 million people. The government has allocated hundreds of millions of dollars to develop health care facilities and foreign investors are active in the health care sector. With a large consumer base and growing middle class, local biomedical firms in Vietnam have a viable market to sell products.

In terms of developing products, Vietnamese students with specialized skills in this area are dramatically underpaid compared to their counterparts from more developed countries. A biomedical company in Vietnam can develop products at a fraction of the cost in other countries, yet can sell at margins that would dwarf margins currently enjoyed by biomedical companies in jurisdictions like the US and Japan.

In so far as challenges for the BME industry In Vietnam, there is a lack of industry cohesiveness. Investors do not readily have reliable information about viable biomedical companies to financially support them. We believe, however, that the components of a BME industry are starting to come together and foreign investors are starting to notice, in large part due to Vietnamese abroad who are returning to Vietnam to establish companies or conduct research.

A strong organization devoted to the dissemination of information related to the BME industry would accelerate the development of a viable environment to support and further grow this industry. Government support as well as a coordinated effort among universities to encourage innovative research would further push BME forward.
For example, we are supporting the development of the $100 million Biotechnology Center in Ho Chi Minh City. This centre may serve as the magnet to attract a critical mass of researchers, investors, and private companies to come together in this sector.

The outlook for biomedicine over the next 12 months is very bright. Vietnam has all the key ingredients that will propel it forward: a large population experiencing a rise in chronic and acute illnesses, a successful diaspora trained and educated abroad that are returning to create companies and conduct research, and a plentiful pool of young and highly skill professionals who can be hired at highly cost effective rates.

For example, in 2012 four Vietnamese students studying at Portland State University under the auspices of the Intel Vietnam Scholars Program won the top prize at the Cornell Cup, a design competition created to empower student teams to become the inventors of the newest innovative applications of embedded technology. This nation-wide competition in the US attracted 22 other teams, including engineers from MIT and the University of California, Berkeley. The Vietnamese team developed a prescription drug identification device used to help doctors prescribe the correct medication for patients.

The world is beginning to notice Vietnam. From Japan alone, seven Japanese medical equipment manufacturers comprising of Konica Minotal, Toshiba, Fujifilm, Olympus, Hitachi, Mitsubishi Electric and Nihon Kohden are targeting increased sales in Vietnam.

There is, however, increasing evidence that Vietnamese researchers are rising to the challenge of harnessing biotechnology to improve health care for healthier society as well as advancing the sciences.

The biotech progresses for medical applications in Vietnam include gene diagnostics for genetic disorders of human diseases, in-vitro synthesis and production of therapeutic proteins including insulin, IFNs or similar forms of monoclonal antibodies for targeted therapies, and cell therapies via application of cord blood and bone marrow stem cells for cancer therapies. We fully expect at least one Vietnamese biomedical company will be acquired or listed on a public exchange in the next 12 to 18 months.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com