COMMERCIAL MEDIATION IN VIETNAM - It's finally here!!!

After years of delays & extension of deadlines, on 24 February 2017, the Government issued Decree No. 22/2017/ND-CP (“Decree 22”) on commercial mediation, which came into effect on 15 April 2017. Decree No. 22 provides in detail the principles, conditions, and procedures of commercial mediation as an alternative dispute resolution method, as well as the conditions for establishment of mediation centers in Vietnam. This article looks at mediation before Decree 22 was issued and examines the fundamental principles of mediation, the rules of mediation, enforcement of a mediation award and finally, provides some analysis in light of Vietnam’s legal framework.

1. Mediation before the issuance of Decree 22

1.1. In the Court rooms

Mediation is mandatory in civil litigation proceedings at the National Court except for civil cases which are excluded if the subject matter relates to State property or is contrary to the laws or social ethics. The mediation award shall be recognized by the Court which binds both parties and protects them from any future violation. Based on the recognition from the competent Court, a party can require the civil judgment enforcement authority to ensure the validity of the mediation award. However, the mediation process in Court is time-consuming because both parties must comply strictly with the Civil Procedure Code 2015 (“CPC”). 

1.2. At the arbitration center

The Law on Commercial Arbitration (“LOCA”) allows contending parties to negotiate and mediate in litigation proceedings at arbitration centers. Under the requirements of both parties, the arbitrators can keep the mediation role to settle the dispute amicably. A mediation award comes into force by recognition from the arbitration panel with equivalent value as an arbitration award. Nevertheless, the mediation at arbitration centers (i) shall be carried out by arbitrators and (ii) is an integral part of the arbitration proceedings, which is different from the commercial mediation set out in Decree 22. Sometimes, if contending parties want to choose a practical expert who does not hold arbitrator status or to simply keep mediation and litigation proceedings separate due to confidentiality, then mediation at arbitration centers might not be suitable.

 2. Fundamental principles

2.1. Scope

In accordance with Decree 22, commercial mediation is applied in cases of (i) a dispute between parties practicing commercial activities; (ii) a dispute between parties with at least one party practicing commercial activities or (iii) an other dispute under the laws can be resolved by the commercial mediation. Commercial mediation is mostly utilized in dealing with commercial relations of individuals and organizations, and therefore, this measure can by no means be applied for family or marriage relations. This is a significant discrepancy in comparison with mediation at basic administrative units (“BAU”).

2.2. Voluntary participation

The voluntary participation of contending parties is an important characteristic of commercial mediation. In contrast with the litigation proceedings at the competent Court or arbitration centers, mediators or any related party cannot force the other to take part in the mediation process. Contending parties keep the decisive authority and they can terminate this process at any time. Owing to this flexibility, mediation depends mostly on the good faith of both parties.

In litigation proceedings, if the Court twice summons a party legitimately but he/she is still absent, the former can carry out the trial without his/her participation and the final decision/award still binds the absent party. One difference is that the participation and signing in the mediation memorandum is an enforceable condition to recognize the mediation award.

2.3. Equal rights and obligations

Decree 22 states that both parties have equal rights and obligations in the mediation process. Under Decree 22, contending parties have the following rights:

(i)       selecting mediation procedures, commercial mediators, the venue and time for the mediation,

(ii)      accepting and refusing the mediation, requiring to postpone or terminate the mediation,

(iii)     requesting to publish or not to publish the mediation, and

(iv)     showing their intention and deciding contents of the mediation.

Besides, contending parties keep two principal obligations:

(i)       presenting true details of the dispute, providing information and materials related to the dispute, and

(ii)      carrying out the mediation award.

In litigation proceedings, the Court may be biased to protect the rights of a disadvantageous party. For example, ambiguous articles of the sample contract must be interpreted against the drafting party. However, in the mediation, there is no prejudice for any party because even the mediators shall respect the decisive competence of contending parties.

2.4. Confidentiality

Confidentiality is a primary concern of contending parties to preserve their reputation and business secrets. An important principle of the commercial mediation under Decree 22 is that all information related to the mediation process shall be kept confidential and the mediators are responsible for protecting information secrets. However, the scope of confidentiality obligations is still unclear.

The mediation rule of the Vietnam International Arbitration Center (“VIAC”) provides that parties commit not to utilize materials in the mediation for any litigation proceedings. However, the mediation rule itself does not provide any sanction for the violation of this obligation and there is no legal basis in accordance with the CPC that the Court shall dismiss the evidence, materials arising or used in the mediation process. In fact, the Court is responsible to objectively and comprehensively consider all evidence provided by the parties. It may be predicted that the confidentiality obligations in the mediation process may not be applied at the National Court.

2.5. Mediation agreement

A mediation agreement is mandatory in order to initiate the mediation process with the same characteristics as an arbitration agreement. In compliance with Decree 22, the mediation agreement can be established in writing during the dispute period at any time. This can be written as a clause of the commercial contract or a separate agreement. A mediation agreement shows the intention of the contending parties to resolve the dispute amicably through mediation. Another condition is that contents of a mediation agreement shall not be contrary to the laws or social ethics, nor an evasion of obligations or violation of the rights of any third party.

In several countries, the law mandates parties to carry out mediation under multi-tier clauses that require mediation before submitting their dispute to an arbitration center or the National Courts. In the United States, the Court may grant a stay or a preliminary injunction against litigation or arbitration when parties have not first participated in mediation pursuant to a multi-tier clause. In contrast, the laws of Vietnam do not require that the performance of a multi-tier clause is an enforceable condition to commence litigation proceedings. While Decree 22 does not impose any obligations of enforcement of multi-tier clauses, the CPC does not regulate that dismissal of multi-tier clauses as a basis for return of petition lawsuits.

2.6. Mediation services providers: ad-hoc mediator, independent mediation centers, mediation centers in existing arbitration centers, foreign mediation centers.

2.6.1. An individual shall satisfy the following conditions to be an ad-hoc mediator, such as

(i)       having sufficient civil action capacity under the Civil Law,

(ii)      having good moral qualities, being reputable, independent, impartial and objective;

(iii)     at least having graduated from a university, with 2 years of practice experience in the field, and

(iv)     having mediation skills, knowledge of the laws, business customs and related fields.

Ad-hoc mediators must be registered at the Provincial Department of Justice.

2.6.2 To establish an independent mediation center, the founders must submit an application dossier to the Ministry of Justice for the issuance of an operating license. Then, the mediation center shall register at the Provincial Department of Justice within 30 days. The operating license will expire automatically if the registration is not carried out.

2.6.3. An arbitration center can perform commercially-mediated activities, but it must be accepted by the Ministry of Justice. Because the operating license of arbitration centers is administered by the Provincial Department of Justice, the arbitration center shall also supplement the commercial mediated activity in its existing license at this authority.

2.6.4. Foreign mediation centers can carry out commercially-mediated activities in Vietnam by the establishment of branches or representative offices. However, only branches of foreign mediation centers can provide mediated settlement services, while representative offices can only promote and introduce activities of foreign mediation centers in Vietnam. The scope of activities fits within the definitions of a representative office and a branch under the Law on Commerce 2005. Notwithstanding all of the above, the establishment of branches or representative offices of foreign mediation center must be licensed by the Ministry of Justice.

3. Rules of mediation

In accordance with Decree 22, parties can select the rules of mediation or negotiate and self-decide the procedures in the mediation process. This creates flexibility for both parties to resolve the disputes amicably. Even in case of choosing a mediation rule proposed by mediation centers, both parties can jump some steps and terminate the mediation process by the will of one party at any time. It is different to the litigation proceedings at the National Court and arbitration center. In the litigation proceedings at the National Court, both parties shall comply strictly with the CPC and any discrepancy with legal regulations may lead to the non-enforcement of the award/ court decision. For example, in case the Court does not explain the rights and obligations of participating parties in the first instance trial, the award/decisions of the Court may be appealed or reviewed by higher Courts because it is a violation of civil procedure. In litigation proceedings at arbitration centers, although both parties may negotiate and decide some details such as venue of the dispute settlement meeting, language in the litigation proceedings, both parties shall observe procedures set out in the LOCA and arbitration rules agreed by both parties. It is a principle that the arbitral tribunal shall provide objective and reasonable award/decisions.

4. Enforcement of mediation award

In general, a mediation award has an essence of a contract and both parties are responsible for respecting and observing any terms thereof. As a contract, in case the mediation award is violated, a party can only initiate a lawsuit against the other, but it is time-consuming and costly. To resolve this disadvantage, the CPC provides that the mediation award can be recognized by the Court.

The mediation award has to fulfill the following conditions in order to be recognized and enforced, as follows:

(i)       it was conducted by a competent agency, organization or individual in compliance with legal regulations on mediation,

(ii)      the involved parties have sufficient civil action capacity,

(iii)     the contents of the mediation agreement are totally voluntary and are not contrary to law, social ethics nor evading any State or third party obligation; and

(iv)     the mediation award has to be submitted to the Court within six months from the signing date.

The lack of recognition by the Courts does not affect the effectiveness and contents of the mediated settlement agreement. If the mediation is conducted by unqualified mediators, but the mediation award complies with the Civil Code 2015, it shall still bind the parties. This diagram below shows the recognition procedure for mediated settlement agreements:

5. Analysis

5.1. Legal framework Decree 22 has fulfilled what was necessary to rectify the legal framework on mediation. Prior to the promulgation of Decree 22, mediation was one of the methods applied by parties in dispute settlements. Such application, however, is not so common since it could not fulfill all the requirements of disputing parties. To be specific, the mediation could occur in either of the following scenarios:

(i)       Inward-litigation mediation: this could ensure that a mediation result shall be abided by disputing parties. However, it may require parties to expose their business secrets (to third parties), which is not preferred.

(ii)      Outward-litigation mediation: there is no legal treatment over this matter, which means that the result of mediation could only be implemented upon the voluntary choice of each party.

The above scenarios indicate that a party wishing to use the mediation method can not protect their confidential matters while binding the other party to their obligations. In other words, the previous legal treatment on this matter created a dilemma for contending parties in which neither choices were preferred.

For the purpose of promoting such dispute settlement method, as well as fulfilling practical needs, Decree 22 has been passed with an important clause whereby the legal consequence is that the mediation result may be legally recognized in accordance with regulations on civil procedure. Therefore, the mediation does not only ensure a confidential and amicable environment, but also that the negotiated results can, in fact, be implemented.

5.2. More details

Decree 22 is unspecific for certain circumstances. In our opinion, Decree 22 has only provided general regulations on mediation but contains no specific provisions, which are built and established by contending parties or a mediation center. For example, Decree 22 does not provide any clause on whether the use of evidence presented during the mediation could be used at the Court or not.

Furthermore, the matter of whether civil procedure could be applied during the mediation is another remarkable question, since the Civil Code of 2015 does not consider the duration of mediation as one of the time periods excluded from limitation periods for initiating a legal action.

5.3 Comparison between commercial mediation and mediation at BAU