Author: TNTP LAW

Arbitration has become one of the most popular dispute resolution methods in the commercial field. However, the cost and fee of participating in arbitration proceedings is a significant barrier that prevents parties from choosing this dispute resolution method. In this article, TNTP will introduce to readers the concept of third-party funding in arbitration, a method that is becoming increasingly popular worldwide but is still relatively new in Vietnam.

1. The concept and characteristics of third-party funding

Third-party funding refers to the involvement of a third entity, which is neither a disputing party nor has any legal relationship to the parties or the dispute itself, typically financial organizations. The funding entities will support one of the disputing parties in arbitration by covering legal expenses such as attorney fees, expert witnesses, consultants, and any other related or necessary costs throughout the dispute resolution process, usually under a funding agreement. The funding party receives a percentage of the award or a predetermined amount if the arbitration award is economically favourable to the funded party or if a beneficial settlement is reached. However, if the funded party loses the case, depending on the agreement, the funding party is responsible for paying the amounts related to economic obligations imposed on the funded party by the arbitration award, such as liabilities to the winning party, attorney fees, and other costs.

Third-party funding is characterized by the following points:

• The service users: The users of the service are typically claimants in a dispute. Defendants can also utilize funding services in situations where they face financial difficulties or when filing a counterclaim.

• The funding organizations: Insurance companies, institutional financiers, and other financial institutions such as corporations, banks, and hedge funds are the most common funders. They act as financial providers and do not intervene in the dispute resolution process of the funded party.

• The costs covered include legal expenses of one party such as attorney fees, expert witnesses, consultants, and any other related or necessary costs incurred during the dispute resolution process.

• Third-party funding is popularly used in high-value commercial disputes, especially in investment disputes between states and investors resolved through the mechanism of the International Centre for Settlement of Investment Disputes (ICSID) or through arbitration under investment protection agreements.

2. The role of third-party funding in arbitration proceedings

Third-party funding can be an effective method for parties in the dispute resolution process due to its benefits, specifically:

• Third-party funding allows parties with weaker financial resources to defend their rights and interests in arbitration proceedings. Financially weaker parties can be dominated by those with stronger financial resources, and, in some cases, they may be forced to accept a lower compensation amount than the actual damages due to the costs of arbitration exceeding their financial capacity. Through the financial support of a third party, the funded party can remove the domination of the stronger party, leading to a more objective resolution process.

• Third-party funding also helps to stabilize the financial situation of the parties involved in arbitration, avoiding bankruptcy due to pursuing arbitration. Moreover, under the funding agreement, if the arbitration tribunal’s award is not economically favourable to the funded party, depending on the agreement, the funder will pay the costs and economic obligations in the award, thereby reducing the financial burden on the funded party.

• Third-party funding can also serve as a means of assessing before proceeding with further strategies. Upon receiving a funding request, the third party will usually conduct an assessment and analysis of the case, the possibility of winning the case, and the chance for recovery in the event of a favourable decision for the funded party. Since this assessment is carried out by an objective third party, it can serve as valuable information for the parties before deciding whether to follow the case, use the funding, or withdraw the lawsuit.

3. Considerations for third-party funding in arbitration

Following the positive aspects that third-party funding may bring to the arbitration process, this method also carries certain risks as follows:

• In terms of the economic aspects of the arbitration award, funders will receive a significant portion of the money awarded to the funded party. However, funders always have strategies to mitigate risks to their investment in cases where the arbitration award is not in the favor of the funded party. Therefore, if the arbitration award is not economically favourable to the funded party, certain agreements might impose additional payments to compensate the funder, increasing the financial obligations of the funded party.

• Although funders are not allowed to interfere in the dispute resolution process, they can request the funded party to seek higher compensation as they are more interested in their profit than the outcome of the case. Such an approach can sometimes conflict with the interests of the funded party, leading to the parties cannot resolve the dispute through negotiation or mediation.

Third-party funding in arbitration presents a model with many growth opportunities, especially as more and more disputes are being resolved through arbitration mechanisms. However, this method is still relatively new in Vietnam, with no specific regulations governing it. When a party wants to use this method, besides the benefits it offers, they should also consider other factors as well as the potential risks involved.

This is the article “Third-Party Funding in Arbitration” by TNTP. Should you have anything that needs to be discussed, please feel free to contact TNTP for assistance.

Best regards,

In the activities of credit institutions in general and banks in particular, to ensure the borrower’s payment obligations to the loan, banks often take measures to ensure the fulfillment of the borrower’s obligations. One of the most common methods is mortgaging assets. However, does the bank have the right to seize the secured asset without the consent of the mortgagor? In the following article, TNTP’s lawyer will give his opinion on this issue.

1. What is a mortgage?

According to Article 317 of the Civil Code 2015, Mortgage of property is the use of property owned by one party (hereinafter referred to as the mortgagor) to ensure their performance of obligations and not handing over the property to the other party (hereinafter referred to as the mortgagee). In addition, the parties can agree to hand over the mortgaged property to a third person for keeping.

Therefore, mortgaging assets for bank lending activities is to ensure the borrower’s payment obligations. At that time, the borrower still has the right to own their property and use the mortgaged property if the parties agree so. However, this property must be registered as a security interest and cannot be transferred to any other party while it is still mortgaged.

2. Register mortgaged assets

• According to the provisions of Article 292 of the 2015 Civil Code on measures to ensure the performance of obligations, a mortgage of asset is a type of security to ensure the performance of obligations in civil relations between the parties.

• With Article 298 of the Civil Code on registration of security, the mortgage must be registered under the provisions of law at competent agencies.

Thus, the mortgage in bank lending activities will also have to be registered with competent authorities to ensure validity.

3. The Bank’s right to seize the security assets

• Because the secured assets are still owned by the securing party, the seizure of these assets must comply with the conditions agreed upon by the parties, as well as the provisions of law.

According to the provisions of Article 299 of the Civil Code 2015, cases where collateral is entitled to be seized include:

– When the secured obligation is due to be performed, the obligor fails to perform or perform the obligation incorrectly.

– The obligor must perform the secured obligation before the deadline due to a breach of obligation according to the agreement or according to the provisions of law.

– Other cases agreed upon by the parties or prescribed by law.

Thus, in case the borrower fails to fulfill its payment obligations, or there is an agreement between the borrower and the bank on other cases in which collateral is allowed to be seized, the borrower’s secured assets will be seized according to the provisions of law.

• At the same time, the provisions in Article 303 of the Civil Code 2015 are also applied, according to which the securing party and the secured party have the right to agree on one of the following methods which pledged and mortgaged assets will be handled:

a) Auction of assets;
b) The secured party sells the property itself;
c) The secured party receives the property itself as a substitute for the performance of the securing party’s obligations;
d) Other methods.

In case there is no agreement on the method of disposing of secured assets according to the provisions herein, the assets will be auctioned, unless otherwise prescribed by law.

From those provisions, it appears that one of the methods of handling pledged and mortgaged assets is that the secured party receives the assets itself as a substitute for the performance of the securing party’s obligations. In other words, the bank has the right to repossess security assets to replace the performance of the mortgagor’s obligations.

4. Does the bank have the right to seize the asset without the consent of the Mortgagor?

• Applying the provisions in Clause 2, Article 7 of Resolution 42/2017/QH14 on pilot handling of bad debts of credit institutions, the credit institutions can seize the secured asset without consent of the mortgagor when the following 5 conditions are met:

– Occurrence of any case in terms of seizure of security asset prescribed in Article 299 of the Civil Code;

– The security agreement indicates the grantor’s consent to the credit institution’s right to seize the security asset upon the occurrence of the case of treating collateral as per the law;

– The secured transaction or security interest has been registered as prescribed by law;

– The security asset is not in dispute in a case that has been accepted but remained unsolved or has been resolving at an authorized court; the security asset is not put under temporary emergency measures; and the security asset is not distrained or under judgment enforcement as prescribed by law;

– The credit institution or bad debt purchaser/manager has fulfilled the obligation to publish information as prescribed by law.

Therefore, it appears that many credit institutions have applied the above regulations to seize the security asset when all five conditions in Resolution 42/2017 are met without the consent of the mortgagor. However, Resolution 42/2017 has expired on January 1, 2024. At the moment, credit institutions cannot seize secured assets without the consent of the mortgagor according to the law.

• However, applying the provisions in Article 301 of the Civil Code 2015, which state that in case the person holding the security asset does not hand over the asset, the secured party is entitled to request the Court to resolve, except when the relevant law provides other.

Thus, in case the party mortgagor does not hand over the asset, the bank has the right to request a competent Court to resolve it. They must go through a legal process to be able to proceed with foreclosure activities. This ensures the borrower’s rights and ensures that the bank does not have too much power to unilaterally conduct asset seizure activities.

Due to the nature of the security asset, although it has been mortgaged at the bank, the ownership still belongs to the mortgagor. The bank’s ability to arbitrarily seize the mortgaged asset without the mortgagor’s consent may violate the rights of the mortgagor while they still own the property. Therefore, TNTP believes that according to the current law, although the Bank has the right to seize assets, it does not have the right to enforce the right to seize assets without the consent of the Mortgagor. The seizure of assets will be resolved according to legal proceedings to ensure the rights of the parties in the security transaction.

Above is an article by TNTP’s lawyer on the topic: “Does the bank have the right to seize security assets without the consent of the security asset owner?”. We hope this article brings value to our readers.

Best regards,

Resolving disputes through commercial arbitration has become increasingly popular among businesses because of the advantages of this method. One of the critical conditions for a dispute to be resolved by arbitration is the existence of an arbitration agreement between the parties. So, what should parties consider regarding the form and content of the arbitration agreement to ensure its validity? In this article, we will analyze the key points businesses need to pay attention to when drafting an arbitration agreement.

1. Conditions for dispute resolution by arbitration

According to Clause 2 of Article 3 of the 2010 Commercial Arbitration Law, an arbitration agreement is an agreement between the parties regarding the resolution of disputes that may arise or have arisen by arbitration.

As stipulated in Article 5 of the 2010 Commercial Arbitration Law, a dispute shall be resolved by arbitration if there is an arbitration agreement between the parties. The arbitration agreement may be made before or after the dispute arises. If one of the parties to the arbitration agreement is an individual who dies or loses the capacity to perform civil acts, the arbitration agreement remains effective for the heirs or legal representatives of that person, unless otherwise agreed by the parties. In the case where one of the parties to the arbitration agreement is an organization that must cease operations, is bankrupt, dissolved, merged, consolidated, divided, split up or reorganized, the arbitration agreement remains effective for the organization that receives the rights and obligations of that organization unless otherwise agreed by the parties.

2. The form of the arbitration agreement

As per Article 16 of the 2010 Commercial Arbitration Law, a legal arbitration agreement must be established in written form, which can be as a commercial arbitration clause within a contract or as a separate agreement. The following forms of agreement are also considered to be established in writing:

• An agreement established through exchanges between parties by telegram, fax, telex, email, and other forms as prescribed by law;

• An agreement established through written communication exchanges between the parties;

• An agreement recorded in writing by a lawyer, notary public, or an authorized organization upon the request of the parties;

• In transactions where parties refer to a document that contains an arbitration agreement, such as a contract, document, company charter, and other similar documents;

• Through exchanges of petitions and self-defense statements which reflects the existence of an agreement proposed by one party and not denied by the other.

3. The content of the arbitration agreement

Parties can agree to resolve disputes through ad hoc arbitration or an arbitration center. In the case of dispute resolution through ad hoc arbitration, the parties need to specifically agree on the procedures and processes for dispute resolution. If the parties do not agree or the agreement is unclear, legal provisions will be applied to resolve the dispute.

If choosing to resolve disputes at an arbitration centre, parties may refer to the following clause: “Any dispute arising out of or in relation with this contract shall be resolved by arbitration at … in accordance with its Rules of Arbitration.”

Parties may stipulate the following contents in the arbitration agreement:

• The number of arbitrators is one or more (the number of arbitrators must be odd);

• The place of the arbitration shall be (city and/or country);

• The governing law of the contract shall be the substantive law of (for disputes which involve a foreign element);

• The language of arbitration (for disputes which involve a foreign element or disputes in which at least one party is an enterprise with foreign investment capital).

This article by TNTP discusses “The form and content of the arbitration agreement”. It is hoped that this article provides value to businesses and organizations in complying with the law and resolving disputes.

Best regard,