Skip to main content

Author: TNTP LAW

Cases the Arbitration Agreement is invalid

In Sale and Purchase Contracts, Principal Contracts, etc., the dispute settlement clause can be stated as “in case the dispute cannot be resolved by negotiation, one of the parties can settle the dispute at Arbitration”. This Agreement is known as the Arbitration Agreement. Currently, many enterprises have chosen to settle disputes by arbitration because of its efficiency, flexibility, and time-saving method. However, due to negligence in the drafting process and the enterprise’s failure to check the legal validity of the Arbitration Agreement, the Arbitration Agreement may be invalid. In this article, we would like to mention and analyze more clearly the null and void Arbitration Agreement.

1. What is an Arbitration Agreement?

  • According to the provisions of Clause 2, Article 3 of the Law on Commercial Arbitration 2010, an Arbitration Agreement is an agreement between the parties on the settlement by arbitration of a dispute that may arise or has arisen. Thus, commercial disputes can only be resolved by arbitration only when there is an Arbitration Agreement between the disputing parties. The Arbitration Agreement may be made before, during or after a dispute occurs.
  • The Arbitration Agreement is made in writing expressing the will of the parties in dispute settlement.
  • The Arbitration Agreement may be represented by an arbitration clause in the contract establishing commercial relations between the parties or in the form of a separate agreement and shall be considered attached to the main contract or evidence determining the will of the parties to settle the dispute by arbitration.

2. When is the Arbitration Agreement invalid?

The Arbitration Agreement will be invalid in the following cases:

  • Disputes arising in areas not under the authority of the Arbitration

In order for a dispute to be resolved by Commercial Arbitration and the Arbitration Agreement not to be invalid, the arising dispute must fall within the field of arbitration, including:

– Disputes between parties arising from commercial activities;

– Disputes arising between parties in which at least one party has commercial activities;

– Other disputes between the parties as provided for by law shall be resolved by arbitration.

  • The person establishing the Arbitration Agreement has no authority under the law

Normally, the signing of an Arbitration Agreement or Contract will be performed by the legal representative of the enterprise or the authorized representative.

In principle, if an Arbitral Agreement is made by an unauthorized person, such Arbitration Agreement is invalid. In case the Arbitration Agreement is entered into by an unauthorized person, but during the establishment and performance of the Arbitration Agreement or in the arbitration proceedings, the person competent to enter into the Arbitration Agreement has accepted or known it without objection, the Arbitration Agreement is not invalid.

  • The person establishing the Arbitration Agreement does not have civil act capacity according to the provisions of the Civil Code

Civil act capacity is understood as the ability of an individual to establish and perform civil rights and obligations by his/her actions. The person establishing the Arbitration Agreement without civil act capacity includes:

  • Juvenile.
  • Loss of civil act capacity.
  • People with difficulty in cognition and behavior control.
  • Limited capacity for civil acts.

In this case, the Court needs to collect evidence to prove that the person who established the Arbitration Agreement does not have civil act capacity. It must have documents proving the date of birth or the conclusion of a competent authority or the decision of a competent Court determining or declaring that person has lost his/her civil act capacity or has restricted his/her civil act capacity.

  • The form of the Arbitration Agreement is not consistent with the provisions

According to Article 16 of the Law on Commercial Arbitration 2010, the Arbitration Agreement can be established in the form of an arbitration clause in the contract or in the form of a separate agreement. Either way, the Arbitration Agreement must be in writing. The following forms of agreement are also considered to be established in writing:

a) The agreement is established through exchanges between the parties by telegram, fax, telex, email and other forms as prescribed by law;

b) The agreement is established through the exchange of written information between the parties;

c) The agreement is recorded in writing by a lawyer, notary public or a competent organization at the request of the parties;

d) In the transaction, the parties refer to a document showing the arbitral agreement such as a contract, documents, charter of the company and other similar documents;

d) Through an exchange of claims and defenses in which the existence of an agreement is made by one party and not denied by the other.

  • One of the parties is deceived, threatened or coerced during the establishment of the arbitral agreement and requests to declare the Arbitration Agreement invalid

This is considered as one of the grounds for the Court to declare the Arbitration Agreement invalid. In civil relations, the parties must be goodwill and honest in establishing and performing civil rights and obligations; neither party may deceive, threaten or coerce the other.

Deception is understood as the intentional act of one party or a third party to mislead the other party about the subject and nature of the Arbitration Agreement, so the Arbitration Agreement has been established.

Threat and coercion are understood as the intentional act of one party or a third person to force the other party to sign the Arbitration Agreement in order to avoid damage to life, health, honor, reputation and dignity, the property of his/her relatives.

  • The Arbitration Agreement violates the prohibitions of the law

Prohibitions of the law are provisions of the law that do not allow subjects to perform certain acts.

Above is TNTP’s article on Case of invalid Arbitration Agreement, hope this article is useful for enterprises and readers.

Sincerely,

Distinguishing the relationship between fines for violations and compensations for damages in the 2015 Civil Code and the 2005 Commercial Law

Fines for violations and compensations for damages are two sanctions mainly applied to the violating party. Due to the different application subjects, there are some differences between fines for violations and compensations for damages in the 2015 Civil Code (“CC”) and the 2005 Commercial Law (“CL”). Please review the following article to have a better understanding of this difference.

1. Regulations on fines for violations and compensations for damages in the CC 2015

  • Fines for violation are regarded as an agreement between the contracting parties, accordingly, the violating party must pay a fine to the aggrieved party. Fines for violations are a specific civil remedy, in which the penalty will be only applied by the aggrieved party when there has been an agreement on the fines for violations in the contract;
  • Regarding compensations for damages, individuals and legal entities whose civil rights have been infringed shall be compensated for all damages, unless otherwise agreed by the parties or otherwise regulated by law. The infringed party can request for compensation for benefits that he or she would otherwise have enjoyed under the contract. This party may also require the obligor to pay expenses incurred due to the non-fulfillment of the contractual obligations that do not overlap with the level of compensation for the benefits brought by the contract.

2. Regulations on fines for violations and compensations for damages in the CL 2005

  • Fines for violation are regarded as a remedy whereby the aggrieved party requests the breaching party to pay a fine amount for its breach of the contract, if so agreed in the contract, except for the following cases: (i) a case of liability exemption agreed upon by the parties occurs; (ii) a force majeure event occurs; (iii) a breach by one party is entirely attributable to the other party’s fault; (iv) a breach is committed by one party as a result of the execution of a decision of a competent state management agency which the party cannot know, at the time the contract is entered into;
  • Basically, the compensations for damages regulated in the CL are similar to those in the CC. Except for the cases of exemption from liability, compensations for damages arise when the following factors are fully met: There is a breach of contract; There are material losses; The breach of contract is the direct cause of the loss. The breaching party shall indemnify the aggrieved party for the losses caused by the contractual breach, including the actual and direct loss value suffered by the aggrieved party caused by the breaching party and the profit directly to which the aggrieved party would have earned if the such breach had not been committed.

3. The relationship between fines for violations and compensations for damages in the Civil Code 2015

According to Article 418 of the CC, the parties can agree that the breaching party only has to pay fines for the violation but not the compensation for damages, or being responsible for both amounts. In case the parties previously agreed on fines for violations but did not reach an agreement on both penalties, the breaching party will only have to pay the fines for violations.

4. The relationship between fines for violations and compensation for damages in the Commercial Law 2015

According to Article 307 of the CL, where the parties do not agree upon fines for breaches, the aggrieved party shall only be entitled to claim damages, unless otherwise provided for by this Law. Where the parties agree upon fines for breaches, the aggrieved party shall be entitled to apply both remedies of fines and compensations for damages, unless otherwise provided for by this Law.

5. Distinguishing the relationship between fines for violations and compensations for damages in the Civil Code 2015 and the Commercial Law 2005 (referred to as the “relationship between FFV and CFD in the CC and CL”)

When entering into a contractual relationship, there are definite obligations to be performed. To ensure that the parties properly and fully perform their obligations, the parties can agree on a sole provision that the breaching party must bear a certain fine for the breach and must compensate for damages corresponding to the breach, or the parties may agree on different penalty levels and compensation for each particular violation.

  • Common points of the relationship between FFV and CFD in CC and CL:

– The aggrieved party can only apply fines for violations when the parties have an agreement on fines for violations. In case a mutual agreement on fines for violation is not available, the aggrieved party can only request damage compensation. Please note that the fine for breach is a sanction applied based on the parties’ agreement, while the compensation for damage is the mechanism applied based on the damage caused by the breach of contract.

– The parties can agree that the breaching party must be responsible for both fines for the breach and compensations for damages, hence, when breaching the obligation, the violating party must both pay a fine for the violation and a damage compensation as well.

  • Differences in the relationship between FFV and CFD in CC and CL:

– In the CC, the parties can agree that the violating one will only pay a fine for the violation without having to make compensation for damages. However, in CL, such an agreement is considered void, even if the parties agree as above. When there are sufficient legal grounds, the aggrieved party can still claim compensation and fines for violations from the violating party (if there is an agreement on fines for violations).

– In the CC, in case the parties have an agreement on the fines for violations but not on both fines for violations and compensations for damages, the violating party shall only have to pay fines for the violation. Meanwhile, in the CL, although the parties only reach an agreement on fines for violations, not on both fines for violation and compensation for damage, both remedies can be applied by the aggrieved party.

  • The difference in the relationship between FFV and CFD in the CC and CL can be summarized in the following table:
Fines for violation

(“FFV”)

Compensation for damage

(“CFD”)

Applicable remedies under the CC Applicable remedies under the CL
Unavailable Unavailable CFD CFD
Unavailable Available CFD CFD
Available Unavailable FFV FFV, CFD
Available Available FFV, CFD FFV, CFD

(Unavailable, available status should be understood as unavailable, available in the contract)

Above is the article “Distinguishing the relationship between fines for violations and compensations for damages in the 2015 Civil Code and the 2005 Commercial Law”. We hope this article is useful to you.

Sincerely,

Average time for debt collection

“How long does it take to recover the debt?”, this is the question that many individuals or organizations ask when having difficulty because the debtor does not pay. It is not easy to give an exact answer about the guaranteed time to fully recover a debt. However, in the following article, TNTP will give the average time to debt collection based on our experience in debt collection.

1. Debts which are recoverable under 1 year

The condition for a debt to be recoverable in one year is that it must be a debt that the debtor is able to pay and has a good faith to pay. This is extremely important, because the debt collection process can only be done quickly when the debtor is willing to pay the debt and has enough assets to make this payment.

The debtor’s solvency depends on their financial situation, in case the debtor has good financial capacity but has too many debts to pay at once, usually the creditor having a stronger impact will be “priority” to be paid by the debtor.

However, to ensure that the debt can be recovered in a short time, as soon as it is determined that the debtor still has assets, or is currently able to pay, the creditors should immediately take measures to recover the debt. such as calling, sending official letters, or meeting in person to discuss and request the debtor to fulfill the debt payment obligation. If the creditor does not influence the debtor at these “golden” times, the debt collection period may be prolonged or the debtor is no longer able to pay, leading to the debt becoming more difficult to recover.

2. Debts with a recovery period of 3 to 5 years

These are difficult for debt collection when the debtor is almost unable to immediately pay the entire debt. The reason is usually due to the current debtor’s financial capacity which is no longer able to pay the creditor, or the debtor has too many debts and no longer has enough money to pay the creditor. In addition, it is possible that the creditor’s debt has generated interest, but the debtor has not fully paid the principal, leading to the prolonged interest.

In these cases, the solution for this case is to file a lawsuit with a competent agency such as a Court or an Arbitration Center to be able to use the power of the state to force the debtor to perform its payment obligations. The process from filing a lawsuit to enforcement can take anywhere from 3 to 5 years depending on the value of the debt, financial resources, or remaining assets of the debtor.

3. The debtor is unable to pay the debt.

This is the worst-case scenario that creditors never want, when the debtor is insolvent, meaning the debt will never be able to be paid in full, or not be paid, leading to the creditor will lose his loan forever. Usually this happens when the debtor’s finances are no longer available to pay, or the debtor has gone bankrupt, dissolved, suspended operations, and do not generate any additional revenue or assets to pay the debt.

However, the debtor’s insolvency usually does not occur in the first time when lending, the debtor’s insolvency usually occurs only when the creditor does not take measures to collect the debt, not long-term contact with the debtor. Therefore, if the creditor regularly takes measures to monitor and understand the financial capacity of the debtor, as well as regularly reminds the debtor to make debt payment, it is completely possible to take necessary measures. to avoid the situation where it is too late when the debtor becomes insolvent and has no assets to repay the debt.

In case the creditor has sufficient grounds to determine that the debtor is still able to pay but deliberately fails to make the payment, or intentionally evades to not pay the debt, the creditor has the right to make a criminal denunciation about the crime of “abuse of trust to appropriate property” to the competent investigating police agency. At that time, the investigating police agency will take professional measures to determine the debtor’s illegal behavior in case the investigating police agency determines that the debtor has committed the act that a violation the law and infringing upon the interests of creditors.

The debtor will be prosecuted and tried in accordance with the Criminal Procedure Code. At that time, the debtor will be forced to fulfill the obligation to pay the debt to the creditor along with the sanctions in accordance with the provisions of the Penal Code.

Above are the sharing of TNTP about the average time to collect debts. Hope this article is useful to the readers.

Best regards.

What is the debt collection service?

Bad debts greatly affect the company’s financial resources. These debts can be in form of the payment that the purchasing partner does not make in due course, or the money to perform the service under the contract, etc., and when the partner refuses to make the payment, it will cause the company’s cash flow to be in deficit, which even directly affects the company’s business strategy. Therefore, the debt collection service is a solution to solve the above problem.

1. Reasons why many companies cannot resolve bad debts – debt collection by themselves

In fact, many companies encounter the bad debts situation but fail to solve this problem due to the lack of experience and professional debt collection methods. Some “traditional” debt collection methods are: Making a written request to debtors for payment; sending an employee or an accountant to negotiate and request payment on behalf of the company; Requesting the competent authority to resolve the problem, etc.

In general, without professional skills, the debt collection’s results are rather unsatisfactory, leading to the prolonged debts because:

  • Unprofessional debt handling staff
  • Lack of skills to prepare and complete debt collection documents in favor of companies
  • Debt collectors do not have experience in communicating, handling and negotiating with debtors
  • Lack of legal understanding and understandings of regulations in debt collection to acknowledge and secure the company’s rights.

2. What is the debt collection service?

The debt collection service means a service where a third party takes on requesting the debtor to pay the creditor for due/overdue amounts and other assets under the signed contract or upon the agreement between the creditor and the debtor or under a decision of a competent State agency.

Debts may inevitably arise in the course of business operations of each company. In fact, when having outstanding debts, companies have to carry out the procedures through arbitration and court, which take a long time and high costs. Only 36% of the cases are received, which is rather low based on the total number of cases. Moreover, even if the effective judgment is issued, the execution in reality is rather challenging, etc. Therefore, the debt collection service is often used by many companies and individuals thanks to its  convenience, efficiency and reasonable cost.

3. Debt collection stages

 a) Debt collection via negotiation

It is a form of debt collection by influencing debtors psychologically and emotionally but still ensures a good relationship with customers at the same time.

This is the first step of debt collection, whereby companies rely on the contract/agreement terms signed between the parties to force the debtor to fulfill the debt repayment obligation. Negotiation is primarily proceeded by the company employees, accounting or corporate legal departments. If such negotiation is not effective, company can use the debt collection services provided by law firms.

b) Debt collection via dispute settlement agencies

In case the debtor is not willing to pay the debt, companies may base on the content of the contract/agreement to select an appropriate dispute settlement agency. Dispute settlement agencies include: Courts and Commercial Arbitration.

The settlement at a dispute settlement agency often comes with costs in accordance with the law and requires careful preparation of records, documents and evidence to prove that the companies’ claim is grounded. In addition, depending on the complexity of the debt-related transaction, the time for debt collection may vary from a few months to many years.

While debt collection through dispute resolution agencies can be costly and time consuming, it is guaranteed by state authority. If the judgment takes into effect, it will force the debtor to make the payment. If the debtor is uncooperative, the competent judgment enforcement agency will use the state power to take appropriate legal measures to force the debtor to pay the debt, even to coerce or freeze the debtor’s assets and accounts to force the debtor to perform their obligation.

Debt collection is very important, not only to ensure the financial health and profits of organizations, individuals, and companies, but also to determine the survival of the business. After the economy has just gone through a difficult time due to the prolonged impact of the Covid pandemic, the debt collection matter becomes more urgent for companies and individuals when the cash flow is becoming exhausted and can even cause the companies to go bankrupt. Therefore, the debt collection service is now an extremely important and necessary solution to solve the debt problem.

Above is an analysis article about the debt collection service of TNTP, hope this article is useful to readers.

Sincerely,

TNTP & ASSOCIATES INTERNATIONAL LAW FIRM

  • Office in Ho Chi Minh City:
    Room no. 1901, 19 th Floor Saigon Trade Center Tower, No. 37 Ton Duc Thang Street, Ben Nghe Ward, District 1, Ho Chi Minh City
  • Office in Hanoi City:
    No. 2, Alley 308 Tay Son str, Thinh Quang Ward, Dong Da Dist, Hanoi City
  • Email: ha.nguyen@tntplaw.com


    The copyright belongs to: TNTP & Associates International Law Firm