During the process of investment, particularly in activities involving foreign elements, disputes are often inevitable due to differences in interests, legal cultures, or interpretations of contractual obligations. Rather than resorting to adversarial measures such as litigation or arbitration, which are typically costly and time-consuming, many investors and enterprises prefer mediation as a flexible, cost-effective, and relationship-preserving method of dispute resolution. However, to ensure a successful and legally binding mediation, parties must thoroughly understand legal regulations governing mediation in the investment sector.
This article aims to clarify the legal framework surrounding mediation in investment disputes.
I. Understanding mediation in investment disputes
1. What is investment dispute mediation?
Mediation in investment disputes is a method of resolving matters among investment entities through a voluntary agreement, facilitated by a neutral third party as a mediator. Such a process helps parties reach a mutually acceptable solution on the basis of goodwill and voluntariness, without coercion, and without needing to take issues to court or arbitration.
Mediation may proceed under a pre-existing agreement stipulated in the investment contract or by mutual agreement after a dispute arises. A successful mediation may result in a written settlement agreement. Upon request by the parties, such agreement can be recognized and enforced by a court as equivalent to a judgment under Vietnamese law.
2. Why is investment dispute mediation necessary?
Mediation in investment disputes offers numerous practical benefits to the parties involved, especially in a business and investment sector that is inherently sensitive and fraught with risks. Specifically, it provides:
- Time and cost savings: Compared to litigation or arbitration, mediation is generally much quicker and less expensive.
- Confidentiality: Mediation takes place in a private setting, allowing enterprises and investors to protect trade secrets and avoid damage to reputation or commercial relationships.
- Preservation of partnerships: Mediation opens goodwill-based dialogue, thereby helping maintain or even strengthen relationships between parties after the dispute is resolved.
- Flexibility and autonomy: Parties may choose their mediator, the venue, the processes, and the substantive terms of the settlement, such options not available in formal litigation.
- International relevance and practical effectiveness: In foreign investment disputes, mediation serves as an efficient intermediary tool, recognized by many international treaties and national laws, including those of Vietnam.
II. Legal provisions on mediation in investment disputes
1. Conditions for conducting mediation in investment disputes
To conduct a lawful and effective investment dispute mediation, parties must satisfy several fundamental conditions:
- The dispute must be amenable to mediation: The dispute must fall within categories permitted by law to be resolved through mediation. Under Vietnamese law, most civil and commercial disputes, including investment disputes are eligible for mediation, except for matters expressly prohibited, such as those involving national security, violations of social ethics, or non-disposable rights and obligations.
- There must be a mediation agreement: Mediation can only proceed with the voluntary consent of the parties. This agreement may:
+ Be expressly stipulated in the investment contract;
+ Be in writing after the dispute arises; or
+ Arise from a proposal by one party and acceptance by the other.
- Selection of a suitable mediator or mediation institution: Parties may agree to appoint:
+ An independent mediator;
+ A commercial mediation organization legally registered in Vietnam, such as the Vietnam Mediation Center (VMC) under the Vietnam International Arbitration Center (VIAC); or
+ A competent international organization if the dispute involves foreign elements and the parties have so agreed.
2. Principles governing mediation in investment disputes
When engaging in investment dispute mediation, parties must adhere to core principles prescribed by Vietnamese law under Article 4 of Decree No. 22/2017/ND-CP:
- The parties participate on a completely voluntary basis and are equal in rights and obligations.
- All information related to the mediation must be kept confidential, unless otherwise agreed in writing or provided by law.
- The mediation must not violate prohibitions under the law, contravene social ethics, seek to evade obligations, or infringe upon the rights of third parties.
3. Procedures for investment dispute mediation
According to Article 14 of Decree No. 22/2017/ND-CP on the procedure for investment dispute mediation:
- The parties may agree to apply the mediation rules of a commercial mediation organization or set their own procedure and process. If no agreement exists, the commercial mediator may conduct mediation following one deemed appropriate for the circumstances of the case, the wishes of the parties, and subject to their consent.
- The mediation may be conducted by one or several mediators as agreed by the parties.
- At any stage, the mediator has the right to propose solutions to settle the dispute.
- The venue and time of the mediation are determined by the parties’ agreement or, by the mediator’s choice if without such agreement.
- If mediation is successful, the parties will prepare a written record of the settlement. Such a document has binding effects on the parties in accordance with civil law.
- The written settlement may be submitted for court recognition under the provisions of the Code of Civil Procedure.
III. Questions on mediation in investment disputes
1. How does the Law on Investment 2020 regulate investment dispute mediation?
Clause 1, Article 14 of the Law on Investment 2020 stipulates methods of resolving disputes related to investment activities in Vietnam as follows:
- Disputes related to investment activities in Vietnam shall be settled through negotiation and mediation. If negotiation or mediation fails, the dispute shall be resolved by arbitration or a court as provided under Clauses 2, 3, and 4 of this Article.
Thus, under the above regulation, disputes arising from investment activities in Vietnam may be resolved through mediation.
2. What types of organizations conduct investment dispute mediation?
Currently, several types of organizations have the authority and function to mediate investment disputes, including:
- Commercial mediation organizations (mediation centers): These specialize in mediating commercial disputes, including investment disputes. They may operate under competent State authorities or as independent entities. Some mediation organizations in Vietnam include:
+ Vietnam Mediation Center (VMC): Provides mediation in investment and commercial disputes, with clearly established processes and highly qualified mediators.
+ Vietnam International Arbitration Center (VIAC): In addition to arbitration, VIAC also offers mediation services.
- Commercial arbitration centers: Some arbitration centers also provide mediation services, combining mediation and arbitration to resolve disputes. While arbitration itself is not mediation, parties often choose to attempt mediation first to reduce costs and time.
- Independent mediators: Parties may appoint an independent mediator as a neutral expert in investment disputes, who could be a lawyer, legal advisor, or specialist in the investment sector.
- Courts and State agencies: Some investment disputes may be settled by courts or competent State agencies if the parties have not agreed for out-of-court mediation. Courts may apply mediation methods before proceeding with trial.
- International organizations and specialized associations: In foreign investment disputes, parties may choose international mediation agencies or specialized associations with mediation functions, such as WTO mediators or dispute resolution mechanisms under international trade agreements.
3. When does investment dispute mediation terminate?
Under Article 17 of Decree No. 22/2017/ND-CP, mediation proceedings terminate in the following situations:
- When the parties reach a mediated settlement.
- When the mediator, after consulting the parties, deems further mediation unnecessary.
- Upon request by one or more of the disputing parties.
4. Is investment dispute mediation mandatory?
Mediation of investment disputes is not mandatory under Vietnamese law, unless stipulated by the parties in their contract or required by international agreements to which Vietnam is a member. Nonetheless, mediation is strongly encouraged as a means of achieving a prompt, cost-effective, and confidential resolution.
5. How are the costs of investment dispute mediation calculated?
Costs of mediation generally depend on:
- Mediation fees: Commercial mediation organizations charge fees based on their own rules, typically depending on the value of the dispute, duration, and complexity. For example, the Vietnam Mediation Center under VIAC maintains a specific fee based on the value of each contract.
- Mediator fees: If appointing an independent mediator, parties agree on the mediator’s remuneration, often calculated per day or hour, varying with the mediator’s experience and the complexity of the case.
- Administrative costs: These may include fees for case management, organization of sessions, and other support services.
Allocation of costs:
- Mediation costs are usually shared equally by the parties unless otherwise agreed.
- Additional costs, such as travel, venue rental, and translation fees (if applicable), are allocated as agreed by the parties.
IV. Legal advisory services on mediation in investment disputes
The above provides a comprehensive overview by NPLaw to assist clients regarding investment dispute mediation. Should you have any questions related to the matters discussed or other legal issues, please do not hesitate to contact NPLaw for direct consultation and tailored solutions by our dedicated team.
