Disputes in the field of construction: Let’s use arbitration

Enterprises should thoroughly understand commercial dispute resolution.

Unpredictable

Talking about the dispute in the construction sector, Mr. Phan Trong Dat, Vice General Secretary of Vietnam International Arbitration Center (VIAC) says that the outstanding features of the dispute in the field of infrastructure construction in Vietnam includes: The value of the dispute is often very large; disputes involving either a state agency of Vietnam or a state owned enterprise; disputes involving the participation of foreign contractors (the main contractor or the contractor in the joint venture); the issues of dispute are complex in terms of technical, financial and legal issues. Therefore, the process in the lawsuits is complex (it may take up to four hours to describe the characteristics of a construction lawsuit, eventually waste a full day).

In Vietnam, the actual construction of infrastructures, the factories show that the basic disputes include: Disputes over payment, delay, extension, technical errors, carelessness, changes in public works, guarantees, slippage in prices. The common cause of construction disputes is usually due to: Errors or omissions in contracts and tenders; slow handover; the parties do not understand or fail to comply with their obligations; ineffective contract/ project management; inadequate payment, lack of facilities...

Moreover, warning about the unpredictability of cooperation in construction, Mr. Byoung-Pil Kim, Chief Representative of Kim & Lee LLC in Ho Chi Minh City said that the disputes between the South Korean investors with Vietnamese companies have many projects under construction in South Korea. According to statistics, 36% of the cases on the South Korea Commercial Arbitration Board (KCAB) are related to construction, while in the VIAC, it is 16%, however, this figure in Vietnam will also increase because he predicts that in the next 10 years, Vietnam will go the same route as South Korea has gone in attracting investment in infrastructure construction.

However, the worrying issue is that in Vietnam, dispute settlement mechanisms in construction are often used that are negotiation and mediation, international arbitration, and court. But experts say there is an imbalance in the forms of dispute settlement in Vietnam due to the culture and practice of businesses that usually handle disputes through basic reconcilement or court rather than arbitration. In addition, the size of Vietnam enterprises are often small and medium so, they often afraid to use the method of dispute resolution. Moreover, the method of dispute settlement by arbitration in Vietnam sometimes is not really effective, reducing the trust of customers.

The need

Taking an example of an effective dispute resolution process in the field of construction, Mr. Phan Trong Dat says that the case involved a decision by the government to stop the national key infrastructure construction project due to several reasons in management. The project is implemented by an SOE investor and the main contractor is the relationship between the South Korean contractor and the Vietnamese contractor. The investor, according to the decision, unilaterally terminated the contract. The South Korean contractor under the contraction has filed a lawsuit against the VIAC. In addition, the plaintiff (South Korean contractors) requested: Interest on late payments for approved Temporary Payment Certificates as of the filing date; The benefits are lost due to the unilateral termination of the contract by the owner.

However, according to Mr. Dat, because the contract between the two parties has agreed to use arbitration in the VIAC, applied under Vietnamese law, thus, the Arbitration Council has applied Article 294, Commercial Law 2005, accordingly, unilaterally terminate the contract of the investor in the case of exemption.

The example above shows that careful study of measures, selection of applicable law and method of dispute settlement is something that enterprises should pay attention when implementing cooperation and investment. Mr. Hong Sun, Vice President of the Association of South South South Korean Enterprises in Vietnam, says that the dispute involving foreign elements should use international arbitration. Therefore, South South Korean companies always put the content of dispute resolution by international arbitration in cooperation contracts. This would be more advantageous in resolving disputes through the courts, because of the international transactions, the difference in laws of each country, the international arbitration will be based on international practice, ensuring objectivity, transparency and does not favor any party.

Therefore, experts recommend enterprises should thoroughly understand the rules of commercial dispute resolution. Especially in the field of construction, when a dispute arises, enterprises should provide sufficient evidence that disputes in this field are often based on very specialized parameters; Enterprises also need to find experts, arbitrators who have full specialized knowledge. At the same time, experts also expect the Vietnamese arbitration system to be amended to be more suitable with the trend and to improve the effectiveness of dispute resolution.