Understanding legal regulations on investment contract disputes

Investment contract disputes have become increasingly common due to inadequately drafted contracts, breaches of obligations such as delays in project implementation, failure to contribute capital in accordance with commitments, or changes in legal policies that affect investors’ rights and interests. These disputes are often prolonged, costly, and have adverse impacts on business operations. Therefore, the parties should draft contracts in a clear and transparent manner and select appropriate dispute resolution mechanisms to minimize risks.

I. Current situation of investment contract disputes

Investment contract disputes have become increasingly common due to inadequately drafted contracts, breaches of obligations such as delays in project implementation, failure to contribute capital in accordance with commitments, or changes in legal policies that affect investors’ rights and interests. These disputes are often prolonged, costly, and have adverse impacts on business operations. Therefore, the parties should draft contracts in a clear and transparent manner and select appropriate dispute resolution mechanisms to minimize risks.

II. Legal regulations on investment contract disputes

1. What is an investment contract dispute?

Investment contract disputes have increased significantly due to the strong development of domestic and foreign investment activities. Common causes include breaches of contractual obligations, changes in legal policies, and differences in interpretation and execution of contracts among the parties.

In particular, disputes often relate to investors’ rights and obligations, conditions for capital transfer, contract termination, and profit distribution. Dispute resolution is often challenging due to the complexity of such disputes, the involvement of foreign elements, and differences in legal regulations among jurisdictions.

2. What methods may be used to resolve investment contract disputes?

Article 14 of the Law on Investment 2020 provides for methods of resolving investment contract disputes as follows:

(1) Disputes relating to investment and business activities in Vietnam shall first be resolved through negotiation and mediation.

If negotiation and mediation fail, disputes shall be resolved by arbitration or courts in accordance with points (2) and (3) below.

(2) Disputes between domestic investors, economic organizations with foreign investment capital, or between domestic investors, economic organizations with foreign investment capital and competent state authorities relating to investment and business activities in the territory of Vietnam shall be resolved by Vietnamese arbitration or courts, except for disputes between investors where at least one party is a foreign investor or an economic organization specified at points a, b, and c, Clause 1, Article 23 of the Law on Investment 2020, which may be resolved by one of the following bodies or institutions:

Vietnamese courts;
Vietnamese arbitration;
Foreign arbitration;
International arbitration;
Arbitration established by agreement of the disputing parties.

(3) Disputes between foreign investors and competent state authorities relating to investment and business activities in the territory of Vietnam shall be resolved by Vietnamese arbitration or courts, unless otherwise agreed in contracts or provided by international treaties to which the Socialist Republic of Vietnam is a member.

3. What issues do investment contract disputes commonly involve?

Investment contract disputes typically involve the following matters:

Execution of contractual obligations: One party fails to execute or improperly or incompletely executes its contractual obligations, such as late payment or delayed project implementation.
Early termination of contracts: Disputes arise when one party unilaterally terminates the contract without lawful grounds or without complying with agreed conditions and procedures.
Financial terms and profit distribution: Disagreements over profit-sharing methods, valuation of investment assets, or adjustment of capital contributions.
Rights and obligations of the parties: Disputes regarding the scope of rights and responsibilities of investors, project owners, or transferees of capital contributions.
Transfer of capital contributions or shares: Conflicts over conditions, procedures for transfer, or transfer value not agreed upon by the parties.
Liability for damages: Where one party breaches the contract and causes losses to the other, disputes may arise regarding the extent of the breach and compensation liability.
Dispute resolution clauses: Where contracts do not clearly specify dispute resolution bodies (courts or arbitration), conflicts may arise regarding jurisdiction.

Such disputes are often prolonged and complex, significantly affecting investors’ interests, and therefore require appropriate preventive and resolution measures.

III. Questions on investment contract disputes

1. May the parties choose the dispute resolution authority for investment contract disputes?

Pursuant to Article 14 of the Law on Investment 2020 and Article 317 of the Commercial Law 2005, parties to an investment contract have the right to agree on the dispute resolution authority, including:

Competent People’s Courts in accordance with the Civil Procedure Code 2015, if no other agreement exists;
Commercial arbitration in accordance with the Law on Commercial Arbitration 2010, provided that the contract contains an arbitration clause or the parties reach an arbitration agreement after the dispute arises;
International dispute resolution bodies where the contract contains foreign elements and the parties agree to select foreign jurisdiction or international arbitration.

The choice of dispute resolution authority must be made in writing and is legally binding on the parties. Where the contract does not contain an arbitration clause, disputes shall be resolved by the competent People’s Court in accordance with law. Arbitral awards are final and not subject to appeal, whereas court judgments may be appealed in accordance with procedural regulations.

2. What is the statute of limitations for initiating lawsuits in investment contract disputes?

Article 429 of the Civil Code 2015 provides the statute of limitations for contractual disputes as follows:

The statute of limitations for initiating a lawsuit requesting a court to resolve a contractual dispute is three (03) years from the date on which the person entitled to initiate the lawsuit knows or must have known that his/her lawful rights and interests have been infringed.

Accordingly, the statute of limitations for initiating lawsuits in investment contract disputes is three (03) years from the date on which the entitled party knows or must have known that its lawful rights and interests have been infringed. Where disputes are resolved by arbitration, the statute of limitations may be governed by specific provisions in the contract or by arbitration law.

3. What should the parties note to avoid investment contract disputes?

To prevent investment contract disputes, the parties should note the following:

Careful contract drafting: Ensuring that contracts are made in writing, with clear and comprehensive provisions on investment scope, rights and obligations of the parties, payment methods, conditions for contract termination, and liabilities for breach.
Clear dispute resolution mechanism: The parties should agree in advance on the dispute resolution authority (court or commercial arbitration) to avoid jurisdictional conflicts.
Compliance with law and contractual commitments: Ensuring that contracts comply with legal regulations and that contractual obligations are duly executed to minimize the risk of disputes.
Retention of documents and evidence: Maintaining complete records of transactions, meeting minutes, and contract amendments as a basis for protecting rights in the event of disputes.
Use of legal consultancy services: Prior to signing contracts, parties should consult lawyers to minimize legal risks and ensure enforceability of contracts.

4. Are the parties required to resolve investment contract disputes through commercial arbitration?

The parties are not required to resolve investment contract disputes through commercial arbitration unless an arbitration agreement exists in the contract.

Pursuant to Article 5 of the Law on Commercial Arbitration 2010, disputes may only be resolved by arbitration if the parties have a valid arbitration agreement or the dispute falls within the jurisdiction of arbitration.

Where the contract does not contain an arbitration clause, disputes shall be resolved by the competent People’s Court in accordance with the Civil Procedure Code 2015.

In addition, arbitral awards are final and not subject to appeal, whereas court judgments may be appealed or protested in accordance with procedural law.

5. What factors commonly lead to investment contract disputes between parties?

Investment contract disputes often arise from various causes, including:

Breach of contractual obligations by one party;
Lack of consensus on contractual terms due to poorly drafted, inconsistent, or unclear contracts;
Changes in legal policies affecting the rights and interests of one or both parties;
Disputes over profit distribution or asset allocation;
Financial incapacity of one party, including insolvency or bankruptcy;
Disagreements in project management and operation;
Force majeure such as natural disasters, epidemics, or economic fluctuations affecting contract execution.

To decrease disputes, parties should draft contracts carefully, transparently, and establish clear dispute resolution mechanisms from the outset.

6. Which authority has jurisdiction to resolve investment contract disputes where the contract does not contain a dispute resolution clause?

Where an investment contract does not contain a dispute resolution clause, jurisdiction shall belong to the competent People’s Court in accordance with civil procedure law and investment law. Specifically:

Provincial-level People’s Courts: Pursuant to Articles 30 and 37 of the Civil Procedure Code 2015, investment contract disputes generally fall within the jurisdiction of provincial-level People’s Courts, as they are business and commercial disputes involving enterprises or foreign elements.
District-level People’s Courts: Where disputes do not involve foreign elements and the dispute value is small, jurisdiction may fall within district-level People’s Courts pursuant to Article 35 of the Civil Procedure Code 2015.
Other adjudicatory bodies (where legally applicable): In certain special cases, disputes may fall under the jurisdiction of other bodies, such as State Arbitration Councils or investment management authorities, in accordance with the Law on Investment.

Accordingly, in the absence of an arbitration clause, the People’s Court is the competent authority to resolve disputes, unless otherwise provided by specialized legislation.

IV. Legal consulting services on investment contract disputes

NP Law provides in-depth legal consultancy and support services in relation to investment contract disputes, assisting enterprises and investors in protecting their lawful rights and interests, minimizing legal risks, and ensuring compliance with legal regulations. With a team of experienced lawyers, we are committed to delivering optimal solutions and helping clients resolve disputes efficiently and effectively.