Litigating shareholder disputes in Vietnam: Court vs. Arbitration

People walking through a modern corridor, representing different paths for resolving shareholder disputes in Vietnam. (Source: Unsplash)

Whether it’s a conflict between partners in a 50-50 venture or an allegation of misusing company assets, how a dispute is handled can significantly impact the business's future. One of the most important decisions to make early on is choosing the right forum: should the matter go to court, or be resolved through arbitration?

This article explains the types of disputes that often arise among shareholders in Vietnam, the legal tools available, and the key differences between going to court and arbitration to resolve conflicts.

Common Types of Shareholder Disputes in Vietnam

Shareholder conflicts typically stem from misaligned expectations, a lack of transparency, or breakdowns in communication. These conflicts are not only disruptive to business operations but can also expose companies to reputational risk and financial loss. The most common types include:

- Majority vs. minority shareholder disputes: Often involving claims of oppression, unfair treatment, or exclusion from major decisions. This may also include disproportionate voting rights or denial of dividends.

- Misuse of company funds: Including unauthorised loans, asset transfers, or conflict-of-interest transactions. Such acts often lead to allegations of breach of fiduciary duty.

- Breach of the shareholder agreement or charter: Disputes over voting rights, governance powers, or restrictions on transfer of shares can lead to deadlocks or allegations of non-compliance.

- Access to information: Minority shareholders may be denied access to company books, financials, or board meeting minutes, which impairs their ability to monitor their investment.

- Board deadlock: Especially in 50-50 joint ventures, lack of consensus can stall company operations and decision-making, leading to paralysis or forced dissolution.

Legal Grounds for Resolving Shareholder Disputes in Vietnam

Vietnamese law provides a clear legal basis for resolving shareholder disputes, primarily through the 2020 Enterprise Law, the Civil Procedure Code, the Commercial Arbitration Law and other related documents. Understanding the statutory and contractual framework is crucial for shareholders to assert or defend their rights effectively.

Key legal foundations include:

- The company charter and shareholder agreement: These internal documents dictate the operational rules of the company. Courts and arbitral tribunals rely heavily on their terms to evaluate claims.

- Statutory rights: The Enterprise Law outlines shareholders’ rights to dividends, voting, inspection of records, and participation in major decisions, especially for shareholders holding a minimum ownership percentage (e.g., 10%).

- Standing to sue: Shareholders – particularly minority ones – may bring claims when there is evidence of management misconduct, abuse of power, or violation of shareholder rights.

- Dispute resolution clauses: Well-drafted contracts may mandate resolution via arbitration or require pre-litigation mediation, influencing how quickly and efficiently disputes can be resolved.

Litigating Shareholder Disputes in Vietnamese Courts

Court litigation remains a widely used option, especially when interim measures or public enforcement is necessary. It is particularly relevant in cases involving fraud, breach of fiduciary duty, or injunction requests related to shareholder meetings or asset transfers.

Advantages:

- Enforceability: Court judgments are binding and enforceable under Vietnamese law, often through civil enforcement authorities.

- Interim relief: Courts can issue injunctions, asset freezes, or orders to prevent specific shareholder or management actions.

- Broad jurisdiction: Civil and economic courts can hear claims even where the shareholder agreement lacks an arbitration clause.

Disadvantages:

- Lengthy timelines: Disputes may drag on for years, especially if appeals are filed.

- Lack of commercial expertise: Judges may not be deeply familiar with corporate governance or international investment norms.

- Public hearings: Disputes heard in court are generally public, which may not be suitable for sensitive business matters.

- Cases are typically handled by the economic division of the provincial People’s Court. Plaintiffs must present clear evidence, including notarised shareholder documents, board resolutions, and proof of misconduct or loss.

Arbitration for Shareholder Disputes in Vietnam

Arbitration offers a private, contract-based method for resolving disputes. It is most effective where the shareholder agreement contains a clear and enforceable arbitration clause.

Pros of arbitration:

- Confidentiality: Ideal for cases involving trade secrets, sensitive financials, or investor reputations.

- Speed: Timelines are generally faster than court, particularly with experienced arbitral tribunals.

- Specialised decision-makers: Arbitrators often have legal or financial backgrounds relevant to corporate disputes.

Cons of arbitration:

- No appeal: Awards are final, even if based on errors in fact or law.

- Limited interim remedies: While some arbitral institutions offer emergency arbitrators, urgent relief often requires court support.

- Enforcement step required: The prevailing party must apply for recognition and enforcement of the award in a Vietnamese court.

Common arbitration venues include VIAC (domestic) and international institutions like SIAC or ICC for cross-border ventures. Arbitration clauses should be detailed and consistent with Vietnamese law to prevent disputes over validity.

Comparing Court vs. Arbitration: What’s Right for Your Dispute?

Choosing between court and arbitration should depend on your strategic goals, the nature of the conflict, and the structure of your shareholder agreement.

- Speed: Arbitration can resolve issues faster if both parties cooperate, often within months. However, the need to enforce the award through courts may extend the overall timeline.

- Confidentiality: Arbitration proceedings are private and generally not subject to public scrutiny, making them ideal for disputes involving sensitive financials or shareholder misconduct. In contrast, court hearings in Vietnam are public by default.

- Nature of relief: Courts are preferable when seeking injunctive relief, such as stopping a shareholder meeting, freezing assets, or preserving evidence. Arbitration is better suited for financial compensation or resolving complex governance clauses.

- Ongoing relationships: Arbitration tends to be more collaborative and may preserve relationships between business partners, which is important in ventures where co-ownership or operational collaboration continues.

- Complexity and expertise: Arbitration allows parties to appoint experts with deep experience in corporate law, finance, or international investments. This is particularly useful in valuation disputes, accounting disagreements, or shareholder exit pricing conflicts.

In some cases, a hybrid model may be used – such as arbitration combined with interim court relief. Ultimately, the choice of forum should reflect not only the nature of the dispute but also enforcement strategy, cost considerations, and the importance of discretion.

Drafting Shareholder Agreements with Dispute Resolution in Mind

Carefully drafted shareholder agreements are the first line of defence against costly disputes. They can significantly influence how disputes unfold and how long they take to resolve.

Key elements to include in a shareholder dispute resolution clause:

- Clear dispute resolution clauses: Clearly indicate whether disputes will go to court or arbitration. Ambiguity can invalidate a clause or cause enforcement issues.

- Multi-tiered approach: Include step-by-step mechanisms such as mandatory negotiation, followed by mediation, and then arbitration or court.

- Governing law and venue: Specify applicable law, dispute resolution body, and location. This is especially critical in cross-border JVs.

- Consistency with the company charter: Conflicts between the charter and agreement can lead to delays or jurisdictional challenges.

Early legal input and periodic review of shareholder agreements are crucial to ensure enforceability and relevance over time.

Enforcing Shareholder Dispute Resolutions in Vietnam

Even after securing a favourable outcome, shareholders must navigate enforcement – often the most challenging phase.

For court judgments:

- Enforcement is carried out by civil enforcement agencies at the provincial level.

- Delays are common due to appeals, asset concealment, or administrative backlog.

- Proactive asset tracking and preservation (e.g., freezing orders) can improve outcomes.

For arbitral awards:

- Vietnam is a member of the New York Convention, which allows recognition of foreign arbitral awards.

- Awards must be recognized by a Vietnamese court before enforcement.

- Objections can be raised on procedural grounds or alleged conflict with public policy.

To minimise risk, parties should ensure that awards or judgments are well documented, clearly reasoned, and supported by enforceable remedies.

Protecting Minority Shareholder Rights in Vietnam

Minority shareholders in Vietnam often face challenges due to imbalanced power dynamics, limited transparency, and inadequate representation. However, statutory protections do exist and can be enforced through proper legal channels.

Key rights include:

- Right to information: Shareholders owning at least 5-10% of capital can request financial statements, management reports, and board resolutions.

- Right to convene meetings: Shareholders can demand extraordinary general meetings if thresholds are met.

- Right to bring derivative claims: In case of misconduct by directors or majority shareholders, minority shareholders can initiate lawsuits in court or arbitration.

- Pre-emptive rights: These allow shareholders to purchase new shares before outside parties, helping prevent dilution.

To enforce these rights effectively, minority shareholders should maintain written records of all correspondence and shareholder actions, and consult legal counsel before initiating formal proceedings. Proactive structuring of agreements to include protections such as tag-along rights, exit mechanisms, and deadlock-resolution mechanisms can significantly strengthen minority positions.

Conclusion

Shareholder disputes can place significant strain on a business, making the choice of dispute resolution forum a critical strategic decision. Whether arising from joint venture deadlock or corporate governance disagreements, understanding the relative advantages of litigation and arbitration is essential to protecting both investments and ongoing business interests.

There is no universal solution. The appropriate path depends on the nature of the dispute, the relationships involved, and the urgency of relief required. Early preparation through carefully structured shareholder agreements and informed legal assessment allows parties to respond decisively when conflicts arise.

In practice, navigating these considerations often requires experienced legal judgment. Le & Tran Litigation Lawyers advise shareholders, investors, and companies on resolving complex disputes before Vietnamese courts and arbitral tribunals, with a focus on strategic forum selection, procedural leverage, and enforceability of outcomes.

For professional support in shareholder litigation or arbitration in Vietnam, please contact [email protected].

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