7 May, 2019
Can a new Singapore dispute resolution protocol spur efficient infrastructure development in Vietnam? It’s a question worthy of examination considering a slew of high-profile disputes, delays and cost overruns on major infrastructure projects in Vietnam in recent years. Even more so considering forecast needs to spend more than US$300 billion on infrastructure in Vietnam over the next decade in order to serve the needs of Vietnam’s rapidly growing economy.
The answer is not clear cut. While the protocol has clear prima facie value, the current legal framework in Vietnam isn’t supportive of a key fundamental principle: that outcomes of the process are binding on the parties. However the time is right, and opportunity is ripe, for Vietnam to embrace the concept and make bold policy decisions backed up with legislative action.
New roads, bridges, ports, and power plants are all in high need in Vietnam and the government is hard at work improving the PPP legislation to facilitate and foster the conditions for successful projects. Many such projects are complex and challenging, with numerous parties involved, and thus prone to disputes, or simply just differences of opinions that need resolving in order that works can complete. As a result, time spent developing, agreeing and implementing dispute resolution terms between involved parties is time well spent. However it can also be inefficient and often unnecessary for parties to agree bespoke terms on a case-to-case basis.
Cognisant of the issues, and also no doubt sensing a potential market, a number of governmental and non-governmental organizations have developed best-practice standards, protocols and clauses that project investors and contractors can look to for support. The latest comes from Singapore’s Ministry of Law, keen to cement Singapore’s reputation as a hub for all things infrastructure in Southeast Asia. The Singapore Infrastructure Dispute-Management Protocol (SIDP) was launched in October 2018 and is intended to help parties involved in large infrastructure projects manage disputes and minimise the risks of time and cost overruns, thus maximizing chances of efficient delivery of infrastructure.
The SIDP doesn’t hide its ambition to serve mega projects, stating in its preamble that it is “designed and recommended for construction or infrastructure projects of more than S$500 million in value”. Only a relatively small number of projects in Vietnam would fit that criterion though that doesn’t mean that concepts and recommendations underpinning the SIDP couldn’t be replicated by smaller projects.
So, what’s so good about the SIDP? Perhaps the most highlighted feature of SIDP is that it places a heavy emphasis on preventing disputes, or at least de-escalating differences, through detailed procedural terms and collaborative tools. When parties agree to adopt the SIDP as their dispute resolution protocol, they must appoint a Dispute Board (DB) right at the outset of the project. The DB need not consist of lawyers, but can comprise industry experts and can vary from a single-person board to a multiple-member panel. The DB commences pro-active work right after establishment in the form of regular meetings and site visits.
While regular meetings are quite common in other dispute protocols, site visits are a relatively new feature. Pursuant to the SIDP, a DB will conduct at least three site visits every 12 months unless otherwise agreed by the parties. The site visits aim at early detection of any potential problems. After each meeting and site visit, the DB will prepare a report with recommendation for early dialogue on real or potential issues, as necessary.
If the DB becomes aware of any differences between parties through site visits or upon request of the parties, the DB may move one step further by interviewing senior representatives of the parties to try to clarify, scope, and articulate the ambit of the differences. Such interviews are relatively informal with a view to enabling the DB to provide recommendations for specific processes or measures to resolve differences, ideally before they blow up or become entrenched or intractable. These features represent the sensible underlying philosophy of the SIDP, in contrast with more traditional dispute resolution methods, that a ‘stitch in time saves nine’.
That is not to say that the SIDP doesn’t have teeth. Should the parties involved feel the need to refer a dispute directly to the DB, a number of options are open for the DB to resolve the dispute, including by issuing an opinion on the matter in question or bringing the parties together for formal mediation. Crucially, the SIDP provides that such opinions or results of mediation are binding on the parties.
There is no question that the SIDP is a well-conceived and thorough tool of great value to large infrastructure project participants. But how would it work in practice in Vietnam?
Operationally there is no reason to doubt that it would work just as intended. The big issue for Vietnam is around the fundamental agreement of the parties that a DB decision or opinion or a DB-facilitated mediated agreement can be binding on the parties. Without that, the efficacy of the protocol as a whole is called into doubt, at least from a purely legal perspective.
Take for example a case where a Singaporean-domiciled construction company provides services to a Vietnam-domiciled entity and the parties agree to use the SIDP to manage and resolve disputes. Imagine that the parties do in fact effectively implement the SIDP during the course of their relationship, resulting in the DB handling a dispute and giving its opinion on the same (or facilitating a mediated settlement between the parties on the same). Imagine further that the result of that process, agreed to by the parties, is that the Vietnam entity owes $100 million to the Singapore entity. The SIDP itself provides and envisages that the result of the SIDP process is automatically binding on the parties and that the courts of Singapore can act to enforce the same in the event that the Vietnam entity fails to comply.
The fact is however that there is currently no clear mechanism to enforce that against the Vietnam entity in Vietnam. Vietnam law contains no terms that would enable the Singapore company to automatically enforce the DB decision, or a mediated settlement, against the Vietnam company in Vietnam. The Singapore company could seek, and presumably obtain, a Singapore court award against the Vietnam entity enforcing the DB decision but then what? In the absence of a formal bilateral judicial assistance treaty between the two countries, no special option under their bilateral investment treaty, and rare circumstances where a case for reciprocity might be made, there is essentially nil chance that authorities in Vietnam would act to recognize or enforce the Singapore court judgment in Vietnam under Vietnam law. One only has to look at the extreme difficulties international companies have had enforcing foreign arbitral awards in Vietnam – something for which there is an express legal mechanism in Vietnam law – to know that it would be mission impossible to enforce a foreign court decision.
As long as this remains the status quo in Vietnam, the true value of the SIDP in Vietnam is in doubt. While there is inherent value in pro-actively managing, identifying and resolving disputes, if the final “agreed binding” outcome is, for all intents and purposes, worthless, why go to the bother in the first place?
Of course this is an extreme position and mega infrastructure projects tend to have many facets to them that count in favour of commercial settlements (not least of all government to government links that can add a political element to resolving disputes). But lenders, contractors and their lawyers are duty bound to consider the harsh legal realities which currently speak against assuming that the SIDP can be an effective tool for use in Vietnam projects, especially where purely local counterparts are involved.
The time is right then for the government of Vietnam to take bold action, similar to its recent ISDS commitments in the CPTPP, to enable private commercial agreements on use of tools like the SIDP to mean something when push comes to shove. Actions like this are a vital key to unlocking the private funds necessary to finance Vietnam’s vast infrastructure needs.
The opportunity also happens to be on the table right now in the form of a new UN convention on enforcement of international settlement agreements. Otherwise known as the Singapore Convention on Mediation, the convention would do for mediation what the New York Convention does for arbitration: provide an avenue to directly invoke and enforce mediated agreements in Vietnam, ostensibly without the courts re-examining the issues or interfering. The Singapore Convention on Mediation was adopted by the UN General Assembly in December 2018 and will come into force when signed by at least three States. A signing ceremony for the Convention is expected to take place in August 2019 in Singapore. One hopes Vietnam will be at the table.
For further information, please contact:
Giles T. Cooper, Partner, Duane Morris
gtcooper@duanemorris.com
