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APPLICABLE LAW ON CONTRACT OF PUBLIC-PRIVATE PARTNERSHIP |

APPLICABLE LAW ON CONTRACT OF PUBLIC-PRIVATE PARTNERSHIP

Introduction

Recently, on 18 June 2020, the National Assembly passed the Law on Public – Private Partnerships (“PPP Law”) with 92.57% in agreement marking the first time there was a specific law to regulate the public-private partnerships (“PPP”) in Vietnam. As PPP Law will take effect on 1 January 2021, it will help to attract private investment to public dominance sectors such as infrastructure, electricity, etc. With the PPP Law coming into effect, Vietnam has completed three key laws forming three pillars for the economic law system, i.e., Investment Law for Private sector is one pillar, Law on Public Investment another pillar, and in the middle is pillar of PPP Law, which can be understood as the combination of the other two.

However, compared to previous regulations on PPP projects, PPP Law stipulates stricter rules, especially, on governing law to protect national security and defense. Accordingly, while Decree 63/2018/ND-CP on investment in form of public-private partnership (“Decree 63”) allowed parties of PPP contract to apply foreign law in accordance with Vietnamese Civil Code. Under PPP Law, pursuant to Article 55, parties of PPP contract must use Vietnamese Law as governing law and they can only decide for themselves on matters which:

  • Are not regulated under Vietnamese law; and
  • Their decision does not violate basic principles of Vietnamese laws.

Basic principles of Vietnamese law

The concept of basic principles of Vietnamese law is not provided in PPP Law, however, since the relationship between parties of PPP contract is a civil transaction with one party is a trader, they can rely on regulations in the Civil Code 2015 (Article 3) and the Law on Commerce 2005 (Article 10 – Article 15) which governs basic principles of Vietnamese law.

In the Civil Code 2015, basic principles are specified in Article 3:

  1. Every person shall be equal in civil relations and enjoy the same protection policies of law regarding moral rights and economic rights.
  2. Each person can freely and voluntarily establish, exercise and terminate his/her civil rights and obligations or enter into commitments and/or agreements. Commitment or agreement which complies with the law and social ethics shall be bound by contracting parties and must be respected by other entities.
  3. Each person must establish, exercise or terminate his/her civil rights and/or obligations in the principle of goodwill and honesty.
  4. The establishment, exercise and termination of civil rights and/or obligations cannot infringe national interests, pubic interests, lawful rights and interests of other persons.
  5. Each person shall be liable for his/her failure or improper performance of any his/her civil obligations.

In the Law on Commerce 2005, basic principles are specified for commercial activities as follows:

  1. Traders are treated equally before the law.
  2. Parties can freely and voluntarily reach agreements which comply with the law and social ethics. A party cannot perform acts of imposing, coercing, threatening or preventing other party.
  3. Parties can apply practices which are in accordance with the law in commercial activities established between parties.
  4. Parties can apply commercial practices which are in accordance with the law in case there is no regulations, agreements or practices established between parties.
  5. In case of suppliers and customers, suppliers are responsible for information and quality of products provided to customers.
  6. Different forms of presenting data which have been recognized by the law must be acknowledged to have equal legal validity with documents.

According to these regulations, a PPP contract should be carried out on voluntary basis and must be in accordance with Vietnamese laws and social ethics. Parties of PPP contract should be careful of what they decide in the contract, for example, lobbying is a lawful act attempting to influence the actions, policies, or decisions of government officials in many countries like France, United Kingdom or the United States of America, however, under Vietnamese law lobbying is considered illegal as corruption so parties of PPP contract cannot agree on lobbying provision when conducting PPP project in Vietnam.

Parties of PPP contract should be aware of matters which considered to be legal in foreign countries but a violation under Vietnamese law, therefore, it will be better to prepare by doing research before joining a PPP project in Vietnam.

Matters are not regulated under Vietnamese law

Although PPP Law has tried to cover many aspects of PPP activities, there are a few important matters which have not been governed.

The first one is types of contract, PPP Law only regulates 7 types of contract while there are some other contracts such as design-build-finance; design-build-finance-operate; design-build-finance-maintain; etc. Therefore, it is important for parties to specifically agree on which types of contract they want to carry out in order to obtain their goals.

The second one is supervision of contract performance, in order for contract to be implemented effectively, both parties of contract must carry out mutual supervision. However, PPP Law only stipulates the rights of competent authority to supervise the contract performance of investors without mentioning rights of investors to supervise such obligations of competent authority. Consequently, obligations of competent authority under contract will not be effectively carried out, while parties of contract should be equally treated before law, this will lead to inequality. Thus, in order to maintain the equality, parties should have provisions on their rights and obligations in details.

The third one concerns the judicial immunity of competent authority. Although PPP Law has regulations on dispute settlement, there is no provision specifying on waiver of judicial immunity, competent authority usually enjoys judicial immunity leading to an unfair relationship between investors and competent authority in a contract. Therefore, to protect their own rights and interest, investors, especially foreign investors should negotiate on waiver of judicial immunity of competent authority in their contract.

The abovementioned matters are some important issues that parties of PPP contract need to focus on when negotiating a contract with competent authority. These matters can be decided on mere negotiation among parties as they are not regulated under Vietnamese law and are in accordance with basic principles of Vietnamese law.

In conclusion, Article 55 of PPP Law requires every PPP contract must apply Vietnamese Law as governing law, however, for some matters of the contract, parties can decide for themselves only if those matters are not regulated under Vietnamese law and their decision does not violate basic principles of Vietnamese law. Consequently, parties of PPP contract cannot apply any regulations other than Vietnamese law to govern their contract and can only decide on some matters of the contract. Thus, this will restrict the participation of foreign investors in PPP projects in Vietnam because they seem to be in a less favorable position when entering into contract with a competent authority of a country and have to follow the legal system of that country. Therefore, it will take a lot of effort for Vietnamese government to attract foreign investors to take part in PPP projects when it decides to prioritize its national security and defense.

It can be seen that Article 55 of PPP Law is a minus point of the law, which may cause hesitation to foreign investors who want to enter a PPP contract in Vietnam.


DISCLAIMER

This LBN newsletter are NOT legal advice. Readers are advised to retain a qualified lawyer, should they wish to seek legal advice. VCI Legal are certainly among those and happy to be retained, yet VCI Legal is not to be hold responsible should any reader choose to interpret/apply the regulations after reading this LBN without engaging a qualified lawyer.

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