Case Study: A Fund’s Hard Exit (Part #2)

25/08/2018

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Please this the first post here.

Question #4

Back to the case of BH, Ms. Ba Huan claimed that she only signed the English version while the contract itself clearly states that it must be made in 02 languages. Does it need to wait until Ms. Ba Huan signs the Vietnamese version then the whole contract will come into effect?

Answer #4

No, nowhere in Vietnamese law[1] states that a bi-lingual contract could only take effect if both languages are signed. Hence, unless the investment contract signed between BH and VC so suggests, the chance for BH to challenge validity of VC’s contractual investment is virtually nil.

Question #5

According to Ms. Ba Huan, she is not aware of onerous obligations imposed by VC until she saw the Vietnamese version. Is it legally sufficient for BH to argue that the contract was signed by mistake (or misunderstanding) of Ms. Ba Huan (or BH as a contracting party) and therefore must be declared invalid under Vietnamese law?

Answer #5

Well, a party may avoid a contract if it has been formed on the basis of mistakes made by either party or both parties. Specifically, the mistaken party may request a court to declare a transaction invalid if ‘there exists a mistake resulting in a party or both parties’ failure to meet the objectives of the established transaction’.[2]

Unfortunately, because the laws do not go further to explain what a mistake is, courts tend to interpret mistake differently.[3] Nevertheless, the chance of Ms. Ba Huan to stick to the unilateral ‘mistake’ element to avoid the VC contract is relatively slim because language of the contract, most likely drafted by well-experienced VC, should be pretty clear. Even if Ms. Ba Huan is deemed not to have been fully aware of what is stated inside the English version,[4] her negligence, or more precisely, her failure to read would not suffice to form a workable defense from her end.

Question #6

In this case, Ms. Ba Huan approached the public media and the Prime Minister. Will such move treated an exception to a confidentiality agreement signed between BH and VC, if any?

Answer #6

Admittedly, going directly to the Prime Minister or public media for a quick solution is not uncommon in Vietnam and sometimes it works perfectly. Back to this case, it is rumored (not independently verified) that a rival of VC wants to get rid of the firm by first referring to political and media pressures.

Nevertheless, nowhere in Vietnamese law expressly considers these non-litigation routes an exception for a breach of contractual confidentiality obligations. In other words, BH appears to have materially breached its confidentiality obligation and nothing in the laws can excuse that sort of behavior.

Question #7

So, what should be the key take-always from this deal?

Answer #7

Following measures can be employed to avoid a similar BH’s incident:

In case of a bi-lingual contract, both languages must be available for execution at the same time to eliminate the chance the counter party claiming a misunderstanding or mistake caused by a ‘foreign language’ document;
If you only rely on the English language while the Vietnamese version is a must (e.g. – construction contract), please make sure that you have a perfect Vietnamese translation.
For each round of negotiations, parties may make a written record on what is agreed and what is not;[5]
The investment contract should contain a heavily-drafted confidentiality obligation failing which would result in both maximum penalty and claim for damage from the aggrieved party;
By the same token, when it comes down to compensations payable by the defaulting party, because attorney fee, albeit reasonable, paid by the non-defaulting one is not expressly permitted by laws, it is prudent to include such attorney fee to reduce the loss of the non-defaulting party.