In early 2018, VinaCapital (VC), through its affiliate, invested US$32.5 million to acquire a significant minority stake in Ba Huan Joint Stock Company, a Vietnam-based poultry firm (BH). According to the public media, BH and VC only signed the English version of a bi-lingual ‘investment co-operation agreement’ (the Investment Agreement).[1] The term sheet for VC’s investment was signed 6 months ago.
All of a sudden, in August 2018, public media reveals that BH asked for the Prime Minister’s intervention to terminate the investment partnership. The main reason cited by Ms. Ba Huan, CEO of BH, is VC’s ‘silent’ inclusion in the English version of the Investment Agreement terms and conditions which are extremely onerous on BH (e.g. – high investment rate of return, a forced sale upon failures to meet certain conditions, etc.). Ms. Ba Huan was only aware of these issues when she read the full text of the Vietnamese version.
Few days after the incident was made public, VC announced its exit from BH due to ‘a misunderstanding between parties’.
Full coverage of the case can be found here.
Because this deal was closed, I do not intend to excavate a short-lived love affair, but instead shed light on its legal aspects and flag key issues involving the acquisition of a local business. For ease of reference, the discussion is presented in Q&A format.
Question #1
BH said it has not signed the Vietnamese version of the Investment Agreement. Is Vietnamese language mandatorily required for contracts with a local partner?
Answer #1
Generally No. To be exact, Vietnamese language is only a must for contracts in few special sectors (e.g. – goods consumption, postal services or construction contracts).
Nevertheless, even if these transactions have foreign element(s), parties may basically agree on foreign language. What remains unclear is whether a construction contract between a Vietnam-based foreign-owned company (FIE) and a local contractor could be in foreign language because, strictly speaking, an FIE has not any ‘foreign elements’ under Vietnamese law.[2]
Question #2
Even so, what happens if a contract fails to satisfy this language condition? Will the court be able to declare it invalid?
Answer #2
No, a competent court only declare a transaction invalid if that transaction fails to meet the ‘contract form’ condition (e.g. – expressed verbally, in writing,[3] or through specific acts). Contract language does not fall inside this ‘contract form‘ condition.
Nevertheless, if a dispute arises, the courts tend to rely on the Vietnamese version regardless of parties’ agreement to the contrary. This could be a critical issue if two languages unfortunately conflict.
Another important note is that if a dispute ends up in a local court, the hearing language would also be Vietnamese.
Question #3
Okay! But what happens if languages of any single contracts conflict?
Answer #3
It is not uncommon that languages in a contract conflict with each other. One may easily find this issue in many venture agreements between a foreign party and a Vietnamese counterpart in the early days of foreign investment in Vietnam (i.e. – 1990s).
However, in most cases, the boilerplate part of a bi-lingual contract would contain a ‘language’ provision which clearly states which language would prevail in case of inconsistencies/ differences. The dispute settlement body would base on such statement to decide the prevailing language.
Unfortunately, some contracts do not have such provision or, even worse, provide like this “this contract is made into Vietnamese and English languages with equal validity”. When a dispute arise, courts tend to treat these cases as ‘unclear’[4] and generally interpret the contract language in light of parties’ actual intentions (as recorded in, for example, previous correspondences or documents, business habits). This remains true regardless of whether parties expressly agree on an ‘entire agreement clause’ which provides that the current contract will supersede other previous agreements made either verbally or in writing.
Please continue Part 2 here
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[1] This title is given by the public media but given the nature of the investment, it is most likely a share subscription agreement in technical term.
[2] Pursuant to Article 663.2 of the Civil Code of Vietnam (2015), in order for a transaction to be treated as having “foreign elements”, one of condition would be the presence of at least “a foreign natural person or juridical person”. A foreign invested company does not satisfy this condition because it has legal entity under Vietnamese law.
[3] ‘In writing’ in this context include some sorts of contracts the notarization, certification or registration of which is mandatorily required.
[4] In a sense that the contract language may be understood in different ways
