IMPROVEMENT OF EMPLOYEE QUALIFICATIONS UNDERSTANDING AND SKILLS IN APPLYING FOREIGN LAWS TO MINIMIZE RISKS, CONFLICT AND DISPUTES IN CONTRACTS/AGREEMENTS WITH FOREIGN ELEMENTS

Introduction

In today’s business world, connections and interactions between countries are becoming increasingly developed. This creates a complex business environment where companies often sign contracts or agreements with foreign parties. However, understanding and applying foreign laws can sometimes be challenges for their businesses, and a lack of understandings or non-compliance with the law can lead to risks, conflicts, and disputes, affecting the operation and reputation of the enterprise. Therefore, enterprises need to be equipped with knowledge concerninge foreign legal systems, especifically English law and the common law system. Sometimes, it is also necessary to understand the legal systems of civil law countries with economic relations. This article is presented in the following order. First, the article stated the importance of understanding foreign law and the challenge in grasping foreign law knowledge in align with the practices. Second, it proposed the strategy to overcome those challenges.

I. Understandings of the challenges

1. Complexity in international contracts

The legal systems in each country vary greatly, and becoming familiar with foreign legal regulations can be a difficult task for corporate employees. Inadequate understanding of foreign laws can lead to misunderstandings or unnecessary violations of the law.

Today, even if there is no contract applying foreign law, the applicable contract forms are still influenced by foreign law. For example, Coal Supply Agreement or Gas Supply Agreement are influenced by the associations that draft those contracts. Construction contracts are influenced by the International Federation of Consulting Engineers (FIDIC). Loan agreements are influenced by the Asia Pacific Loan Market Association (APLMA) or LMA.

Taking the FIDIC Model Contract of building contracts as an example. When applying FIDIC Construction Contracts to Vietnam, some difficulties and challenges need to be considered:

Regarding adjustment in accordance with Vietnam Law on Construction and practices, FIDIC contract stipulates that if the Contractor violates, the Employer will terminate the contract. However, Vietnamese law stipulates that bidding procedures carried out to select the Contractor make contract termination sanctions in Vietnam rarely applied. From then on, the FIDIC contract is only strong in sanctions against the Employer (claiming compensation for damages) but not really strong in sanctions against the Contractor. The terms and conditions in the contract may need to be adjusted to ensure full compliance with regulations and legal requirements in Vietnam and supplement solutions appropriate to the situation in Vietnam.

Regarding the lack of understanding of the FIDIC contract, due to not being a part of Vietnamese law, the project parties may not be familiar or familiar with the terms and conditions of FIDIC contracts. This may lead to misunderstandings and disputes during the project implementation process. For example, Vietnam Law on Construction require acceptance of work before payment, while FIDIC contracts only require batch acceptance (or even temporary acceptance). If we misunderstand the issue or the motivation behind the contract terms, it will lead to improper handling and breach of the contract.

Regarding the culture and business practices, clauses in the FIDIC contract may not fully reflect the cultural and business practices of the Vietnamese construction industry. Therefore, adjustments are required to suit specific country requirements and business practices. For example, in Vietnam, if making adjustments or variations, concluding the contract appendix shall be required, while under FIDIC contracts there is no need to do so. Thus, if the parties wish to apply Vietnamese regulation in the FIDIC Model Contract, they must add the requirements of Vietnamese law into.

Regarding the language and interpretation, translating and interpreting terms and conditions from English to Vietnamese may create misunderstandings and arguments. For example, the FIDIC contract interprets the concepts of Site and Utilities very differently. Meanwhile, Vietnamese agencies consider it as a same issue, and the solution is synchronous in the direction that whoever is responsible for handing over the premises must clean up the utilities (when that is not necessarily the case). Thus, it is necessary to pay attention to using accurate and understandable legal language during the translation and interpretation process.

Regarding the allocation of risks and responsibilities, one of the highlights of the FIDIC contract is the way risks are allocated between project parties. However, applying this risk allocation method to construction practice in Vietnam may encounter difficulties due to differences in legal regulations and business practices. For example, the FIDIC contract requires the Employer to bear the risk due to force majeure, changes in law, or competent authorities, while in such cases the Employer does not have enough funding or have the right to decide what to spend. This led to the project being delayed and the Employer had to pay additional compensation. Thus, lawyers when negotiating FIDIC contracts need to rationalize and reduce risks for investors with risk sharing mechanisms.

In conclusion, before applying FIDIC Construction Contracts to Vietnam, relevant parties need to conduct a thorough evaluation process to ensure that the contracts comply with domestic laws, regulations, and construction practices. The differences between Vietnam Law on Construction and FIDIC Construction Contracts may arise from legal regulations, risk and responsibility allocation, as well as different dispute resolution procedures between these two systems. In order to apply the Vietnam regulations in the FIDIC Model Contract, it is necessary to conduct a thorough adjustment and negotiation process to ensure that it fully reflects the country’s legal requirements and practices.

2. Cultural diversity

In addition to legal complexity, companies also face cultural diversity when cooperating with foreign parties. Differences in values, beliefs, and cultural norms can lead to misunderstandings and conflicts. For example, for Vietnamese enterprises, especially state-owned enterprises, internal regulations are the most important, while for foreign partners, contracts are the most important. Internal regulations are the internal affairs of state institutions or enterprises and cannot be a legitimate reason to shirk responsibility.

3. Risks and consequences

Ignorance or failure to properly comply with foreign laws can lead to legal risks and serious economic consequences, including fines and loss of company reputation. From many real cases of GDPR violation, some serious legal issues arose: (i) Punishment for violating GDPR may require a maximum annual income of 4% or a fine of 20 million euros, whichever is greater; (ii) Due to lack of trust in personal data protection, the company may lose customers and partners; (iii) Violations of foreign laws can also create legal barriers in expanding business to other international markets; (iv) Companies must invest a significant amount of time and money to correct violations and take corrective measures to comply with the laws.

II. Proposed improvement strategy

1. Training and education programs: First and foremost, companies need to invest in training employees on foreign laws and cross-cultural communication skills. Training should include both theory and practice, and be provided on a regular basis to ensure employees stay up to date with the latest changes in the field.

2. Access to legal resources and expertise: Companies need to build an internal legal support network and seek support from foreign legal experts and consultants. Ensure that employees have access to complete and up-to-date legal resources that they can refer to and apply in their day-to-day working practice.

3. Continuous Learning and Development: Encourage learning and knowledge enhancement through ongoing training, participation in seminars, and independent research. The company can also provide opportunities for employees to access the latest legal information sources through meetings, documents and internal information systems.

Conclusion

In summary, improving employees’ qualifications, understanding and skills about foreign law is extremely important to minimize risks and conflicts in international contracts. We need to invest time and resources into developing our employees in this area to ensure the sustainable success of our business.

Disclaimer: This Legal Update is intended to provide updates on the Laws for information purposes only, and should not be used or interpreted as our advice for business purposes. LNT & Partners shall not be liable for any use or application of the information for any business purpose. For further clarification or advice from the Legal Update, please consult our lawyers: Dr LE Net at net.le@lntpartners.com.