From the story between Ba Huan and VinaCapital: Discussing the language dispute in the contract

The requirement of caution when being about to participate or when negotiating and signing civil, commercial transactions in general, and mergers and acquisitions transactions (M&A) in particular is not a new issue, but again, it cannot be taken lightly.

When there is a situation of serious content deviation between the Vietnamese version and the foreign language version without the regulation on a preferred language, the arbitrator or the court usually considers other evidence related to the contract formation process.

In this article, the writer would like to discuss a rather narrow aspect of contract drafting and reviewing, but it is a very important issue and also the main point that Ba Huan Company relies on to “call for help” (in the business between Ba Huan and VinaCapital which has just ended). It is the matter of the language of the contract.

There is nothing worth discussing if the parties then sit back and find a common voice. In case of disagreement, but are forced to bring each other to the tribunal to adjudicate, how are these issues resolved from the perspective of Vietnamese law?

Legal provisions on language of the contract

Starting mainly from the need for state management, in some cases, for some specific types of contracts such as construction contracts, technology transfer contracts, consumer contracts (with the conception that consumers are Vietnamese), relevant legal regulations address that the Vietnamese version is required. For the rest, Vietnamese law generally does not lay too much emphasis on the language shown in the contract. Even the 2005 Commercial Law, which is considered as the main law governing the content of commercial transactions, does not mention that the language used in contracts must be Vietnamese or maybe a foreign language. Civil Code 2015 (Civil Code) also only stipulates that civil transactions are done verbally or in writing, not mentioning in detail the language aspect of the contract. This can be understood that all parties have the right to actively choose the right language to express their will, not necessarily Vietnamese.

The content is different between the foreign language version and Vietnamese version of the contract

The law on dispute settlement is not always complete, once the fate of their business has been placed in the internal trust and the fair ruling of the judge, the disputing parties are faced with many risks, no different from signing a contract without looking for a suitable professional consultant. Before waiting for a hero, businesses should save themselves first.

When consulting about contracts, lawyers always pay attention to controlling the risks related to the difference in content between two or three languages on a transaction. At that time, at the end of the last term  of the contract, there is usually additional content, such as: “This contract is made into [number of copies], English, Vietnamese and Mongolian versions are of equal value, in the event of any discrepancy among the English, Vietnamese and Mongolian versions, the Vietnamese version shall prevail”.

However, if there is no prior and clear determination of the preferred language used to explain the contract and unfortunately a dispute occurs, making one party more dominant than the other when the English language contract is applied and vice versa, in this case, how will the tribunal judge? There is an opinion that it should lead to the dispute settlement clause of the contract. For example, if the arbitrator is selected as the dispute settlement body and the language of the dispute has been determined to be English, then the English contract will prevail. On the other hand, if the court is the competent dispute settlement body of the contract, the Vietnamese version needs to be invoked because according to Article 20 of the Civil Procedure Code 2015 (CPC), the spoken and written language in civil procedures is Vietnamese.

All of these arguments are inaccurate because language in arbitration or court proceedings is a different category from the concept of contractual language. Procedure language is the language used by procedure bodies and involved parties to communicate in mediation proceedings, in arbitration sessions or in court proceedings. Meanwhile, the language of the contract is the language of evidence and is allowed to use foreign languages, ethnic minority languages (Item 3, Article 96 of the CPC) provided when it is submitted to the procedure body, the document can be translated into Vietnamese in the most truthful way and authenticated by the competent authority (in case court proceedings and arbitration proceedings use Vietnamese as the procedural language; accordingly, foreign language contracts cannot be invalidated by invoking dispute settlement language as aforementioned points).

In fact, when there is a serious difference in content between the Vietnamese version and the foreign language version without the regulation on a preferred language, the arbitrator or the court usually considers other evidence related to the process of forming the contract, such as meeting minutes, e-mails, correspondence exchanged between the two parties. Thereby, the judge will come to realize whether the mutual will that the two sides aim at in the related transaction lies in the foreign language version or Vietnamese version. On that basis, based on the equity, by the internal trust of the judge, they will decide which version is chosen to apply.

Unclear contract language

There are many reasons for this ambiguity, such as using a foreign language but not really understanding the meaning or context, using local words, or using expressions in an  unclear, confusing way, using acronyms, while one party subjectively believes that the counterparty understands the problem as well, leading to a situation in which a term of the contract can be understood in many different ways, even cannot be defined exactly what it says. In such cases, the mutual will or the general understanding of the contracting parties is the determinant explaining the ambiguity of the language of the contract in both the pre-proceedings and arbitration or court proceedings.

Under the provisions of Article 404 of the Civil Code on contract interpretation, in general, the judge will also have to rely on the relationship between the content of the dispute and other terms in the contract, with the evidence related to the will of the parties in the process of forming a contract for trial. In addition, since the dispute may involve interpretation of local wording and expressive culture, customs in which the contract was signed may also be referred to. In particular, the principle of explaining unclear terms on the basis of favor of the weak (such as the party not in charge of drafting the contract) is also used to resolve related disputes.

The language of the contract is clear, but does not reflect exactly the will of the parties involved

Whether the contract is in a foreign language or native language, once the commitment is clear (for example, the figure term recognizing the rate of return on investment 22 percent between Ba Huan and VinaCapital), a dispute that arises will not result in a requirement to explain the contract (or explain the language of the contract) because there is simply nothing to explain. Instead, in order not to have to fulfill the commitments, the parties must “follow” the path that requires the jurisdiction to declare the contract invalid.

Then, regardless of whether the transaction violates regulations of law or is contrary to social ethics, the jurisdictions often consider two main factors: (i) voluntary will (ii) whether or not the existence of signs of deception and misunderstanding affects the signing of this contract to determine whether the contract can be considered invalid or not. In particular, regaring commercial and civil transactions, the voluntary will is considered in a simple aspect, mainly the jurisdiction based on the subject’s civil act capacity, determining the authority to sign the contract, with the correct signature, the right seal, and when forming the contract, whether there was a sign of intimidation or not. On the contrary, the jurisdiction is always extremely strict and meticulous in considering the factors that indicate deception or the sign of misunderstanding in the signing of the contract to serve as the basis of invalidating a good term or the whole content of the contract.

Specifically, in order to prove the deception under the provisions of Clause 1, Article 127 of the Civil Code, the party that believes that he has been deceived must present legal and highly convincing evidence such as intentionally giving false information or concealing real information about the subject, the substantive nature of the incident, which leads them to be unaware, believing that false information and then deciding to sign a contract. In case of invalidation due to misunderstanding, Article 126 of the Civil Code provides that “in case a civil transaction is established due to misunderstanding, causing either party or parties to fail to achieve the purpose of the transaction establishment, the mistaken party has the right to request the court to declare the civil transaction invalid”. However, this is a very controversial regulation and is not easy to apply because the law has not mentioned or explained in detail who causes the fault that results in misunderstanding, whether the mistaken person must be aware of the possibility of misunderstanding or not, or how to determine that the purpose of the transaction is achieved.