US embassy cable - 03HANOI199

UNCLAS SECTION 01 OF 04 HANOI 000199 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS USTR FOR DUSTR HUNTSMAN AND EBRYAN 
USDOC ALSO FOR 6500 AND 4431/MAC/AP/OKSA/VLC/HPPHO 
TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: EINV, ECON, ETRD, VM 
SUBJECT: VIETNAM: ONE STEP FORWARD, TWO STEPS BACK - TYCO 
SERVICES LOSES APPEAL ON ARBITRAL AWARD ENFORCEMENT 
 
SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY 
 
1.  (SBU) Summary: On January 21, 2003, the Vietnamese 
Supreme Court reversed a May 2002 landmark decision by the 
Ho Chi Minh City Economic Court that would have recognized 
an international arbitral award for the first time in that 
city.  The Mission has been assisting Tyco Services 
Singapore since 2001 in its attempts to get two awards 
enforced in Vietnam.  Mission has also worked with the 
Ministry of Justice, which had reviewed the case and issued 
an advisory opinion to the Courts in support of Tyco's 
position.  The case was perhaps deceptively simple - the 
court was asked to enforce a legitimate international 
arbitration award, not reopen or reargue the original 
dispute.  However, at the real heart of this case is the 
current lack of understanding at the highest judicial levels 
of modern, market-based normal business transactions as well 
as a continuing lack of transparency. 
2.  (SBU) Summary cont'd:  The Supreme Court's reversal is 
particularly disheartening in light of the earlier decision 
by the HCMC Economic Court, which helped Vietnam garner much 
positive international press and good will last summer.  In 
fact, the presiding judge from the Economic Court presented 
a case-study at a USG-sponsored seminar that brought 
together all Supreme Court judges from around the country to 
discuss their important role in Vietnamese legal reform and 
implementation of the BTA.  Clearly, this decision, whether 
overturned on review or not, will have a negative impact on 
Vietnam's international reputation and its ability to 
attract foreign investment.  It casts further doubt on the 
transparency and fairness of the legal process and raises 
additional questions about Vietnam's ability to live up to 
its obligations under the U.S.-Vietnam Bilateral Trade 
agreement and the New York Convention.  Mission recommends 
that this issue be raised in the context of the BTA Joint 
Committee meeting, not to argue the merits of the case but 
to stress our expectation that U.S. businesses will be 
treated fairly by the Judicial system and that international 
commitments will be respected.  End Summary. 
 
BACKGROUND ON THE CASE AND THE LEGAL ENVIRONMENT 
 
3. (SBU) The Mission has been working with Tyco Services 
Singapore Pte Ltd., a subsidiary of U.S. firm Tyco 
International regarding Tyco's attempts to get two 
Australian arbitral awards enforced in Vietnam. We had also 
consulted the Ministry of Justice (MOJ) to express our 
interest and concerns regarding the case, the absolute need 
for transparency of the hearing and the decision making 
process, and the need for a full and fair hearing for the 
U.S. company, especially in light of Vietnam's commitments 
in the U.S.-Vietnam Bilateral Trade agreement (BTA).  The 
Ministry of Justice had reviewed the case and had issued an 
advisory opinion to the HCMC Court in support of Tyco's 
position.  The case was perhaps deceptively simple - the 
courts were asked to enforce a legitimate international 
arbitration award, not reopen, review, or reargue the 
original case. 
 
4.  (SBU) However, at the real heart of this case is the 
current lack of understanding of modern, market-based normal 
business transactions by a generally unprepared and 
untrained legal and judicial system.  The Vietnamese 
judiciary consists of the Supreme People's Court, the local 
people's courts, military tribunals, and other tribunals 
established by law. The Supreme Court, which has three 
regional seats - Hanoi, Ho Chi Minh City, and Danang - is 
the highest court of appeal and review.  The Ministry of 
Justice administers most district and provincial courts, and 
the National Assembly administers the Supreme Court. The 
judiciary also has Economic Courts and other specialized 
courts that resolve disputes in specific fields.  The 
Economic Courts have addressed few cases since their 
creation in 1995.  Cases are rarely appealed to the Supreme 
Court, where the judges have little experience and training 
in economics, trade and finance.  In fact, most judges and 
lawyers received their legal training in Socialist legal 
systems and are ill-equipped to deal with market-based 
concepts.  In particular, the distinction between trade in 
goods and trade in services is not well understood in 
Vietnam.  The MOJ attempted to clarify for the courts both 
this difference as well as Vietnam's obligations under the 
UN Convention of the Recognition and Enforcement of Foreign 
Arbitral awards (the New York Convention). (Vietnam is not 
yet a party to ICSID, but we are actively working with the 
GVN towards this goal in which the GVN has expressed 
interest.) 
 
5. (SBU) In 1995, Tyco had provided construction services 
for the Furama Resort Hotel in Danang for Hai Van Thiess 
(HVT), now know as Leighton Contractors Ltd, an Australian- 
Vietnamese joint venture construction company.  Tyco never 
received full payment and went to arbitration in Queensland, 
Australia as specified in their agreement with HVT.  In 
2000, Tyco won that case, as well as a subsequent appeal by 
HVT in Australia.  When HVT refused to pay the arbitral 
award ($2.2 million), Tyco filed an application in 2001 with 
the Vietnamese Ministry of Justice to have the award 
enforced in Vietnam under the Ordinance on Recognition and 
Enforcement of Foreign Arbitration Awards.  MOJ sent the 
case to Danang.  However, in July 2001, the Danang Court 
determined that it did not have the authority to hear the 
case because the company, HVT, had moved its headquarters to 
HCMC, reorganized its ownership and renamed the firm 
Leighton Contractors.  In August 2001, MOJ sent the case to 
the Economic Court of the HCMC People's Court. 
 
THE FIRST CASE - THE GOOD.. 
 
6.  (SBU) Tyco finally had its day in court in May 2002.  In 
its petition to the court to reject Tyco's claim, 
HVT/Leighton attempted to reopen the validity of the 
original arbitral award.  They argued that the application 
for enforcement be denied based on the allegation that the 
original Consortium agreement was invalid because it had not 
been certified by the Ministry of Planning and Investment 
(MPI), Tyco did not have license for foreign contractors 
from the Ministry of Construction, the consortium agreement 
was not a "commercial" agreement and so was not governed by 
the Ordinance on Economic Contracts or the Ordinance Foreign 
Arbitration, the Queensland arbitrator had violated 
procedures in settling the claims, and finally, the arbiters 
were biased and unfair. 
 
7.  (U) In its clear, well-written, and focused May 
decision, the HCMC Economic Court looked at each of these 
issues in a fair and legalistic manner.  The Judges Panel 
confirmed that under the Arbitration ordinance, they were 
not allowed to re-arbitrate the dispute and thus dismissed 
the argument that the agreement was invalid.  However, the 
Court went further in its decision and explored the argument 
on its merits.  HVT/Leighton argued that the agreement was 
invalid because the Ministry of Planning and Investment 
(MPI) had not certified it and Tyco did not have the legal 
capacity to sign because it did not have a license for 
foreign contractors issued by the Ministry of Construction. 
This argument hinges on an interpretation of the Ordinance 
on Economic Contracts, which only covers agreements signed 
between Vietnamese entities and foreign organizations in 
Vietnam.  As the agreement was for construction services, it 
was not necessary for Tyco to have a presence in Vietnam. 
The Panel found that the agreement was not governed by the 
Ordinance since Tyco did not have offices in Vietnam. 
Therefore, the agreement could not be found invalid under 
that law.  Going further, they found that even if the 
Ordinance did apply, the agreement clearly stated that the 
agreement would be interpreted and governed by Queensland 
law in the case of disputes.  Finally, even if Vietnamese 
civil law did apply, HVT would have had to take Tyco to 
court within one year of its signing in order to have the 
agreement invalidated.  Thus, the court ruled that Leighton, 
on its own, cannot declare the agreement to be invalid in 
order to avoid enforcement in Vietnam. 
 
8.  (U) The second argument that the agreement was not a 
"commercial relationship" and thus the arbitral award could 
not be recognized or enforced in Vietnam.(previous sentence 
is missing a verb or something)  This point is more 
technical.  However, in sum, HVT referred to a definition in 
the 1998 Commercial law that the Panel ruled it did not 
apply in this case, because it was not in effect at the time 
the agreement was signed. 
 
9. (U) The third argument that the Queensland arbitrator had 
violated procedures in settling the claims was based on a 
claim by HVT/Leighton that a decision by the arbiters had 
added a clause to the agreement related to bank guarantees. 
However, the Panel determined that this argument relates to 
the substance of the dispute, and the Panel did not have the 
authority to re-arbitrate the dispute. 
 
10. (U) Regarding the fourth argument that the arbitral 
decision was biased and unfair toward HVT/Leighton, the 
Panel examined the arguments and found that the charge was 
groundless and that the awards were issued in accordance 
with Australian law, per the agreement.  Thus, HVT/Leighton 
was instructed to pay the award.  HVT/Leighton promptly 
filed an appeal to the Supreme Court. 
 
THE SECOND CASE - THE BAD? 
 
11.  (SBU) The appeal of the Economic Court's decision was 
originally scheduled to be heard before the Supreme Court in 
HCMC on August 27, 2002.  However, HVT/Leighton succeeded in 
obtaining delays by changing lawyers several times, dragging 
it out by almost 6 months.  The Embassy weighed in with the 
Ministry of Justice to express our concern over the delays 
and the fact that the Court had actually exceeded its normal 
statutory time to hear the case.  When the case was finally 
heard on January 21, 2003, the Supreme Court overturned the 
earlier decision by the Economic Court, finding that the 
arbitral award was not enforceable in Vietnam. 
 
12.  (SBU) Although we do not yet have the written decision, 
EconOff HCMC attended the January 21 appeal hearing and 
provided a preliminary readout of the proceeding.  The 
presiding judge stated in the initial oral decision that - 
contrary to the lower court's decision - the court did not 
have the authority to enforce the arbitral award due to two 
factors.  First, Tyco failed to apply for a license from the 
GVN for its activities in Vietnam during the relevant 
period.  Therefore, it was operating outside the body of 
commercial law that could be used to enforce the award (N.B. 
We assume he means that Tyco, as a sub-contractor for 
services, was not covered under HVT/Leighton's construction 
license).  In particular, under Vietnamese law, Tyco's scope 
of work fell under "construction" rather than "commercial" 
(i.e. service) activity, requiring a separate foreign 
contractor's license.  Thus the Panel apparently ruled in 
favor of HVT/Leighton's original argument (see above) and 
found the agreement invalid, and thus unenforceable, under 
Vietnamese law.  In essence, they ignored the arbitral award 
and re-arbitrated part of the original case.  They also 
apparently largely ignored the MOJ's advisory opinion. 
 
AND THE UGLY. 
 
13.  (SBU) Tyco's local attorneys told Econoff HCMC that 
they were offered an opportunity to "become a friend of the 
court."  (N.B. We assume that's codeword for a payoff.) 
They declined the offer (but would not supply specifics as 
to who approached them) and lost the case.  The local 
attorneys believe - not provable, they note - that Leighton 
took up a similar offer.  The lawyers stressed that only 
strong political pressure can counterweigh any payoff that 
they believe was made. (Embassy Note:  In December when we 
were discussing our approach to the GVN on this issue, the 
local lawyers pushed hard for the Embassy to write to the 
Prime Minister, i.e. a political approach.  It was and is 
our position that in light of our attempts to reform the 
judicial system in Vietnam, such an approach that bypassed - 
and urged the GVN to bypass - normal legal channels was 
inappropriate.  We addressed this as a legal issue with the 
Ministry of Justice, which we knew was also in agreement on 
the legal facts of the case. End note.) 
 
14.  (SBU) However, Tyco's Hanoi-based representative was 
disappointed that their local lawyers had missed several 
important opportunities to clarify the legal nuances before 
the Supreme Court.  He noted that he "could have done a 
better job (of lawyering) himself."  (HCMC Econoff likewise 
was unimpressed by the Tyco attorneys' performance in 
court.)  For example, when the Panel raised the issue of 
whether Tyco required a license, the lawyers did not refute 
the assumption that a license was necessary (as the Economic 
Court had).  Instead, the lawyer replied that Leighton 
should have told them if it were necessary.  A more 
responsive answer arguing the law might have allayed some of 
the court's concerns. 
 
SUPREME COURT DECISION MAY BE REVIEWED 
 
15. (U)  Although, the Supreme Court is the final Court of 
Appeal in Vietnam, the MOJ confirms information conveyed to 
Econ FSN by one local judicial contact:  Tyco can still 
petition the case's review by senior judges in Hanoi. 
However, review is case by case, and there is no mechanism 
for automatic review. 
 
16. (SBU) Tyco clearly regards the decision as a major 
setback.  As Tyco reviews its options, it has asked for 
further Mission assistance in urging the GVN to enforce the 
arbitral award.  We will review with Tyco their analysis of 
the Supreme Court decision, in light of the earlier Economic 
Court decision, and explore appropriate options for action. 
 
COMMENT 
 
17.  (SBU) This decision is particularly disheartening in 
light of the earlier and much touted decision by the HCMC 
Economic Court.  Vietnam garnered much positive 
international press and good will last summer regarding this 
landmark case, the first international arbitral award to be 
enforced in Vietnam.  (N.B.  There are several other cases 
before the Hanoi Courts but none is final or involves a U.S. 
company.) For once, Vietnam was praised for a legal 
decision. In fact, the presiding judge from the HCMC 
Economic Court was invited by the GVN to present a case- 
study at a USAID-STAR project seminar that brought together 
Supreme Court judges from around the country to review legal 
reform and BTA implementation.  When the Ambassador 
addressed the Supreme Court judges at the opening of the 
seminar, he stressed their important role in Vietnamese 
legal reform and implementation of the BTA. 
 
18. (SBU) Clearly, this decision, whether overturned on 
review or not, will have a negative impact on Vietnam's 
international reputation and its ability to attract foreign 
investment.  It casts further doubts on the transparency and 
fairness of the legal process and also raises additional 
questions on Vietnam's ability to live up to its obligations 
under the BTA Investment Chapter.  International arbitration 
clauses are a key component of any business contract signed 
by foreign parties in Vietnam.  The Tyco case was the first 
"successful" attempt by a U.S. firm to have an international 
arbitral award enforced in Vietnam.   The high court's 
ruling - for whatever reason - will certainly cause many 
here and abroad to rate Vietnam a bit higher on the 
commercial risk scale. 
 
19.  (SBU) Mission recommends that this issue be raised in 
the context of the BTA Joint Committee meeting, not to argue 
the merits of the case but to stress our expectation that 
U.S. businesses will be treated fairly by the Judicial 
system and that international commitments will be respected. 
PORTER