Vietnam-based companies with business interests abroad must remember that foreign courts have broad jurisdiction and substantial powers, Baker & McKenzie’s Frederick Burke tells StrategicRISK

In an in-depth discussion with SR following a recent seminar held in Ho Chi Minh City, Vietnam-based Burke said that after decades of economic reform and foreign investment, many Vietnamese companies were beginning to venture abroad to pursue business opportunities in telecommunications, real estate, banking, and distribution services.

“Inevitably, some of them become involved in disputes in jurisdictions with very different legal systems than Vietnam,” Burke (pictured, far left) told SR.

“Their experiences and missteps offer important lessons for any Vietnamese company with business interests abroad. “

Burke, who is managing partner at Baker & McKenzie, said Vietnamese companies must remember that foreign courts had broad jurisdiction and substantial powers.

“To avoid problems, Vietnamese litigants must respond pro-actively to legal challenges and understand that foreign court hearings are generally open to the public and can produce unwanted media or regulatory scrutiny,” he said.

As globalisation continued, the risk that Vietnamese companies may be summoned before foreign courts would only increase, Burke said.

“Vietnamese companies must understand and manage this risk within the context of their business relationships, and proactively protect their rights if challenged overseas,” he said.

Burke was a participant in a recent a seminar entitled ‘Risk identification and management for exporters to US and EU markets’, which was run by AIG Vietnam in partnership with Baker & McKenzie, FedEx and the Vietnam Economic Times.

The aim of the seminar was to help businesses in Vietnam identify potential risks, protect their bottom line and strengthen their competitive ability as they engaged with international markets.

Vietnam’s export volumes have been increasing at an average of 19.5% per year since 2007, the year it joined the World Trade Organization. Total estimated exports in 2013 amounted to $128 billion, ranking Vietnam 34th in export size globally.

Head of AIG Vietnam Susan Loftus told the seminar’s audience that it was important to help Vietnamese businesses grow both locally and internationally, and for businesses to be comfortable with the risks necessary to expand profitably.

“Vietnam is a growing economy – and some of this growth will be in areas new to our businesses,” she said.

“[That is why] we collaborate with various industry experts like those who are here with us today to bring a broad based set of knowledge and experience to businesses across Vietnam.”

Legal risks

Burke told SR that a network of foreign laws crossed national borders and applies to any company with international business connections.

“As Vietnamese companies expand abroad, they must carefully consider the legal risks, and be ready to protect their rights in foreign courts,” he said.

He pointed out that American competition law (or anti-trust law as it is known in the US), as well as foreign product liability and tort law, investment disputes and the legal risks associated with the use of unlicensed software could all spell trouble for Vietnamese organisations.

“A number of Vietnamese companies have experienced first-hand the broad authority of foreign courts to freeze or confiscate assets to satisfy judgments,” Burke added.

“For example, the state-owned Vietnam Airlines has felt the pinch of a foreign asset seizure.

In February of 2004, the French Committee for Debt Payment and Seizure froze EUR1.3 million in the carrier’s French accounts to satisfy a 1995 Italian court judgment.

“Later, a total of EUR5.2 million in Vietnam Airlines’ funds were seized and held in the accounts of the Paris Bar Association to satisfy the award and interest penalties.

“These funds remain frozen today, nearly two decades after Maurizio Liberati, an Italian attorney, sued his former employer, the ticketing agent Falcomar Co., and Vietnam Airlines in Italy.”

Burke said clever lawyers with a judgment in hand, like Liberati, were always on the lookout for foreign assets that could be seized.

“Increased international cooperation in judgment enforcement makes it difficult for a Vietnamese company, like Vietnam Airlines, to know where their foreign assets are safe from seizure,” he warned.

Burke said that Vietnamese companies were often unfamiliar with foreign litigation practice.

“In contrast to Vietnamese courts or international arbitration centres, most foreign proceedings are open to the public,” he said.

“Information revealed during hearings and the discovery process can result in embarrassing, and sometimes costly, disclosures for unprepared Vietnamese litigants.

“Therefore, Vietnamese companies wishing to avoid the public spotlight should make sure that any agreement they sign includes an arbitration clause for the confidential resolution of all disputes.”