CASE WON: DISPUTE BETWEEN MAJOR BANKS IN VIETNAM AND A FOREIGN-INVESTED YARN MANUFACTURER

ANHISA is delighted to announce a favorable resolution in a significant banking dispute, wherein we represented a foreign-invested yarn manufacturing enterprise as the Respondent, successfully procuring the reversal of an adverse first-instance judgment at the appellate stage.

In its ruling, the Appellate Court – the Supreme Court in Ho Chi Minh City partially granted the our appeal, quashed the first-instance judgment in its entirety, and remanded for retrial on the grounds of serious procedural irregularities and the failure of the court of first instance to adequately elucidate critical factual and legal issues pertaining to the secured assets and the respective obligations of the involved parties.

Case Overview

Our client is a foreign-invested yarn manufacturing enterprise and the Respondent in proceedings initiated by a major commercial bank in Vietnam (the Claimant – Bank 1).

The Respondent maintained:

• A medium-term loan of more than USD 5 million with the Claimant (Bank 1), secured by inventory and circulating goods, together with proprietary rights arising from receivables against third parties, and further guaranteed by the Respondent’s parent company in Singapore; and
• A long-term loan of more than USD 30 million with a state-owned bank in Vietnam (Bank 2), secured by land use rights and assets attached to land of two factories, as well as the machinery and equipment installed at those factories.

In the context of the COVID-19 pandemic in 2021, the Respondent experienced significant financial difficulties, resulting in certain loan obligations becoming due. Bank 2 subsequently took control of and seized the two factories. Notably, at the time of the seizure, the factories still contained a substantial volume of finished goods and raw materials, which constituted secured assets for the loan extended by the Claimant (Bank 1).

First-Instance Proceedings

The Claimant (Bank 1) thereafter commenced proceedings before the Court, seeking full repayment of the Respondent’s obligations under the relevant credit agreements.

During the first-instance proceedings, when the court conducted an on-site inspection of the factories then under the control of Bank 2, the entirety of the inventory and raw materials constituting security for the Claimant’s loan were found to be absent, with no satisfactory explanation provided for their disappearance.

We repeatedly requested that the Court summon Bank 2 as a party with related rights, obligations, to clarify its responsibility for the custody and preservation of the secured assets. However, the first-instance court declined to do so, reasoning that the assets were no longer present at the time of inspection.

The first-instance judgment subsequently ordered the Respondent to repay the entire outstanding debt, including principal, accrued interest and default interest, in the total amount of USD 7,312,401.71, and further required the Singapore-based parent company to perform its guarantee obligations, without addressing the fate of the missing secured assets or the corresponding responsibilities.

Appellate Proceedings and Court Findings

We represented the Respondent in filing an appeal before the Appellate Court – the Supreme Court in Ho Chi Minh City.

At the appellate hearing, we focused on demonstrating:

• Serious procedural violations by the first-instance court, particularly its failure to summon Bank 2 to determine responsibility for the management and loss of the secured assets. At the hearing, we challenged the Claimant to produce periodic inspection records in order to verify that, at the time Bank 2 took possession of the secured assets, raw materials and inventory were in fact still present at the factories.
• Inconsistencies and lack of clarity in the interest calculation methodology, as well as the legal validity of interest rate adjustments, given the Claimant’s failure to produce sufficient supporting documentation in accordance with applicable law and the credit agreements.

On this basis, the Appellate Court partially upheld the appeal, set aside the entire first-instance judgment, and remanded the case for retrial, to ensure that the dispute is resolved in an objective, comprehensive, and legally compliant manner.

Impact of the Appellate Judgement

The Respondent was represented by our Lead Trial Attorney Dang Viet Anh and  Partner Truong Cong Hong, supported by Associates  . From an early stage, we identified irregularities in Bank 2’s seizure and handling of the secured assets, as well as deficiencies and inconsistencies in the Claimant’s interest calculations and supporting documentation. These arguments proved decisive in persuading the appellate court to overturn the first-instance judgment.

Against this background, the appellate judgment carries broader legal significance beyond the outcome of the case itself. The Court’s reasoning clarifies several important principles.

1. Reaffirmation of the Claimant’s Burden of Proof in Interest Calculations

The appellate judgment reaffirms a fundamental procedural principle: the burden of proof rests with the claimant, particularly in substantiating claims relating to the calculation and adjustment of interest. The Court made clear that it is insufficient for a claimant merely to assert entitlement to interest. Rather, the claimant must demonstrate, with supporting evidence and legal justification, the applicable interest rate, the commencement date for interest accrual, and any adjustments claimed.

This approach reinforces evidentiary discipline in litigation and prevents speculative or unsubstantiated interest claims, ensuring that judicial determinations on interest are grounded in verifiable facts and clear legal reasoning.

2. Interpretation of Contracts in Favor of the Non-Drafting Party

The judgment underscores the established principle of contra proferentem, under which ambiguous contractual provisions are interpreted in favor of the non-drafting party. In circumstances where the contractual wording lacks clarity and the parties’ common intention at the time of contracting cannot be conclusively ascertained, the Court adopted an interpretation favoring the non-drafting party.

This principle promotes contractual fairness and serves as a caution to parties particularly those with greater bargaining power that contractual terms must be drafted with clarity and precision, as ambiguity may ultimately be construed to their disadvantage.

3. Judicial Duty to Safeguard Procedural Due Process

The appellate court emphasized its duty to ensure procedural due process, particularly by guaranteeing the participation of all necessary and interested parties in the proceedings. The absence of a required party risks undermining the fairness and legitimacy of the adjudicative process, as it may deprive that party of the opportunity to be heard and to protect its legal interests.

4. Alignment with the International Standard of Fair and Equitable Treatment (FET)

Notably, the reasoning adopted by the appellate court resonates with the international investment law standard of Fair and Equitable Treatment (FET). The judgment reinforces foreign investors’ legitimate expectations that disputes will be resolved in a manner characterized by transparency, consistency, and judicial fairness.

This alignment with FET principles contributes positively to perceptions of Vietnam’s legal environment, strengthening investor confidence and reducing the risk of international investment disputes arising from alleged deficiencies in domestic judicial processes.

Read the full judgement here: Link

For additional information regarding this decision or other matters, please contact us at anh@anhisa.com or hong@anhisa.com

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This article aims to furnish our clients and contacts with general information on the relevant topic for reference purposes only, without creating any duty of care on the part of ANHISA. The information presented herein is not intended to serve, nor should it be considered, as a substitute for legal or other professional advice.  

AUTHORS

DANG VIET ANH

Managing Partner

Mobile: (+84) 983 467070

Email: anh@anhisa.com

TRUONG CONG HONG

Senior Associate

Mobile: (+84) 909 814090

Email: hong@anhisa.com

TRAN THI BAO TRAM

Associate

Mobile: (+84) 332 245449

Email: baotram@anhisa.com

NGUYEN THI PHUONG THAO

Associate

Mobile: (+84) 919 205984

Email: thao@anhisa.com

VO THI MINH THU

Associate

Mobile: (+84) 708 000777

Email: thu@anhisa.com

ANHISA LLC AND OUR EXPERTISE

ANHISA LLC is a boutique law firm specializing in Dispute Resolution, Shipping and Aviation. Being the leading lawyers in various fields of law, our qualified, experienced, and supportive team of lawyers know how to best proceed with a case against or in relation to Vietnamese parties and are well equipped to provide clients with cost-effective and innovative solutions to their problems.

Regarding dispute resolution, we have represented Vietnamese and foreign clients in the resolution of disputes involving maritime, construction, commercial and civil matters. Our lawyers are well-equipped to offer services on a wide range of disputes and conflicts, whether cross-border or purely domestic, to appear before any Judges or Arbitral Tribunals. The firm is prepared to assist clients in designing the appropriate dispute resolution procedure to help resolve conflicts as efficiently and cost effectively as possible, which may involve combining elements of mediation and other methods such as arbitration.