Oh v. S Company Limited – Decision No. 28/2020/QĐKDTM-PT of the High Court in Ho Chi Minh City
The High Court in Ho Chi Minh City has refused to recognize and enforce a Korean appellate judgment concerning a dispute arising from the transfer of 100% equity in a Vietnamese company whose assets included land-use rights, factories, machinery, and associated immovable property. The Court held that the dispute fell squarely within the exclusive jurisdiction of Vietnamese courts under Articles 469 and 470 of the Civil Procedure Code 2015 (“CPC”), and that recognition of the foreign judgment would contravene fundamental principles of Vietnamese law.
Case Background
Ms. Oh, a Korean national was the sole owner of 100% charter capital of P Company Limited (“Company P”) located in Long An Province. On 04 April 2014, Ms. Oh and S Company Limited (“Company S”) entered into an equity transfer agreement. According to the agreement, Ms. Oh agreed to transfer the entirety of her capital contribution in Company P to Company S for a price of USD 3,500,000.
It is worthy to noted that the company P’s assets included land-use rights for a 10,000-m² plot in Long An Province, office buildings, workshops, production facilities, machinery and equipment, together with all corresponding rights and obligations under the Company P’s investment registration certificate and land-use rights certificate.
Following the execution of the agreement, Ms. Oh handed over possession of the factories and facilities of Company P to Company S on 11 April 2014. However, Company S did not fulfil its payment obligations. Ms. Oh issued several demands, terminated the agreement, requested the return of the premises, and ultimately regained possession on 31 October 2014. Thereafter, she initiated legal proceedings in the Seoul Central District Court.
The Seoul Central District Court ordered Company S to pay USD 400,000 together with interest of 6% per annum from 24 September 2014 to 22 May 2015, and 20% per annum thereafter until full payment. That judgment was affirmed by the Seoul High Court under appellate judgment No. 2015NA2034435 dated 05 February 2016. Ms. Oh subsequently sought recognition and enforcement of the Korean appellate judgment in Viet Nam pursuant to Part VII of the CPC.
Recognition and Enforcement
The DD Provincial Court, in Decision No. 01/2019/QDST-KDTM dated 23 December 2019, declined to grant recognition and enforcement in respect of Appellate Judgment No. 2015NA2034435 dated 5 February 2016 rendered by the Seoul High Court of the Republic of Korea.
Unsatisfied with the decision, Ms. Oh appealed to the High Court.
Ms. Oh’s grounds of appeal focused on two key elements:
- Nature of the dispute: The dispute arose from a share transfer agreement and concerned a party’s failure to pay the transfer price, rather than any dispute over
- Validity of the Korean judgment: The appellate judgment of the Korean court was valid and legally effective.
During the proceedings at Vietnamese Courts, the judgment debtor, Company S, objected to Ms. Oh’s application on the following grounds:
– Nature of the dispute: The share transfer agreement in substance amounted to a transfer of the entire Company P, whose assets included immovable property and movable assets. Accordingly, the dispute was essentially related to real estate and fell within the exclusive jurisdiction of Vietnamese courts, rather than the Korean courts.
– Violation of fundamental principles of Vietnamese law by the Korean judgments:
- Civil Code: Agreements conferring jurisdiction on a foreign court in transactions involving immovable property located in Vietnam are impermissible.
- Law on Investment and Law on Enterprises: The company transfer failed to comply with Vietnamese legal formality and procedural requirements and lacked the required approval from competent state authorities.
- Law on Enterprises: Ms. Oh, as the signatory to the share transfer agreement, lacked the legal authority to sell and transfer all shares of Company P.
The High Court’s reasonings and decisions
After examining the evidentiary record and the parties’ submissions at the hearing, the High Court held as follows:
- Nature of the dispute: Under the equity transfer agreement dated 4 April 2014, Ms. Oh transferred 100% of her equity interest in P Company Limited to S Company Limited for USD 3.5 million. Clause D, Section 3 of the agreement required Ms. Oh to provide the investment certificate and the land-use rights certificate to evidence for her entitlement to transfer the charter capital and the related rights to the land, buildings and facilities of P Company Limited. The assets transferred included factories, machinery and other assets attached to a 10,000 m² land parcel located in Long An Province, Viet Nam, which was certified by the competent Vietnamese authority. The dispute concerned the equity transfer of P Company Limited, whose registered office and immovable assets were located in Viet Nam, and between parties domiciled in Viet Nam.
- Exclusive jurisdiction of Vietnamese Courts: The Court held that, pursuant to Article 470.1 (a) of the 2015 Civil Procedure Code, disputes involving immovable property situated in Viet Nam fall within the exclusive jurisdiction of Vietnamese courts. As the dispute between Ms. Oh and S Company Limited related to an equity transfer involving immovable property located in Viet Nam, it was subject to such exclusive jurisdiction.
This approach adopted by the Court is consistent with the position taken by the Procuracy at the hearing. Accordingly, the Procuracy stated that the Korean judgment conflicted with essential principles of Vietnamese law concerning property transactions, enterprise representation and regulatory approvals for transfers of land-use rights. Because the validity of such transactions is governed by mandatory Vietnamese legislation, recognition of a foreign judgment purporting to adjudicate these issues would violate fundamental legal principles under Article 439.8 CPC.
The High Court refused to recognize and enforce Korean appellate judgment No. 2015NA2034435. It affirmed that disputes involving the transfer of companies whose assets include land-use rights and immovable property in Viet Nam fall within the exclusive jurisdiction of Vietnamese courts. Ms. Oh was ordered to bear the first-instance and appellate court fees, and the decision took effect immediately on 29 June 2020.
Our Comment
Exclusive jurisdiction under Article 470.1.(a) of the Civil Procedure Code
In disputes without foreign elements, where the parties are afforded a degree of procedural autonomy in selecting the competent forum, Vietnamese law provides that, depending on the nature of the dispute, the parties may elect to submit land disputes concerning the determination of land-use rights to either Vietnamese courts or competent People’s Committees, as stipulated in Article 236.1 and 2 of the 2024 Law on Land; or to choose either courts or arbitration to resolve disputes arising from commercial activities related to land, in accordance with Clause 5 of Article 236 of the 2024 Law on Land.
Article 470.1.(a) of the Vietnamese Civil Procedure Code provides that foreign disputes relating to immovable property situated in Viet Nam fall within the exclusive jurisdiction of Vietnamese courts.
Accordingly, with respect to disputes involving foreign elements, the exclusive jurisdiction of Vietnamese courts is broader, pursuant to which Vietnamese courts are vested with the authority to resolve disputes the resolution of which relates to rights over immovable property, including the rights of use, disposition, and possession, in respect of immovable property as defined under Article 107 of the 2015 Civil Code, which includes land; houses and construction works attached to land; other assets attached to land, houses, or construction works; and other assets as prescribed by law.
This provision reflects the mandatory nature of Vietnamese law governing land-use rights, which are closely linked to State sovereignty and public administration.
Broad interpretation: Beyond direct immovable property disputes
Vietnamese courts have adopted a substance-over-form approach when interpreting Article 470.1.(a). of the Vietnamese Civil Procedure Code. Accordingly, the exclusive jurisdiction rule is not limited to disputes where immovable property is the direct object of the claim, but also extends to disputes whose resolution affects the control, use, or disposition of land-use rights in Viet Nam. This includes certain corporate or contractual disputes which, although formally characterized as share or equity transfers, are closely connected to immovable property.
This broader interpretation is reflected in the approach adopted by the High Court in Decision No. 28/2020/QDKDTM-PT. In that case, although the dispute was formally characterized as arising from an equity transfer agreement, both the first-instance court and the appellate court together with the Procuracies at the corresponding levels—adopted a consistent view that the dispute fell within the exclusive jurisdiction of Vietnamese courts.
The courts emphasized that the transfer of 100% of the equity interest resulted in the transfer of control over a company whose principal assets consisted of land-use rights and immovable property located in Viet Nam. The determination of payment obligations and contractual validity under the equity transfer agreement therefore had a direct bearing on the control and disposition of such immovable property. On that basis, the dispute was held to fall within the scope of Article 470(1)(a) CPC, notwithstanding the absence of an express claim seeking the transfer of land-use rights as such.
Practical implications for foreign investors and FDI enterprises
When drafting contracts, parties should give careful consideration to whether the performance of the agreement affects or relates to land-use rights or immovable property in Viet Nam, as this factor may be decisive in determining the competent forum for dispute resolution.
Under Vietnamese law, for disputes without foreign elements, parties generally enjoy a degree of flexibility in choosing the dispute resolution mechanism. Specifically, disputes concerning the determination of land-use rights may be resolved by either Vietnamese courts or competent People’s Committees, while disputes arising from commercial activities related to immovable property may be submitted to Vietnamese courts or arbitration.
This flexibility, however, is significantly reduced where a dispute involves foreign elements. In such cases, Vietnamese law confers exclusive jurisdiction on Vietnamese courts over disputes whose resolution is closely connected with rights over immovable property located in Viet Nam. Accordingly, when a contract involves foreign parties or Vietnamese parties residing abroad, and its performance relates to land or immovable property, the choice of forum requires particularly careful assessment.
The parties should ask two key questions at the drafting stage:
- Is the contract capable of giving rise to a dispute involving foreign elements?
- If so, would the resolution of that dispute affect the use, control, or disposition of any immovable property in Viet Nam?
For instance, when entering into a share transfer agreement involving a company that owns immovable property in Viet Nam, between a foreign shareholder and another individual or legal entity, the following issues should be considered:
- Transfer of a minority shareholding, where the transfer does not affect the rights of use, possession, or disposition of immovable property owned by the company (e.g., a minority shareholder holding 3–4% of the shares, whose transfer does not alter control over the company’s immovable assets): The parties may agree to submit disputes to Vietnamese courts, foreign courts, Vietnamese arbitration, or foreign arbitration; or
- Transfer of a controlling or majority shareholding, or where the transfer affects the rights of use, possession, or disposition of immovable property owned by the company (e.g., a shareholder holding 60% of the shares, or the sole owner holding 100% of the charter capital of a limited liability company): The parties should agree to submit disputes to Vietnamese courts to avoid the risk that any foreign judgment or arbitral award may be refused recognition or enforcement on the ground of lack of jurisdiction due to exclusive jurisdiction rules.
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