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CorporateSouth Korea2023Joint Venture Dispute Between Vietnamese and Korean Partners
Matter Value
Successfully Resolved
$3.5M
Successfully Resolved
Client Context
A Korean industrial-equipment manufacturer with operations across Asia. In 2018, the client formed a 50/50 joint venture with a Vietnamese partner to manufacture and distribute the client's products in the Vietnam market. The JV company had charter capital of USD 4M, employed approximately 80 people, and had grown to annual revenue of around USD 11M by 2022. The shareholders' agreement (in English with Vietnamese translation) included a VIAC arbitration clause and clear deadlock-resolution provisions.
01
The Challenge
Beginning in mid-2022, the Korean shareholder began noticing irregularities in the JV's financial reporting. Monthly management accounts arrived later, contained fewer details than before, and showed unexplained variances. Multiple requests for the underlying ledger access were refused or delayed. Then specific transactions came to attention: a 'logistics' contract with a company connected to the Vietnamese shareholder, charging fees substantially above market; a 'consulting' arrangement with the Vietnamese shareholder's brother; equipment purchases from related parties at premium prices.
When the Korean shareholder formally raised these concerns, the Vietnamese shareholder responded by removing the Korean-appointed CFO, changing the company's bank-account signatories, and refusing to convene the next quarterly board meeting. The Korean shareholder's investment of USD 2M (50% of charter capital) plus retained earnings was effectively trapped in a company they could no longer control or audit.
The shareholders' agreement did contain a VIAC arbitration clause — but invoking it required navigating the Vietnamese legal procedures for emergency relief, ensuring the company's assets could not be further dissipated during the arbitration, and dealing with the practical reality that the Vietnamese shareholder controlled day-to-day operations.
02
Our Approach
We initiated VIAC arbitration under the shareholders' agreement, claiming damages, declaratory relief on the related-party transactions, and reinstatement of governance rights. Concurrently we filed in the competent Vietnamese court for emergency interim measures preserving the company's assets — specifically, freezing further payments on the suspect related-party contracts and requiring full disclosure of company financial records to a court-appointed accountant.
The interim measures were granted within fourteen days. The forensic accountant confirmed our preliminary view: total related-party transactions inflated above-market by approximately USD 2.8M over three years. The findings became central to the arbitration proceedings.
In the arbitration itself, we presented a comprehensive case across three theories: breach of fiduciary duty by the Vietnamese shareholder in its capacity as controlling executive; breach of the shareholders' agreement (specifically the related-party transaction approval requirements); and breach of the Enterprise Law's general duties of good faith and loyalty. The Vietnamese shareholder mounted a procedural defence (claiming the arbitration clause did not cover the disputed transactions) which the tribunal rejected after a preliminary hearing.
The arbitration proceeded to a full merits hearing in HCMC over three days, with simultaneous Korean-Vietnamese-English interpretation, expert evidence from independent valuation specialists, and witness testimony from the JV's former CFO and operations manager.
03
The Outcome
The VIAC tribunal issued a unanimous award in our client's favour: USD 3.5M in damages, costs of the arbitration and counsel fees borne by the Vietnamese shareholder, and a declaration of breach of the shareholders' agreement entitling our client to invoke buyout provisions. The award was successfully enforced through the Vietnamese courts after a brief recognition application.
The client subsequently exercised the buyout provisions and acquired the Vietnamese shareholder's 50% stake at a discount reflecting the breaches found. The JV is now wholly Korean-owned and continues to operate profitably in Vietnam under new local management. The client has since structured additional Vietnam investments using the same framework — but with stricter governance covenants and quarterly independent financial review built in from the start.
Lessons & Generalisable Insight
When a Vietnamese partner takes operational control and starts moving money to related parties, time is the central commodity. Court-ordered interim measures (asset freeze and document disclosure) within two weeks of filing changed the dynamic decisively — the Vietnamese shareholder's negotiating posture moderated immediately. The shareholders' agreement's arbitration clause and related-party transaction provisions, drafted with care five years earlier, paid for themselves many times over. For any new JV: build forensic-audit rights into the documentation from day one, and treat the deadlock and exit provisions as the most important parts of the agreement, not the least.
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