Explaining viet nam bloom in business litigition

The Economic Courts, which handle business related cases, have been most affected by this trend, seeing the growth in their caseload outpace that in the regular civil court system.. This

Explaining Vietnam’s Boom in Business Litigation

Quach Thuy Quynh

Sean McGinty

A BSTRACT

In recent years, Vietnamese courts have faced a caseload that is increasing at a rate of ten to twelve percent annually The Economic Courts, which handle business related cases, have been most affected by this trend, seeing the growth in their caseload outpace that in the regular civil court system This paper examines the explanatory power of three factors – cultural, institutional and economic – in determining this explosion in the number of business disputes litigated in the Economic Courts

Using data from 2003 to 2012, the paper finds that institutional and economic factors rather than cultural ones offer the best explanations for this upward trend in the number of business cases in Vietnam The findings enrich the literature on institutions in transition economies, by identifying them as determinants of choice of enforcement devices This contributes to the debate on choice of enforcement device by providing evidence from both an Asian country and

a transition economy The research findings may also inform current legal reform in countries which have been allured by the model of strong private enforcement in the United States

Acknowledgment: The authors are grateful to Nguyen Duc Minh, Lecturer of Business Statistics at RMIT

University Vietnam, for his assistance to analyze data and his comments for this paper Any errors, of course, are the authors’ sole responsibility.

List of Abbreviations

Table of Contents

1 Introduction

2 A Decade-long Upward trend in Business Cases

3 Hypotheses and Indicators

4.2 Various Impacts of Institutional Arrangements on Caseload

4.2.1 The quantity rather than the competency of judges is correlated with caseload 4.2.2 Variation in number of lawyers and professionalism of lawyers

4.2.3 Weak role of ADR

4.3 Not all Indicators of the Development of Enterprises is Correlated with the Number of Newly-Filed Cases

5 Discussion

5.1 No Evidence for the Cultural Hypothesis

5.2 Moderate Evidence for the Institutional Hypothesis

5.3 Positive Evidence for Economic Hypothesis

6 Conclusion

1 I NTRODUCTION

Since 1994 litigation related to business disputes in Vietnam has been handled separately from other civil cases in the country’s Economic Court system Earlier literature on the Economic Courts1 noted the relatively low number of business disputes being litigated in them Particularly Nicholson and Duong, drawing on an overview of the policy, legislation, case law and user statistics through 2006, concluded that it was premature to describe the courts as having “either widespread appeal or legitimacy.”2

More recently, however, there has been a marked increase in the number of business cases being litigated before the courts Between 2003 and 2012 the number of cases increased at a rapid rate While some of this was part of a broader trend in increased litigation not limited to business cases, the rate of increase in the Economic Courts is much higher than in the normal civil courts Business people in Vietnam, in short, are litigating their disputes at a much higher rate now than they were just a few years ago, which begs the question of what has caused this mini boom

In approaching this question, we use data related to judges, lawyers and litigants to evaluate three different theories that might explain the recent surge in business litigation in Vietnam’s Economic Courts These theories are drawn largely from literature outside of Vietnam, particularly in Japan, which has been subject to what some might describe as an overly exhaustive debate on what determines its litigation rates, and from the fields of institutional economics and law and society

The first of these, which we call the “cultural hypothesis” suggests that cultural norms dominant within a given country may discourage resort to litigation This line of thinking has particularly colored Western views on the role of litigation in Asian countries such as Vietnam

As Taylor and Pryles describe it:

“One of the much-touted characteristics of ‘Asian culture’ is the reluctance to go to law – usually interpreted as an unwillingness to mobilize formal legal processes, except as a last resort, coupled with circumspection (or realism) about the limits of what a legal

‘solution’ can deliver.”3

In Japan a similar idea, that socio-cultural preferences deterred people from settling disputes, was famously used by Takeyoshi Kawashima in the 1960s4 to explain why litigation rates in that country were so low in comparison to the United States More recently arguments have been made that Asian people rely more on non-litigation devices such as compromise, mediation, conciliation, or arbitration5, are bound by cultural values of harmony and face

1 Pip Nicholson and Minh Duong, Legitimacy and the Vietnamese Economic Court, in NEW COURTS IN ASIA

(Andrew Harding and Pip Nicholson eds, 2010) 31

2 Ibid, at 49

3 Taylor, Veronica L., Pryles M., The Culture of Dispute Resolution in Asia, in IS T HERE AN ‘A SIAN ’ S TYLE OF

D ISPUTE R ESOLUTION ? (Michael Pryles ed.) (1997), at 13

4 Takeyoshi Kawashima, Dispute Resolution in Contemporary Japan, in LAW IN JAPAN, THE LEGAL

ORDER IN A CHANGING SOCIETY (Arthur Taylor van Mehren Ed., 1963) 41

5Fletcher, Louise, Mara Olekalns, and Helen De Cieri Cultural differences in conflict resolution: Individualism and collectivism in the Asia-Pacific Region (1998) (presenting data collected by a poll survey of 378 second-

year graduate students at Melbourne University, Australia in April 1997 The survey showed that generally, Asian students often choose compromising rather than collaborating and accommodating, while Australians

saving, and are “less adversarial and [less] litigious, less intent on demonstrating right and wrong, [and] more concerned with avoiding conflict.”6 Rationales for the existence of this cultural aversion across such a diverse range of countries differ, Kawashima citing hierarchical social structures and a preference for harmony in Japan, while others have noted the use of law primarily as a mechanism for state control and the effects of European colonial legal structures

in other Asian countries.7

The cultural hypothesis is, however, by no means as widely accepted now as it once was Empirical studies illustrate that Asians are no less litigious than Westerners in resolving both domestic and cross-border trade disputes.8 It is also debatable whether a low rate of litigation

in Asian countries, if it actually exists, is unique.9 While advocates of the cultural hypothesis may point to culture as a hurdle to the importation of Western legal devices, this argument seems to lack solid footing.10 As John Haley has noted “[t]o ask whether a culturally bound, Eurocentric definition of law existed in China is almost as silly as asking whether the Chinese emperor reigned in Rome”.11 Of perhaps more concern, the culture theory can sometimes provide a convenient excuse which legal reformers often rely on when an imported legal scheme does not function well.12 To challenge the cultural theory, scholars have supplied empirical data on increasing litigation rates, examined specific institutional arrangements in Asian countries, or employed rational behavior models to prove that factors other than culture are at work in forming the patterns of dispute resolution.13

prefer compromising to accommodating and competing This implies that Asian are led by their culture values

in conflict situations to avoid competing); See also Michael Pryles, supra note 1 reviewed by Gillian Triggs, 23 Melbourne U L.R 550, at 552 “[t] he contributors [of the book] confirm the widespread view that mediation and negotiation are the cornerstones of Asian systems of dispute resolution”.

6Kahler, Miles, Legalisation as strategy: the Asia-Pacific case, 54.3 International Organisation 571 (2000), at

560

7 Taylor, Veronica L., Pryles M., The Culture of Dispute Resolution in Asia, in IS T HERE AN ‘A SIAN ’ S TYLE OF

D ISPUTE R ESOLUTION ? (Michael Pryles ed.) (1997), at 13

8 Haley, John Owen, The Myth of Reluctant Litigant, 4 Journal of Japanese Studies 359 (1978) (presenting data for a rising rate of cases during the postwar period in Japan); Hisashi Owada, The Rule of Law in a Globalising

World – An Asian Perspective, 8 Wash U Glob Stud L Rev 187 (2009) at 202 (showing that “…countries in

the Asian Pacific region do not appear any less likely to adhere to their WTO commitments than…countries in the EU …since 1995, East-Asia countries have participated in as many as ninety-one dispute settlement procedures before the WTO Settlement Body”)

9 Haley, John Owen , Litigation in Japan: A New Look at Old Problems, 10 Willamette J Int'l L & Dis Res 121

(2002).

10 Taylor and Pryles, supra note 7 at 4-7 (noting that it is hard to generalise Asian legal local culture due to intrinsic

differences of each nation and economy) See also

11 John O Haley, Law and culture in China and Japan: A framework for analysis, 27 MICH J INT'L L 895

(2005)

12 Tim Lindsey, History Always Repeats? Corruption, Culture, and 'Asian Values', in CORRUPTION IN ASIA:

RETHINKING THE GOVERNANCE PARADIGM 1-23 (Timothy Lindsey & Howard W Dick eds., 2002)

13 For a discussion of litigation rate in Japan, see John Owen Haley, The myth of the reluctant litigant, 4

JOURNAL OF JAPANESE STUDIES 359 (1978) (presenting data to challenge preceding articles which claim that Japanese are nonligitious people because they incline to preserve social order and personal reputation rather than being wealth maximising litigants The view was challenged by arguments that low numbers of lawsuits in Japan caused by special institutional arrangements such as mandatory conciliation for some disputes, delay of cases due to paucity of judges and lawyers, limited available remedies can be found at court);

J Mark Ramseyer, Reluctant litigant revisited: rationality and disputes in Japan, 14 JOURNAL OF

JAPANESE STUDIES 111 (1988) (showing flaws of Haley’s arguments by a model which assumes that wealth maximising is not the sole cause, for Japanese often choose to settle instead of going to trial Stability and predictability of the court system enables the disputants to settle since they may end their dispute with a result rather identical with court decision, while adhere social norm and their reputation); Tom Ginsburg &

Glenn Hoetker, The Unreluctant Litigant? An Empirical Analysis of Japan's Turn to Litigation, 35 JOURNAL

OF LEGAL STUDIES 31 (2006) (using empirical data to test cultural theory, institutional theory and political

The second theory we examine is what we deem the “institutional hypothesis”, which suggests that institutional factors related to the courts which affect their accessibility play a significant role in determining litigation rates This theory evolved largely as a response to the cultural hypothesis, notably with John Haley’s work14 examining the relevance of factors such as the limited number of lawyers and judges in Japan as explanations for its low litigation rates The simple yet obvious point which this theory makes is that these types of factors may influence the time that courts take to resolve a dispute and the cost they impose, which in turn may make other means of dispute resolution more desirable

The third theory we examine is the “economic hypothesis” which suggests that changes in litigation rates are connected to the development of a country’s overall economy Varying branches of this have been developed separately by institutional economists and law and society scholars The former15 have posited a strong relationship between the protection of property and contractual rights on the one hand and economic growth on the other Litigating

to protect those rights is one (but by no means the only) way of protecting those rights and thus litigation may be part of a broader set of institutional changes that drives economic change The latter16, focused more specifically on litigation rather than broader questions of enforcement, find that economic growth impacts the rate at which people go to court Rising complexity, increases in the number of transactions and the replacement of social relationships favoring informality are among the factors associated with economic growth that may lead to greater reliance on formal court procedures to resolve disputes The main difference between these two views is that institutional economists tend to view the enforcement of legal rights as

a prerequisite to economic growth, while law and society scholars tend to view causation as running the other way – changes in litigation being the result rather than the cause of economic growth For our purposes, we approach the economic hypothesis as a question of whether or not certain indicators, including the number of enterprises and rates of investment, are correlated with changes in the litigation rate (regardless of which direction causation flows)

Though we approach these three theories separately there is in fact a great deal of interdependence between them which is difficult to parse out Cultural norms on when it is acceptable to sue for example may themselves be determined by the relative ease with which courts can be accessed or the degree to which they are trustworthy Likewise, governments may find it easier to pursue policies which put institutional limits on such access (such as by capping the number of lawyers) in societies where cultural norms favor other means of resolving disputes anyway And changes in economic wealth and the material well-being of a society may obviously instigate changes to cultural norms and the ability to provide judicial

explanation for low litigation rates in Japan Their findings find no support for cultural theory, and strongly

support for institutional theory), and Giorgio Fabio Colombo and Hiroshi Shimizu, Litigation or Litigiousness?

Explaining Japan’s “Litigation Bubble” (2006-2010), 4 OXFORD U COMPARATIVE L FORUM (2016),

noting the role of changes in substantive law with respect to interest rates on loans which prompted a short term flood of litigation in Japan

14 Haley, supra note 13

15 Notably DOUGLASS C NORTH, INSTITUTIONS, INSTITUTIONAL CHANGE AND ECONOMIC PERFORMANCE (Cambridge university press 1990)

16 See for example Christian Wollschläger, Civil litigation and modernization: The work of the municipal courts

of Bremen, Germany, in five centuries, 1549-1984, 24 LAW AND SOCIETY REVIEW 261 (1990 ); Joel B

Grossman & Austin Sarat, Litigation in the federal courts: A comparative perspective, 9 LAW & SOCIETY REVIEW 321 (1975 ); Theodore Eisenberg, et al., Litigation as a measure of well-being, 62 DEPAUL L REV

247 (2012)

institutions that run well and are accessible For this reason most proponents of each theory have avoided taking exclusivist positions and approached it as a question of which factors have greater explanatory power rather than seeking to exclude competing explanations entirely.17

We limit ourselves in this paper to addressing the roles these various factors played in determining the specific increase in litigation before the Economic Courts over the decade to

2012 rather than to explaining the entirety of Vietnamese litigation as a whole In doing so we attempt to create an explanation of this trend which accounts for the relevant role played by each – cultural, institutional and economic Among the questions we ask are whether a reduced cultural aversion to litigation may play a role? Or is the increase in litigation the result of improvements to judicial institutions, through law reforms or other changes, which have made litigation more attractive? Or is it more the mere by-product of broader economic development which has expanded the number of firms and transactions taking place, thus increasing the number of potential litigants and disputes?

Business disputes like those subject to the jurisdiction of the Economic Courts are one of the most dynamic areas to manifest the effectiveness of law reform.18 Different from previous studies on the behavior of businesspeople in Vietnam such as McMillan & Woodruft (1998)19, McMillan & Woodruft (1999)20 or Steer & Sen (2010)21, the article does not focus on examining how firms enforce their contracts (through public or private enforcement devices) Rather, the aim is to explain what has caused the recent turn to litigation We find that the evidence provides stronger support for the economic hypothesis as an explanation than the other two we examine, particularly the cultural explanation Our findings may extend the conclusions made by Ginsburg & Hoetker22 about litigation in Japan by providing evidence from another Asian country The paper consists of five sections Section two describes the upward trend of litigation in Vietnam from 2003 to 2012 The next section presents our hypotheses for explaining the trend and the indicators chosen to examine the hypotheses Section four presents the findings and is followed by section five discussing the empirical findings Conclusions follow

2 A D ECADE - LONG U PWARD TREND IN B USINESS C ASES

Previous research found that the number of civil cases filed in Vietnam’s courts gradually increased at an annual rate of around 3.3% from 2000 to 2005.23 A sudden jump in 1999 (compared with the previous year) was implicitly explained as a result of the introduction of Vietnam’s Civil Code 1997 and its guiding rules which removed obstacles to the filing of civil

17 See Colombo and Shimizu supra note 13: “Unsurprisingly, the long debate sparked by this line of research

eventually lead to the opinion, shared by the vast majority of scholars, that each position has some elements of truth and it is very difficult nowadays to find somebody exclusively relying on one or the other theory.”

18 In Vietnam, business cases are named economic cases and are heard by a specific court differing from the court which hears civil cases In the context of this paper, for the ease of understanding of Anglo-American readers, business cases is used as an alternative term for economic cases

19 John McMillan & Christopher Woodruff, Interfirm relationships and informal credit in Vietnam, 114 THE

QUARTERLY JOURNAL OF ECONOMICS 1285 (1999).

20 John McMillan & Christopher Woodruff, Dispute prevention without courts in Vietnam, 15 JOURNAL OF

LAW, ECONOMICS, AND ORGANIZATION 637 (1999).

21 Liesbet Steer & Kunal Sen, Formal and informal institutions in a transition economy: The case of Vietnam,

38 WORLD DEVELOPMENT 1603 (2010)

22 Ginsburg & hoetker, supra note 13

23 PENELOPE NICHOLSON, BORROWING COURT SYSTEMS: THE EXPERIENCE OF SOCIALIST VIETNAM (Martinus Nijhoff Publishers 2007), at 260-265

disputes, especially land disputes.24 Cases filed by businesses, however, followed a U-shape pattern in the period, dropping from 1,514 cases in 1999 to 884 cases in 2001 and then recovering to 1,495 cases at the end of the period.25Given that the Economic Court was established in Vietnam in 1994, this fluctuation in the number of business cases was explained

as a consequence of “forum testing”.26 Unlike civil cases, labour cases and administrative cases, business cases in this period did not show much growth This demonstrated “the Economic Court’s unpopularity, more than ten years after its introduction, [and] supports the arguments that there are strong informal institutional network substituting for the law in Vietnam.”27

Our data shows that the trend reversed itself in the period from 2003 to 2012.28 During that decade, both civil cases and business cases increased significantly However the growth rate of the latter far exceeded that of the former The number of new civil cases filed each year fluctuated significantly during the period with the highest increase of 21% coming in 2012 and the lowest of -5% in 2004. 29 From 2007 to 2012 the number of new business cases being filed

at courts increased around 300% from 5,198 to 14,103 cases (Figure 1)

The rapid growth of business cases can be seen more clearly when the ratio of civil cases per 1,000 citizens and business cases per 1,000 enterprises are compared During that period, the ratio of civil cases remained stable at less than three cases per 1,000 citizens while the ratio of business cases vastly increased from 10 to 33 cases per 1,000 enterprises The second ratio rose year by year from 2003 to 2006 with a trough in 2004 and reached its highest point in 2007 In the second period from 2009 to 2012, the ratio varied less and maintained a level of around 20

to 24 cases per 1,000 firms (Figure 2)

27 N ICHOLSON ,supra note 11, at 263

28 Source: Toa an nhan dan toi cao, 28/BC-TA, Bao cao tong ket cong tac nam 2003 va nhiem vu trong tam nam

2004 (The Annual Reports 2003 of the Vietnamese People’s Supreme Court (SPC dated 25 December 2003; Toa an nhan dan toi cao, 35/2004/BC-TA, Bao cao tong ket cong tac nam 2004 va nhiem vu trong tam nam

2005 (The Annual Reports 2004 of the SPC dated 30 December 2004; Toa an nhan dan toi cao, 42/BC-TA, Bao cao tong ket cong tac nam 2005 va nhiem vu trong tam nam 2006 (The Annual Reports 2005 of the SPC) dated

28 December 2005; Toa an nhan dan toi cao, 01/BC-TA, Bao cao tong ket cong tac nam 2006 va nhiem vu trong tam nam 2007 (The Annual Reports 2006 of the SPC) dated 05 January 2006; Toa an nhan dan toi cao, 05/BC-

TA, Bao cao tong ket cong tac nam 2007 va nhiem vu trong tam nam 2008 (The Annual Reports 2007 of the SPC) dated 17 January 2008; Toa an nhan dan toi cao, 05/BC-TA, Bao cao tong ket cong tac nam 2012 va nhiem vu trong tam nam 2013 (The Annual Reports 2012 of the SPC) dated 18 January 2013; Vietnam Chamber

of Commerce and Industry & USAid, Policy Paper #14, PCI 2009: The Vietnam Provincial Competitiveness Index 2009 (2009); Vietnam Chamber of Commerce and Industry & USAid, Policy Paper #15 PCI 2010: The Vietnam Provincial Competitiveness Index 2010 (2010); Vietnam Chamber of Commerce and Industry & USAid, Policy Paper #16, PCI 2011: The Vietnam Provincial Competitiveness Index 2011 (2011)

29 Statistic numbers of the year 2008 and 2013 cannot be collected since in the year 2008, the SPC’s statistics did not include breakdown of business cases This lack of data represented by gap or zero value in the figure exaggerates the difference between civil cases and business cases

Figure 1: Annual growth rate of civil cases and business cases from 2003-2012

Figure 2: Newly-filed civil cases per 1000 citizens v Newly-filed business cases per 1000 firms

from 2003-2012

The above analysis seems paradoxical in light of the conventional view that Vietnamese businesspeople do not want to use the court system It also refutes any assumption that an increase in the number of business cases is the consequence of a growth of litigation in general Businesspeople tend to be leaders rather than followers on the litigation bandwagon, having become more litigious than disputants in any other type of civil dispute This is made all the more puzzling by the fact that Vietnamese businesspeople have persistently held skeptical views about the capacity of the legal system to protect their legal rights.30 These doubtful views held by businesspeople are difficult to reconcile with the sharp increase in their use of the Economic Courts in Vietnam since 2003 In the next section we set out three hypotheses that might explain this puzzling divergence

200 4

200 5

200 6

200 7

200 8

200 9

201 0

201 1

201 2 Civil cases growth

rate 1% -5% 18% 7% 17% 2% 11% 1% 4% 21%

Business cases growth rate 1% 2% 69% 92% 81% 29% 9% 29% 49%

Business cases/1000 firms

3 H YPOTHESES AND I NDICATORS

“culture” is, especially in the early literature on Japan, sometimes portrayed as a fixed endowment of society – something received from past generations which is slow to change such as the suggested Asian cultural aversion to litigation In fact however cultural norms can

be contingent on the institutional and economic factors we also examine Vietnamese business people are perhaps unlikely to find their decisions to sue influenced by an immutable set of traditional Asian values, but may be guided by a more malleable set of cultural norms that are molded by the efficacy of the judicial system they must use In order to explore these issues,

we use the cultural hypothesis to check two assumptions:

First, if a common cultural value against litigation does act as a hurdle, it would suggest that

the upward trend in litigation in Vietnam may be caused by businesspeople who do not adhere

to that cultural value Accordingly, one would anticipate that plaintiffs in business cases in Vietnam would be mostly foreign businesspeople or representatives of state-owned enterprises (SOEs) who act collectively and are thus less likely to be influenced by traditional cultural values To examine this hypothesis, we first aimed to find who constituted the majority of

plaintiffs in newly filed business cases in the country: Are they mostly foreign entrepreneurs, SOEs’ representatives or owners of private domestic enterprises? Data of 2009, 2010, 2011,

and 2012 was used as proxies for the whole period as the statistics are not available for the years from 2003 to 2008

Second, if Asian culture is no longer (or never was) a hurdle to litigation due to changes in

norms held by business people, we may expect to see not only a rise of newly-filed business cases but also more and more Vietnamese business people expressing confidence in the

effectiveness of the court system In other words, we need to answer the question: Has there been any gradual change of Vietnamese businesspeople’ attitude towards litigation? To

examine this, the Provincial Competitiveness Index (PCI)’s soft data on how businesspeople assess the effectiveness of the courts was examined PCI measured the ratio of businesspeople who agree with statement that their “firm is confident that the legal system will uphold [the firm’s] property rights and contracts.” This reflects the preference of businesspeople who may choose litigation over informal means of solving their disputes

3.2 Institutional Hypothesis

Institutional theory has been dominant in the search for explanations for the effectiveness of legal transplants in Asian countries and transition economies.33 According to institutional

31 Haley, supra note 8; Ramseyer, supra note 13; Colombo and Shimizu, supra not 13

32 See for example Ramseyer, supra note 13

33 For a general view, see JOHN L CAMPBELL & OVE KAJ PEDERSEN, THE RISE OF NEOLIBERALISM

theory, the specific patterns of litigation in a country are shaped by its institutional arrangements. 34

By its nature, litigation is dependent on the institutions in which it takes place The effectiveness of litigation as well as the frequency of its use depends on the availability of other institutions including: (i) strong courts with proficient judges; (ii) professional lawyers and a developed legal service market; (iii) availability and cost of alternative dispute resolution mechanisms; and last but not least (iv) the procedural and substantive regulations which govern the process of litigation. 35

Our hypothesis takes as an assumption the existence of rational disputants.36 When one has to choose an enforcement device in a legal dispute a rational disputant is likely to choose the device which has the lowest cost, requires the lowest time commitment and which offers the most predictable outcome This means that disputants are more likely to sue if the court is staffed by more capable judges with greater authority Similarly, people are more likely to sue

if there are more lawyers who can help them to navigate the legal process in court, and if the time and cost incurred in resolving a case are reduced by legal reforms

To measure the number and competency of judges, we use data reported by SPC from

2003-2012 However it is important to note that data for some years was estimated or is lacking

because of inconsistencies in the way it was reported To measure the competency of judges,

we use three indicators: (i) the number of unresolved cases each year; (ii) the median months

to resolve a case, and (iii) litigation costs to resolve a case The assumption is that the more competent the judges are, the lower the number of cases unresolved each year, the fewer months needed to resolve a case and also the lower the litigation cost is The median months needed to resolve a case were retrieved from entrepreneur’s assessments in PCI reports The litigation cost was measured by the median of the sum of formal and informal costs as a percentage of the case

To measure the number and professionalism of lawyers, we use data at the provincial level

from 63 provinces in 2012 to examine the relationship between the number of lawyers and the number of new cases filed in a province We limit the data to a single year due to the

AND INSTITUTIONAL ANALYSIS (Princeton University Press 2001) Also see Lucian Arye Bebchuk &

Mark J Roe, A Theory of Path Dependence in Corporate Ownership and Governance, 52 STANFORD LAW

REVIEW 127 (1999) (applying historical institutionalism to explain the interconnection between initial

corporate governance arrangements and its subsequent ownership); Troy A Paredes, A systems approach to

corporate governance reform: why importing U.S corporate law isn't the answer, 45 WILLIAM AND MARY

LAW REVIEW 1055 (2004) (stressing the ill-suited features of the US corporate law to existing institutional settings of developing countries and suggesting some proposals for corporate governance reform in these

countries.) For application of institutional analysis to reason litigation pattern, see Haley, supra note 8

(arguing that institutional arrangement rather than culture values caused specific pattern of litigation in Japan)

34 Katharina Pistor, et al., Law and finance in transition economies, 8 ECONOMICS OF TRANSITION 325

36 We acknowledge that this may not be a safe assumption but do so for the sake of simplicity On irrationality

as a determinant of litigation see Dan W Puchniak & Masafumi Nakahigashi, Japan's Love for Derivative

Actions: Irrational Behavior and Non-Economic Motives as Rational Explanations for Shareholder Litigation,

45 VANDERBILT JOURNAL OF TRANSNATIONAL LAW 1 (2012)

unavailability of data in other years.37 To estimate the professionalism of lawyers we measure three aspects: (i) number of law firms, (ii) firms’ revenue and (iii) number of business cases in which lawyers represent litigants in court We assume that the number of law firms and revenue

of the firms are positively associated with the professionalism of lawyers Greater involvement

of lawyers in disputes at court can also be seen as a sign of the development of their litigation skills

To examine the availabilities and cost of alternative dispute resolution, we use the number of

arbitration cases at the Vietnam International Arbitration Center (VIAC) from 2003-2012 We hypothesize that the enforceability of arbitral awards results in more cases being brought before arbitration and less brought to the courts

3.3 Economic Hypothesis

For a long period of time law in general and litigation in particular have been seen as indexes

of market development.38 Within the field of institutional economics there is a well developed literature arguing that the enforcement of property and contractual rights through courts (and through other means) is key to the process of economic development.39 While this suggests a causative role for legal institutions, other research also suggests that litigation may increase as

a result of economic development This view, pursued in the law and society scholarship, is premised on two basic trends.40 The first is that economic growth produces greater social complexity, which increases the number of transactions in which disputes might erupt Second

is that such complexity also leads to the breakdown of relationships which rely on informal means of resolving disputes (such as in close knit communities) and their replacement by those which require more formal means of adjudication (such as between businesses transacting at a distance) This is not necessarily a linear relationship as studies indicate that economic growth can produce disequilibrium which either encourage or discourage growth in litigation.41Nonetheless, it has been argued in one recent study of litigation rates in India that “people are more likely to use the courts to resolve disputes when they are economically, socially, and physically better off”.42

In light of the above we define the economic hypothesis to mean that an upward trend in litigation is the consequence of economic development and an increase in the number, complexity and formality of business transactions conducted in the market To check the

37 According to Ministry of Justice, Final Report for Five Years of Implementation of Law on Lawyers (2012),

available at http://duthaoonline.quochoi.vn/Pages/default.aspx , n umbers of lawyers are only available from 2010

to 2013, whilst numbers of cases are not available for 2012 Additionally, numbers of lawyers in 2003 through

2009, could not be achieved owing to absence of relevant reporting rules of Ministry of Justice Number of lawyer population has been officially reported since 2011, pursuant to Circular number 08/2011/TT-BTP on giving guidelines to conduct statistics of justice sector

38 Rafael La Porta, et al., Law and finance, 106 JOURNAL OF POLITICAL ECONOMY 1113 (1998); Tom Ginsburg, Does Law Matter for Economic Development-Evidence from East Asia, 34 LAW & SOC'Y REV 829 (2000); Eisenberg, et al., supra note 16

39 DOUGLASS C NORTH, INSTITUTIONS, INSTITUTIONAL CHANGE AND ECONOMIC

PERFORMANCE (Cambridge university press 1990); AVNER GREIF, INSTITUTIONS AND THE PATH

TO THE MODERN ECONOMY: LESSONS FROM MEDIEVAL TRADE (Cambridge University Press 2006)

40 These are elaborated in, among others, Grossman & Sarat, supra note 16, at 323-325

41 Wollschlager, supra note 16, at 275

42 Eisenberg, et al., supra note 16, at 290

economic hypothesis, we examine the relationship between the number of enterprises per citizen, investment per capita and profit per enterprise following the PCI’s reports against the number of newly-filed business cases.43 Under the economic hypothesis, we expect that the litigation rate is correlated with these three indicators

4 F INDINGS

4.1 The Small Proportion of SOE and FIE Plaintiffs and Persistent Views about Litigation Held by Private Entrepreneurs

As for the first questions of “Who initiates business cases in Vietnam?” for the most part they

are neither SOEs nor FIEs, which only made up a small proportion of the total number of plaintiffs While the percentage of SOEs plaintiffs remained stable at 16-18% from 2009 to

2012, a significant decline in the number of FIE plaintiffs can be seen During the four years,

the figure went down gradually from 5% to 1% (See more at Figure 3) This finding is

consistent with the statistics in the 2012 PCI report which revealed that from 2006-2012, the ratio of non-state claimants as a percentage of claimants at Provincial Economic Courts significantly climbed from 50% in 2006-2007 to around 73% in 2009-2010 and peaked at 90%

in 2012.44

Does this mean that the plaintiffs in business cases in Vietnam are generally private entrepreneurs? This is not necessarily the case Under Article 29 of the Vietnam Civil Procedure Code 2004, business disputes are defined as:45

1 Disputes arising from business or trade activities among individuals and/or organisations with business registration, which are all for the purpose of profits,

including: …

2 Disputes over intellectual property rights or technology transfers among individuals

or organisations, which are all for the purposes of profits

3 Disputes between a company and its members or among members of a company

regarding the establishment, operation, dissolution, merger, consolidation, division, separation or organisational transformation of the company

4 Other business, trade disputes prescribed by law [emphasis added]

45 Code of Civil Procedure, Law No 24/2004/QH11 of June 15, 2004

Figure 3: Plaintiffs of business cases from 2009-2012

(Source: Own compilation based on data provided by PCI research team)

The plaintiffs in business disputes thus include business entities (enterprises and entrepreneurs), sole traders, company members, patent holders, owners of intellectual property rights, and other entities and individuals who entered transactions with the above for a profit-seeking purpose In brief, the profit-seeking purpose and business registration are the two features which distinguish plaintiffs in business cases from those in other civil cases This means that business cases in Vietnam for the most part have been filed by those who are involved in business activities regardless of their capacities as entrepreneurs, investors, shareholders or contract partners of companies

For the second question as to whether there has been a gradual change in the attitudes of Vietnamese business people towards litigation an analysis of PCI’s reports from 2006 to 2012 demonstrates that their views have been fairly consistent Despite the upward trend in the number of business cases, their confidence ratio, which is the ratio of Vietnamese businesspeople who are confident that the legal system will uphold their property rights and contracts, slightly decreased over the same period The ratio was high at around 70% in 2006, went down to 62% in 2009-2010, then went back up to 70% in 2011 before ending up at 63.8%

in 2012 During that period, Vietnamese entrepreneurs did not express a significant change in their attitude towards litigation

4.2 Various Impacts of Institutional Arrangements on Caseload

4.2.1 The Quantity rather than the Competency of judges is correlated with caseload

Correlations

New filed cases (log)

Percentage

of pending cases against filed cases (log)

Median month to resolve a case (log)

Median cost

to resolve a case (log)

Number of judges (log) New filed cases (log) Pearson

Correlation

1 -.001 -.653 -.445 919 **

N 10 4 4 4 10 Percentage of pending

cases against filed

cases (log)

Pearson Correlation

Sig (2-tailed) .000 .613 548 715

** Correlation is significant at the 0.01 level (2-tailed)

* Correlation is significant at the 0.05 level (2-tailed)

Table 1: Correlation matrix between the number and competency of judges to

newly-filed cases

The number of judges is statistically significantly correlated to the number of newly-filed cases

Figure 6: Number of judges v new filed cases 2003-2012

(Source: Own compilation based on data collected from SPC Annual Reports)

The Pearson Correlation between the number of judges and newly-filed cases from 2003 to

2012 (both are log-transformed) is 92 indicating a strong and possitive correlation between the two variables (p<.01, R2=.84) Therefore it can be concluded that when the number of judges increases (decreases), the number of newly-filed cases also increases (decreases) and vice versa

No significant correlation was found between newly-filed cases and competency of judges

We measure the competency of judges using three indicators: (i) the percentage of pending cases against filed cases, (ii) the median number of months needed to resolve a case and (iii) the median cost of resolving a case The above correlation matrix suggests that these three indicators have no statiscally significant correlation with the number of newly-filed cases (p > 05) Therefore, we can conclude that the competency of judges and the number of newly-filed cases are independent of each other

4.2.2 Variation in number of lawyers and professionalism of lawyers

Correlations

Filed cases (log)

Number of business cases with the presentation of a lawyer (log)

Law firm's revenue (log)

Number of law firms (log)

Number of business cases

with the presentation of a

** Correlation is significant at the 0.01 level (2-tailed)

Table 2: Correlation matrix between the number and professionalism of lawyers to the newly-filed cases