Determining the procedural capacity of private enterprise owners

In court proceedings, accurately determining the procedural capacity of parties is crucial, as each party has different rights and obligations in a civil case. Incorrectly identifying the procedural capacity can negatively impact the legitimate rights and interests of the parties, potentially leading to procedural violations that could serve as grounds for the Court’s judgments and decisions to be overturned. This article discusses the determination of the procedural capacity of private enterprise owners – a special type of enterprise that requires careful attention. 

1. Procedural Capacity of Private Enterprise Owners 

In Vietnam, the concept of a private enterprise was first defined in the Law on Private Enterprises 1990 and was further inherited by the Laws on Enterprises 2005, 2014, and 2020. Accordingly, a private enterprise is defined as an enterprise owned by an individual who is personally responsible for all activities of the enterprise with all of his or her assets.1 Based on this concept, a private enterprise is not considered an independent entity.2 According to Article 74 of the Civil Code 2015, which outlines the conditions for an organization to be recognized as a legal entity, a private enterprise is therefore recognized as an organization without legal status.3 

Because private enterprises do not have legal status, the previous the Law on Enterprises 2014 clearly stipulated: “The owner of a private enterprise is the plaintiff, defendant, or person with related rights and obligations before the Arbitration or Court in disputes related to enterprises.” It can be seen that the law in Vietnam explicitly states that a private enterprise is not identified as a party in civil cases; instead, the owner of the private enterprise is identified as the party in civil cases. This identification aligns with the principle that a private enterprise is owned by an individual who is personally responsible for all activities of the enterprise, as mentioned above, with all of his or her assets. Additionally, according to Instruction No. 29/HD-VKSTC dated September 25, 2020, from the Supreme People’s Procuracy, which provides guidance on the supervision of business and commercial case settlements, the Supreme People’s Procuracy instructed: “For disputes related to private enterprises, when participating in litigation, it is necessary to identify Mr./Ms…., the owner of the private enterprise, as participating in the litigation according to the provisions of Clause 1, Article 183 of the Law on Enterprises 2014: “A private enterprise is an enterprise owned by an individual and is solely responsible for it.”

When the Law on Enterprises 2020 was enacted, the provisions on the participation of private enterprises in litigation were amended to state: “The owner of a private enterprise is the legal representative, representing the private enterprise as the person requesting the settlement of civil cases, the plaintiff, the defendant, the person with related rights and obligations before the Arbitration and the Court, and representing the private enterprise to exercise other rights and obligations as prescribed by law.” However, in practice, the identification of the private enterprise owner as the party in civil cases, rather than the private enterprise itself, remains the standard approach. 

2. Practice of Resolving Disputes Related to Determining the Procedural Capacity of Private Enterprise Owners 

In current adjudication practices, most courts rely on the provisions of Articles 188 and 190 of the Law on Enterprises 2020 to determine that the owner of a private enterprise is the party in civil cases. However, there are still instances, particularly in Courts of First Instance, where errors have been made in applying the provisions of enterprise laws, leading to the incorrect identification of the private enterprise itself as a party, rather than its owner. This raises the question: If the court incorrectly determines the procedural capacity of a private enterprise owner, does it constitute a serious procedural violation that affects the rights and legitimate interests of the parties involved? 

According to Clause 2, Article 310; Clause 3, Article 345; and Point b, Clause 5, Article 462 of the Civil Procedure Code 2015, serious violations of procedural law that affect the legitimate rights and interests of parties are grounds for annulling the court’s judgments and decisions. Although there is no official guidance on what constitutes a serious procedural violation, such violations are generally understood as the court’s failure to comply with the provisions of the Civil Procedure Code, resulting in the parties being unable to exercise their rights and obligations in civil cases. Violations can vary in type and severity, such as improper service of procedural documents, failure to correctly identify the procedural capacity of parties, or not fully addressing the parties’ claims. The impact of such violations on the parties depends on the specific circumstances of each case.4 Therefore, whether the incorrect determination of the procedural capacity of a private enterprise owner is considered a “serious violation of procedural law affecting the legitimate rights and interests of the parties” depends on the specific details of each case. 

For example, in the First Instance Commercial Judgment No. 02/2022/KDTM-ST dated June 30, 2022, issued by the People’s Court of Thap Muoi District, Dong Thap Province, regarding a dispute over a contract for the supply of sand and ground leveling services, the Court of First Instance identified Private Enterprise T as the plaintiff. Consequently, the court ruled that the defendant must fulfill the obligation to pay the debt owed to Private Enterprise T. On appeal, the defendant and their legal counsel argued that the filing of the lawsuit by Private Enterprise T as the plaintiff was not in accordance with Clause 3, Article 185 of the Law on Enterprises 2014 and Clause 3, Article 190 of Law on Enterprises 2020. Instead, they argued that Ms. Le Thi P, the owner of Private Enterprise T, should have been identified as the plaintiff. This led to an incorrect authorization of Private Enterprise T to participate in the litigation on behalf of Mr. Nguyen Hong T, constituting a procedural violation. The People’s Procuracy of Dong Thap Province agreed with the view that First Instance Commercial Judgment seriously violated procedural law, which was one of the two grounds for requesting the Court of Appeal to annul it. 

Upon reviewing the appeal, the Court of Appeal acknowledged that the Court of First Instance had erred in identifying Private Enterprise T as the plaintiff, instead of Ms. Le Thi P, the owner of Private Enterprise T. However, the Court of Appeal determined that this error did not alter the substantive content of the case. Consequently, the Appellate Court adjusted the judgment to reflect “Ms. Le Thi P” – the owner of Private Enterprise T as the plaintiff instead of “Private Enterprise T” and found it unnecessary to annul the First Instance Commercial Judgment. The Court of Appeal decided to uphold the First Instance Commercial Judgment and instructed the Court of First Instance to seriously learn from this experience. This outcome illustrates that the Court of Appeal’s handling of the private enterprise owner’s participation in the proceedings was consistent with enterprise laws. However, the Court of Appeal assessed the error’s impact and concluded that it did not warrant the annulment of the First Instance Commercial Judgment, which is a common approach in similar cases.5

In summary, based on the provisions of the the Law on Enterprises 2020 and related legal provisions, the procedural capacity of private enterprise owners has been clearly defined and is widely applied in practice. Therefore, parties involved in dispute resolution must be vigilant in recognizing and correctly applying these legal provisions. 

Some articles related to arbitration:

1. Core elements of an arbitration agreement

2. Seat of arbitration or venue of hearing?

3. Which disputes can be resolved by commercial arbitration?

(1) Clause 1, Article 188 of the Law on Enterprises 2020. 

(2) Ngo Huy Cuong (2010), Some comments on private enterprise law, VNU Journal of Science, Law 26 (2010) 24-33. 

(3) Bui Ngoc Tuyen (2022), Establishing legal conditions for private enterprises to be on equal footing with other types of enterprises in business activities, Industry and Trade Journal, No. 9, May 2022, https://tapchicongthuong.vn/xac-lap-dieu-kien-phap-ly-de-doanh-nghiep-tu-nhan-binh-dang-voi-cac-loai-hinh-doanh-nghiep-khactrong-hoat-dong-kinh-doanh-99337.htm.  

(4) Nguyen Quang Tri (2023), Regarding the Scope of Trial under the Appellate Procedure and the Right to Appeal of the Procuracy in Civil Proceedings, Procuracy Journal No. 12/2023.  

(5) See Judgments No. 02/2023/KDTM-PT dated March 30, 2023 of the People’s Court of Kien Giang province, Judgment No. 143/2022/DS-PT dated November 8, 2022 of the People’s Court of Lam Dong province, Judgment No. 50/2024/DS-PT dated May 15, 2024 of the People’s Court of Dak Nong province, Judgment No. 206/2023/DS-PT dated April 10, 2023 of the People’s Court of Tien Giang province.  

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