Decree 51/2015/ND-CP on legal opinions, effective from July 15, 2015, is the first specific regulation to govern the conditions and procedures for the issuance of legal opinions by the Ministry of Justice for transactions signed by government and state agencies.
To date, the Ministry of Justice (MOJ) has issued various legal opinions on Build Operate Transfer (BOT) projects, in compliance with the provisions of Article 48.2 of Decree 108/2009/ND-CP on investment under the forms of BOT, BTO (Build Transfer Operate), and BT (Build Transfer), and in line with previous precedents first established by the Phu My power projects. Those opinions were always issued on a case-by-case basis, and only after typically hard argumentation between the parties.
Since the provisions of Decree 51 vary so dramatically from past precedents, it is important to note that the key features of the decree shall apply to all projects involving legal opinions issued by the MOJ. Critically, as will be discussed below, after the effective date of this Decree, the MOJ will not be empowered to issue any opinion on the financing documents and the power purchase agreement of a project.
Restricted scope of application
In previous transactions, the MOJ has issued legal opinions on power projects on the basis of Decree 108 and past precedents. Investors and lenders on state-financed infrastructure projects have come to rely heavily on the MOJ legal opinion to substantiate key bankability issues, especially the validity and enforceability of key project contracts, government and state owned enterprise commitments, guarantee obligations and currency convertibility. The scope of parties and documents for which MOJ could issue its opinions were not specifically restricted.
Under Decree 51, the scope of the MOJ's legal opinion is restricted to agreements to which the state, the government, or a state agency is a party. Regarding PPP projects (including BOT power projects), the MOJ issues a legal opinion to project contracts, government guarantee documents, land lease agreements and other relevant documents that are entered into by the state, the government or a state agency. This now excludes the issuance of an MOJ legal opinion for agreements involving any non-governmental party, such as state-owned enterprises (SOEs), coal suppliers and financing parties. In short, key project agreements such as the power purchase agreement, acknowledgement and consent of an SOE, local construction contracts, local supply contracts, security documents and financing documents are no longer subjects of MOJ legal opinion. There is no exception under this provision.
Principles and conditions for issuing legal opinion
The principles for issuing a legal opinion are as follows:
- The legal opinion must be issued on the basis of and in accordance with Vietnamese law at the time of issuance
- The legal opinion must be issued after the documents being subject matter of the legal opinion are signed, approved or issued in accordance with the law, and
- The legal opinion must not increase, decrease, or change the rights and obligations of the parties under the relevant documents or the applicable law at the time of issuance.
A new condition for the issuance of legal opinion requires that the documents forming the subject matter of the legal opinion must be negotiated, signed, and approved in strict accordance with the authority, processes and procedures provided by Vietnamese law. In other words, if the MOJ issues a legal opinion, then the relevant documentation should be deemed to have fully complied with the legal process, and should therefore stand as legally sound documentation. It is still too soon to determine whether this inference of validity will support the bankability of projects or whether it will cause adverse delays for government negotiators in finalising documents, for fear of being identified as the parties making the determination that the relevant documents and processes are fully compliant with the law.
Contents of MOJ legal opinion
Under Decree 51, the MOJ legal opinion shall contain five basic elements. On a case-by-case basis, the legal opinion may contain additional content, but it must follow the principles for the issuance of legal opinion. Notably, the MOJ's legal opinion shall not assess any details (i.e. circumstances), events or other matters not directly related to the laws of Vietnam. It is not clear how details or circumstances are interpreted by the MOJ, but it raises the concern that the MOJ may refuse to opine on a specific provision or process, which is stated in an agreement, such as, the provision on force majeure events or other similar issues.
Furthermore, the authors have seen an MOJ legal opinion drafted under Decree 51 standards and note that significant limitations and assumptions have been placed against the above five elements of the opinion, with the effect that little appears to actually be covered by it.
Conclusion
Although forming a specific legal basis and clear process for the issuance of the MOJ's legal opinion, with its limited scope of application and strict conditions applied to the legal opinion, Decree 51 offers little comfort to lenders and investors developing PPP projects, and does little to facilitate the negotiation and signing up of important and necessary infrastructure projects at this key point in Vietnam's economic development.
Great strides have been made in the past two years to develop the PPP legal framework and address key bankability issues, with the recognition that both investment and lending for needed infrastructure projects must be streamlined and in line with international norms. Decree 51 is an unfortunate step backwards and will require investors and lenders to take a harder look at the overall bankability of projects where a clear "wrap" is no longer available from the MOJ, to whom the market has always looked for comfort that deals are compliant, valid, and enforceable under Vietnamese law. Investors and lenders should not look to their legal counsel to cover this gap through the issuance of equivalent opinions.
The stakes on such projects are simply too high to rely on the opinions issued by law firms, especially given the stress placed on law firms to cover risk within their existing professional indemnity cover. The possibility of key projects being later deemed invalid or unenforceable has always been the rationale for seeking an official opinion from the body of government best able to assess that risk, namely the MOJ, whose function is difficult to replicate through private law firm opinions. Better alternatives now need to be introduced into the project documentation, such as stronger representations of authority coupled with clear indemnities from counterparties from the Vietnamese side.
By Stanley Boots Frontier Law & Advisory
Source: VIR
Key words: Decree 51, hems, MOJ's legal remit
