In recent times, many high-profile deals in Vietnam have been signed with the premise of establishing a Memorandum of Understanding (MoU). An example is the $10 billion MoU in the aviation services sector between Vietnam Airlines and Boeing to purchase 50 737 Max aircraft, within the framework of realizing and promoting the Comprehensive Strategic Partnership between Vietnam and the United States. So, what is an MoU, and what is its essence in the cooperation between businesses and organizations?
Memorandum of Understanding (MoU)
A Memorandum of Understanding (MoU) is a non-binding legal document often used by two or more parties to express consensus and commitments regarding cooperation in specific areas. While MoUs are not legally binding like contracts, they have many significant functions in Vietnam and around the world.
Here are some important functions of an MoU in this context:
- Defining Objectives and Scope of Cooperation: MoUs help parties define the specific objectives of cooperation and the scope of work. This helps prevent misunderstandings and ambiguity during the collaboration process.
- Clarifying Commitments: An MoU is a document that can be used as evidence, recording the commitments made by the parties involved. It establishes a legal basis and a platform for monitoring progress and assessing the results of cooperation.
- Creating Opportunities for Subsequent Negotiations: MoUs are often used as a first step in the negotiation process. They help identify the strengths and weaknesses of each party and lay the groundwork for further negotiations, potentially leading to the signing of specific agreements or contracts.
- Building Trust Among Parties: MoUs often involve sharing important information and documents among parties. This helps build trust and demonstrates seriousness in the collaboration process.
- Facilitating Future Collaboration: While MoUs are not necessarily legally binding, they create opportunities for parties to continue collaborating in the future. If the initial relationship develops well, an MoU can set the stage for long-term and sustainable cooperative projects.
- Documentation and Reference: MoUs record important details of cooperation, allowing parties to refer to and even resolve any disputes that may arise during the collaboration.
Drawbacks of MoUs
While Memoranda of Understanding (MoUs) have many advantages, there are also drawbacks or limitations that parties need to consider before deciding to use an MoU in cooperation or negotiations. Here are some drawbacks of MoUs:
- Limited Legal Enforceability: MoUs often do not have the strong legal enforceability of a contract. This means that if one party breaches the commitments in an MoU, it can be challenging for the other party to enforce the MoU’s content or seek compensation for non-performance.
- Misunderstanding of Legal Status: Because MoUs are often seen as commitment documents, there can be a misunderstanding that they carry stronger legal weight than they actually do. This can lead to disputes and conflicts if parties do not understand the legal status of the MoU.
- Lack of Clarity on Duration: MoUs often do not specify a specific duration or clear termination conditions. This can create uncertainty about how long an MoU will remain in effect and when it can be terminated.
- Lack of Detail: MoUs are typically shorter and less detailed than contracts. This can result in ambiguity and lack of completeness in defining the obligations and rights of the parties involved.
- Risk of Reverse Use: MoUs can be abused or used in a reverse manner if one party does not adhere to the commitments recorded in the MoU or uses it to make unreasonable demands on the other party.
- Threat to Information Security: Because MoUs often contain sensitive information about the parties involved, if not managed carefully, one of the parties may inadvertently disclose information, posing a threat to the success of the deal and the security of the related parties’ information.