Disaster of Domestic Arbitration Verdict Annulment in Vietnam – How to avoid?

Enforcement Of Domestic Arbitral Awards In Vietnam

Recently, the media of Vietnam paid much attention to Vinalines case, the largest shipping corporation in Vietnam who lost an arbitration case brought to the Vietnam International Arbitration Center (VIAC). However, Vinalines then asked the court in Hanoi, Vietnam for annulment of VIAC’s verdict. Under the VIAC verdict, Vinalines has to pay VND 62.5bn to the South Korean SK E&C to compensate for its’ breach of a harbor construction contract with SK E&C at Van Phong transit port, Khanh Hoa province. Vinalines did accept this verdict but later on submitted a request to the Hanoi People’s Court for this verdict’s annulment. Meanwhile Vinalines also asked for the intervention and support of the relevant ministries.

Vinalines case is a typical example to show the reality that the arbitration law is being ignored in Vietnam. According to VIAC statistics, from 2003 to 2013, about 34% of domestic verdicts were annulled. After the enforcement of Arbitration Law of Vietnam in 2011, 20 verdicts were submitted for annulment and more than 50% of those were annulled by the court. The percentage of annulled foreign arbitral awards is much higher due to the matter of practice that the recognition and enforcement of foreign awards in Vietnam are almost impossible. Up to date, only a few awards have been submitted for enforcement in Vietnam. In this regard, it is questioned why a party can easily apply for the annulment of domestic arbitral awards and whether the applicable regulations of arbitration law in Vietnam provide too loose requirements for an annulment that allows the losing party to delay the enforcement of such award or even take advantage of annulment mechanism to settle the dispute through the court proceeding.

Regulatory Frameworks On Arbitration In Vietnam

At present, the major regulatory framework on arbitration proceeding in Vietnam includes the Law on Commercial Arbitration No. 54/2010/QH12, which took effect on 1 January 2011 (“Arbitration Law”) and replaced the Ordinance on Commercial Arbitration (“Arbitration Ordinance”) in 2003; Decree No. 63/2011/ND-CP of the Government on detailing the implementation of certain regulations in the Arbitration Law (“Decree No. 63/2011”) and Resolution No. 01/2014/NQ-HDTP by the Vietnamese Supreme Court guiding the implementation of a number of regulations in the Arbitration Law (“Resolution No. 01”).
Vietnam also ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 in September 1995 and the provisions of the New York Convention have been incorporated into the arbitration laws in Vietnam.

When Is A Domestic Arbitral Award Set Aside?

According to the Arbitration Law, an arbitral award is final and binding to the parties, and only in a few circumstances, this award may be challenged. The court shall accordingly hear an application for setting aside an award on receipt of a petition from one of the parties.

Under Article 68 of the Arbitration Law, an arbitral award shall be set aside in the following cases:

i. there was no arbitration agreement or the arbitration agreement is void;

ii. the composition of the arbitration tribunal was [or] the arbitration proceedings were inconsistent with the agreement of the parties or contrary to the provisions of the Arbitration Law;

iii. the dispute was not within the jurisdiction of the arbitration tribunal; where an award contains an item which falls outside the jurisdiction of the arbitration tribunal, such item shall be set aside;

iv. the evidence supplied by the parties on which the arbitration tribunal relied to issue the award was forged; [or] an arbitrator received money, assets or some other material benefit from one of the parties in dispute which affected the objectivity and impartiality of the arbitral award; or

v. the arbitral award is contrary to the fundamental principles of the laws of Vietnam.

A party with sufficient evidence proving the existence of any of the above cases may request an arbitral award to be set aside within thirty (30) days from the date the award was granted. Upon receipt of such request, the court may adjourn a petition to set aside an arbitral award for up to sixty (60) days. When the court issued a decision to set aside an award, this decision may not be appealed and is final and valid for enforcement.

How Did The Courts Resolve The Requests For Setting Aside An Arbitral Award?

With more than 50% of domestic verdicts being set aside, it shows that the courts in Vietnam have somehow not been friendly with and not positively supported the arbitration tribunal. This situation mostly arises from the ambiguous grounds for setting aside an arbitral award under the Arbitration Law. In other cases, due to the lack of knowledge on arbitration tribunal, the judges do understand wrongly the arbitration proceedings and issue the annulment verdicts based on the very unreasonable grounds.

In reality, many domestic verdicts were set aside as the arbitration proceedings were inconsistent with the agreement of the parties or contrary to the provisions of the Arbitration Law. In practice, the arbitration proceedings may be lengthy with many different steps, processes and procedures, from the review of request for arbitration to the issuance of arbitral awards under the arbitration rules of each arbitration center.

Therefore, it is possible and not avoidable when the arbitrator council and/or any relevant parties make some minor mistakes at any stage of the arbitration proceedings. Even some judges annulled the verdicts on the grounds that the arbitrator council did not use correct legal terms during the proceedings (e.g. using “inviting” instead of “convening” the parties) or the arbitrator was not impartial.

Another reason is that the verdict is in contrary to the fundamental principles of the law of Vietnam. This provision is very ambiguous and until now, there is no clear definition about or detailed guidance on the fundamental principles of the law of Vietnam. More importantly, it is noted that under the Arbitration Law (i.e. Clause 4 Article 71), the court shall not review the merits of the dispute which the arbitration tribunal already resolved, which is in this case disregarded by the court.

The Consequence Of Unreasonably Setting Aside A Arbitral Award

The case of Vinalines and the statistics raised the concerns in the business community that the arbitrators’ decisions have not yet been duly respected and the businesses hesitate to resolve the dispute through arbitration proceeding. When an arbitral award, especially that was issued in compliance with the arbitration proceedings under the Arbitration Law, is unreasonably set aside by the courts, the losing party may resolve the dispute through either arbitration tribunal or the court. In this scenario, such party will possibly request for a court judgment and that will not only be unfair for the other party but also be a waste of time and expense for the relevant parties to restart all litigation.

Such way of dealing with the domestic arbitral award will make the businesses lose their faith in the arbitration tribunal and also constrain the development of legal system in Vietnam. This is against the recent efforts of the Vietnamese government in performing institutional and administrative procedures reforms to improve the efficiency of FDI attraction and become an attractive country for foreign business and investment.

How To Protect The Parties From The Request For Setting Aside An Arbitral Award

Recently, with the issuance of Resolution No. 01, the Council of Judges gave a signal to support the enforcement of domestic arbitral awards in Vietnam as well as the development of arbitration proceedings. Resolution No. 01 provides more criteria and grounds for handling a request for annulment and especially, the cases when an arbitral award is set aside are more clearly defined.

For example, Resolution No. 01 guides that “the composition of the arbitration tribunal was [or] the arbitration proceedings were inconsistent with the agreement of the parties or in contrary to the provisions of the Arbitration Law” is when the arbitral tribunal fails to comply with the agreement of the parties on composition of the arbitral tribunal or arbitration rules, or the arbitral tribunal fails to adhere to regulations of the Arbitration Law, and such violation is considered serious by the court if the arbitral tribunal fails to make rectification at the request of the court.

Thus, only when the violation is considered as serious, the judges are permitted to annul the verdict. Or “the arbitral award is contrary to the fundamental principles of the laws of Vietnam” is when the arbitral award violates the effective basic rules for formulation and implementation of the laws of Vietnam. In this case, the court must determine whether the verdict violated any basic rule of law and how such rule affected the dispute settlement by arbitration. The court shall only set aside an arbitral award after proving that it contravenes one or some basic rules which are not adhered to by arbitral tribunal when issuing the verdict, and such verdict seriously infringes upon the interest of the state, the lawful rights and interests of either party or any third party.

It is expected that when Resolution No. 01 is implemented, the domestic verdict will not be easily set aside like what happened previously. Another good news for the businesses is that in October 2014, the People’s Court in Hanoi decided to back the VIAC verdict regarding Vinalines’ case when the court opined that VIAC followed the arbitration proceeding under the Arbitration Law and other litigation procedures of Vietnamese laws. As a result, Vinalines has to enforce VIAC’s verdict. This court’s decision brings a hope to the businesses that from now on, the arbitration tribunal will be respected and the court will not set aside unreasonably any arbitral award.

However, as a matter of practice in Vietnam, it will take some more time to see how the courts in Vietnam implement this new regulation. We would suggest the businesses put a waiver agreement or provision that the parties will not seek any annulment at the court after a verdict is made by a chosen arbitration tribunal and in the event that any serious violation of arbitration proceeding leads to the annulment by the court, the parties will still agree to resolve the dispute through an agreement for international arbitration proceeding, e.g. Singapore International Arbitration Center with Singapore Arbitration Rules and one arbitrator tribunal.

Author: Oliver Massmann – Ho Gia Le Hoang

Source: Blogs Duane Morris Vietnam - DISASTER OF DOMESTIC ARBITRATION VERDICT ANNULMENT IN VIETNAM – HOW TO AVOID? Oliver Massmann – Ho Gia Le Hoang