A. LEGISLATION AND RULES
A.1 Legislation
Arbitration procedures in Vietnam continue to be mainly governed by Civil Procedure Code No. 92/2015/QH13 (CPC), Law on Commercial Arbitration No. 54/2010/QH12 (LCA), and Resolution No. 01/2014/NQ-HDTP issued by the Supreme Court of Vietnam providing further guidance on the implementation of certain provisions of the LCA.
The LCA is generally based on the 2006 UNCITRAL Model Law. There are, however, some provisions that differ from the Model Law. These include: principles in settling disputes, state administration of arbitration, required registration of ad hoc arbitration awards with national courts, minimum qualifications of arbitrators, the right to settle and the right to request mediation by an arbitral tribunal, and setting aside an arbitral award for violating fundamental principles of Vietnamese law.
Compared to Ordinance No. 08/2003/PL-UBTVQH11 on Commercial Arbitration, which lost effect as of 1 January 2011, the LCA has many notable developments, including:
- The ability to refer to arbitration, even if just one of the parties is engaged in commercial activities
- The option to appoint foreign arbitrators in Vietnam
- The ability to apply for interim measures to protect the legitimate interests of the parties.
Moreover, the CPC, and specifically part seven, which came into effect on 1 July 2016, provides certain amendments regarding procedures for recognition and enforcement of foreign arbitral awards. The amendments have been praised for being more effective and in line with the New York Convention.
Per the Prime Minister’s Decision No. 2115/QD-TTg dated 16 December 2021, the Ministry of Justice, in cooperation with other relevant authorities and the Vietnam Lawyers Association (VLA), were designated to prepare and submit a report on the implementation of the LCA to the National Assembly Standing Committee by the end of 2022, so that the draft law on amendments to the LCA can be included in the law-making agenda for the period of 2023 to 2025. As of the date of this publication, according to the sixth version of the draft report by the VLA (“VLA Draft Report”), VLA made a number of proposed supplementations and amendments to the LCA, such as:
- Supplementing the LCA with a mechanism for emergency arbitration because the LCA currently has no such mechanism
- Amending the LCA to extend the time limit for the arbitral tribunal to issue arbitral awards (currently 30 days from the date of the final hearing)
- Removing the ground for setting aside arbitral awards under article 68.2.d (i.e., according to this article, an arbitral award may be set aside if the evidence upon which the tribunal relied to issue the award is counterfeit). The VLA noted that the court may re-try substantive matters of the dispute based on such ground. Thus, such ground is contradictory to the principle under article 71.4 of the LCA, under which the court cannot review the dispute already settled by the tribunal.
- Clarifying the ground for setting aside arbitral awards under article 68.2.dd (i.e., the arbitral award may be set aside if it is contrary to fundamental principles of Vietnamese law)
- Supplementing and amending the LCA with provisions on limitation/exemption from liability for damages of the arbitrators in deciding on temporary emergency measures
- Amending the statute of limitation for initiating an arbitration under the LCA (i.e., currently, the statute of limitation is two years)
A.2 Institutions, rules and infrastructure
Under the LCA, arbitration centers may be established in various localities in accordance with the regulations of the government. The LCA sets out the conditions and procedures for the establishment of arbitration centers, their duties and powers, as well as causes for the termination of their operations. The LCA also removed the requirement that an arbitrator must be a Vietnamese citizen. As such, foreign citizens can be appointed as arbitrators in Vietnam if they meet all the requirements under Vietnamese law.
Moreover, Vietnamese law allows foreign arbitration centers to operate in Vietnam through a branch or representative office after satisfying the required conditions and undergoing the correct registration procedures. However, the arbitration awards issued by the local representative office or branch of a foreign arbitration center are considered foreign arbitration awards, and thus, have to go through the process of recognition by the competent court before enforcement can be made in Vietnam. Previously, the Korean Commercial Arbitration Board was still the first and only foreign arbitral institution to open an office in Vietnam. On November 2022, the Permanent Court of Arbitration (PCA) opened a representative office in Hanoi, Vietnam.
As of January 2023, there are 43 local arbitration institutions in Vietnam currently registered with the Ministry of Justice, 29 of which have fewer than ten arbitrators.[1] The Vietnam International Arbitration Centre (VIAC) at the Vietnam Chamber of Commerce and Industry remains the most well-known domestic arbitration institution. This is likely because compared to other domestic arbitration institutions, VIAC has a longer history of development with high-profile arbitrators (including many foreign arbitrators) who have expertise in contract law and can resolve commercial disputes through the English language, making arbitration more accessible for transactions involving a foreign party.
VIAC is operating based on the LCA and VIAC’s Rules of Arbitration issued on 1 March 2017. The VIAC Rules of Arbitration 2017 have three significant developments, including:
- Single arbitration for multiple contracts
- Consolidation of claims
- Expedited arbitral procedure, bringing such rules generally in line with international practice.
According to a published statistic by VIAC, in 2021, there was a 21% increase in the number of new cases received by VIAC (270 cases), as compared to 221 cases received in 2020. Sales of goods remains the most heavily disputed area (44.4% of VIAC caseload), followed by services provision (27.8%) and construction (18.9%). Similar to previous years, entities from China, Singapore, and South Korea remain the top clients bringing their disputes to VIAC for settlement. VIAC also reported that its average duration of dispute resolution is 226 days (~ 7.4 months).[2]
B. CASES
B.1 Separability of the arbitration clause
In 2022, an arbitral tribunal established under VIAC Rules rendered a decision on jurisdiction and procedures, which applied the principle of separability of the arbitration clause under the LCA. In this case, the complainant and the respondent signed a settlement agreement to confirm the outstanding amount under their previous sales contracts. The settlement agreement stipulates that it would be subject to the final approval of the board of each party. However, the board of directors of the respondent ultimately did not give such approval. The settlement agreement also provides for arbitration at VIAC. When the complainant commenced arbitration, the respondent argued that both the settlement agreement and the arbitration clause therein had not yet taken effect, because the settlement agreement was not approved by its board and Vietnamese law requires that a contract whose value exceeds 35% of the company’s total assets must be approved by the board of directors of that company. The arbitral tribunal, referring to article 19 of the LCA on the separability of the arbitration agreement, dismissed the respondent’s arguments, and held that the arbitration clause in the settlement agreement is still valid and enforceable.
B.2 Mediation is not a prerequisite to initiate arbitration
On 21 March 2022, by Decision No. 04/2022/QD-PQTT,[3] the People’s Court of Hanoi rejected a request on setting aside an arbitral award. The case concerns a dispute over a project consultancy and design agreement between the plaintiff (a member of the joint-venture consultant) and the respondent (the client — a bank). The agreement provides: “Any dispute or matter between the parties arising from or relating to the Contract shall be immediately resolved by mediation. Within 15 days since attempts on mediation are unsuccessful, any of the parties can refer the dispute to [VIAC].” Upon requesting the court to set aside the arbitral award, the respondent argued that mediation is a prerequisite to initiate an arbitration. Since the parties did not conduct any mediation, the arbitral tribunal has no jurisdiction over the case. The court, however, dismissed this argument and ruled that under the LCA, mediation is not a prerequisite to initiate arbitration. Based on article 35.4 of the LCA, as well as article 9.1 of VIAC Rules, the court also found that the respondent lost its right to object to the jurisdiction of the arbitration tribunal when the respondent failed to raise their objections in the statement of defense, and only raised objections in the later stage of the arbitration.
B.3 Unenforceable arbitration agreement and consolidation of claims under different contracts
In its Decision No. 1185/2022/QD-PQTT dated 29 July 2022,[4] the People’s Court of Ho Chi Minh City upheld an arbitral award of a tribunal established under the VIAC Rules.
In that case, the claimant (a contractor) initiated arbitration against the respondent (a project owner) to claim for outstanding payments under four construction contracts. Two of those contracts provide for arbitration before “the Economic Arbitration Board of Ho Chi Minh City,” which is an organization that ceased to exist. As the parties did not reach any other agreement on another arbitration institution, the claimant initiated an arbitration before VIAC based on article 43.5 of the LCA. Article 43.5 of the LCA states that “When the parties have an arbitration agreement but fail to indicate the form of arbitration or cannot identify a specific arbitration institution, if a dispute arises, the parties shall agree again on the form of arbitration or a specific arbitration institution to settle the dispute. If no agreement can be reached, the form of arbitration or an arbitration institution to settle the dispute shall be selected at the plaintiff’s request.” The respondent, however, did not object to the jurisdiction of the arbitral tribunal during the arbitration.
Before the court, the respondent argued, among others, that the VIAC arbitral tribunal has no jurisdiction over disputes concerning the two contracts that provide for “the Economic Arbitration Board of Ho Chi Minh City.” The respondent also argued that VIAC should have first considered the compatibility of the arbitration clauses under all relevant contracts. However, VIAC wrongly consolidated the disputes concerning the two contracts (that the arbitral tribunal had no jurisdiction over) to be resolved with disputes over other contracts.
The court referred to article 43.5 of the LCA and found that the parties indeed did not reach any agreement on a specific arbitration institution. The court then held that the respondent lost its right to object to the jurisdiction of the arbitral tribunal. Hence, the respondent’s challenge against the jurisdiction of the arbitral tribunal before the court was groundless. The court also pointed out that neither Vietnamese laws nor VIAC Rules required that the arbitration agreements be compatible for the consolidation of cases. As all arbitration agreements, in that case, are valid and subject to the jurisdiction of the VIAC arbitral tribunal, the court dismissed the respondent’s argument.
B.4 Award in contrary to fundamental principles of Vietnamese laws
On 14 July 2022, the People’s Court of Ho Chi Minh City rendered Decision No. 1062/QD-PQTT[5] to set aside an arbitral award.
In that case, the claimant entered into a business cooperation contract (BCC) with the respondent to develop a project for the construction of an apartment complex. Under that BCC, the claimant would contribute the land use rights over a land plot intended for the project. Nevertheless, at the time of entering into that BCC, the land plot still belonged to a third party, Mr. T, and he did not fulfill financial obligations (i.e., land use levy and other registration fees) toward the state regarding that land plot. Mr. T signed the contract for capital contribution by land use rights, and then authorized the claimant all rights of the land user, allowing the claimant to enter into the BCC with the respondent.
The claimant later initiated an arbitration to invalidate the BCC, besides other claims. The respondent counterclaimed to request for the return of the amount that they paid to the claimant, interests and other damages. The claimant also failed to show up at the hearing despite being duly summoned. The tribunal held the hearing in the absence of the claimant and rejected the claimant’s request to invalidate the BCC.
The court pointed out that firstly, the arbitral tribunal breached article 56.1 of the LCA, which provides that the claimant shall be deemed to withdraw its petition if they fail to show up at the hearing despite being duly summoned. The arbitral tribunal, thus, should have terminated the arbitration proceedings initiated by the claimant. In addition, based on article 168.1 of the Law on Land, which stipulates that: “A land user who is allowed to delay the performance of, or owe, his/her financial obligations, may exercise his/her rights only after fulfilling all financial obligations,” the court held that Mr. T’s arrangement with the claimant and the BCC violated the laws, and are hence invalid according to article 123 of the Civil Code. Based on the two abovementioned grounds, the court concluded that the arbitral award was contrary to fundamental principles of Vietnamese laws, and set aside this arbitral award.
[1] For a list of arbitration institutions, see: https://bttp.moj.gov.vn/qt/Pages/trong-tai-tm.aspx, last accessed on 6 January 2023
[2] https://www.viac.vn/images/Resources/Annual-Reports/2021/VIAC_Annual-Report-2021_220616.pdf
[3] https://congbobanan.toaan.gov.vn/2ta930075t1cvn/chi-tiet-ban-an
[4] https://congbobanan.toaan.gov.vn/2ta1061252t1cvn/chi-tiet-ban-an
[5] https://congbobanan.toaan.gov.vn/2ta1061848t1cvn/chi-tiet-ban-an
