Update on Regulations of Arbitration in VietnamDate Update 27-03-2012
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The article by Lawyer Ho Tuong Vy - Associate and Lawyer Nguyen Thi Hong Hoa - Phuoc & Partners Law Firm is published on Newsletter of the International Bar Association Legal Practice Division (Asia Pacific Regional Forum News), April 2012.
For more information about Lawyer Vy, please click here.
For more information about Lawyer Hoa, please click here.
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Consisting of 13 chapters and 82 Articles, the Law on Commercial Arbitration No 54/2010/QH12 (‘the Law on Commercial Arbitration’) which was passed by the National Assembly of the Socialist Republic of Vietnam on 17 June 2010 and which came into effect as of 1 January 2011, in replacement of the Ordinance on Commercial Arbitration1, plays an important role in institutionalising a uniform mechanism for dispute settlement by arbitration in Vietnam. Aside from the inheritability at the cornerstone of the Ordinance on Commercial Arbitration, the Law on Commercial Arbitration offered a series of new provisions which aims at satisfying the demands of practice of Vietnam and requirements of international integration in the field of commercial dispute resolution. For the purpose of this update, a brief of remarkable supplements and amendments of the new law will be introduced within the context of this article.
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What’s new in the Law on Commercial Arbitration?
First, the Law on Commercial Arbitration clarifies an uncertain point in relation to competence of arbitration for commercial disputes, thereby ensuring its conformity to the other prevailing regulations including but not limited to the Civil Code, the Civil Procedure Code or the Law on Commerce. Accordingly, the competence of arbitration in settlement of disputes in the Law on Commercial Arbitration has been broadened more than that in the Ordinance on Commercial Arbitration. In particular, arbitration has jurisdiction to resolve all of the following disputes:
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disputes between parties arising from commercial activities;
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disputes arising between parties at least one of whom is engaged in commercial activities; and
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other disputes between parties which the law stipulates shall be resolved by arbitration.2
By contrast, the competence of arbitration as stated in the Ordinance on CommercialArbitration was limited to disputes arising from commercial activities only.3 Hence, this amendment is evaluated as one of the most crucial points of the Law on Commercial Arbitration.
Secondly, whereas an arbitration agreement becomes invalid under the Ordinance on Commercial Arbitration if it fails to specify the arbitration organisation having the jurisdiction to arbitrate a dispute and the disputing parties cannot otherwise agree after that, an arbitration agreement shall not be deemed invalid under the Law on Commercial Arbitration for the same reason. In this case, the selection of the arbitration form and organization shall be subject to the plaintiff’s discretion.4
From another perspective, the arbitration agreement may become invalid under the Law on Commercial Arbitration if it is found in violation of the prohibitions of the laws while the Ordinance on Commercial Arbitration did not provide for the same.5
Thirdly, the newly supplemented provision on right of consumers in selection of dispute resolution methods in the Law on Commercial Arbitration derived from the fact that consumers are often in a weak position and may have a few risks as opposed to a goods and/ or service provider or a seller in the drafted contract containing the terms and conditions which are advantageous to such provider or such seller. Therefore, the Law on Commercial Arbitration provides that for disputes between a goods and/or service provider and consumers, even if an arbitration clause has been drafted and inserted by such provider in its standard conditions on supply of such goods and/or services, a consumer shall still have the right to choose arbitration or a court to resolve the dispute.6 A goods and/or services provider shall only have the right to institute arbitration proceedings if the consumer so consents.7
Fourthly, the right to request for cancellation of an arbitral award was modified a bit in the Law on Commercial Arbitration so as to decrease the risk that an arbitration award might be revoked improperly by the court as indicated in the Ordinance on Commercial Arbitration. Previously, within a time limit of 30 days from the date of receipt of an arbitral award, a party which disagrees with the arbitral award shall have the right to file an application with the provincial level court where the arbitration tribunal issued such award for cancellation thereof.8 On the contrary, from the effective date of the Law on Commercial Arbitration such party shall be able to lodge an application to request for cancellation of an arbitral award with the competent court in case of having sufficient evidence proving that the arbitration tribunal issued the arbitral award which falls in the following cases for cancellation:9
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there was no arbitration agreement or the arbitration agreement is invalid;
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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 Law on Commercial Arbitration;
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the dispute was not within the jurisdiction of the arbitration tribunal or where an award contains an item which falls outside the jurisdiction of the arbitration tribunal, such item shall be cancelled;
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the evidence provided 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; and
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the arbitral award is contrary to the fundamental principles of the law of Vietnam.10
Given the positive supplement, the Law on Commercial Arbitration has expressed a strict respect for the major principle of arbitration that the arbitral award is final.
Fifthly, to overcome the barrier as set forth in the Ordinance on Commercial Arbitration on conditions of an arbitrator, the Law on Commercial Arbitration does no longer require that the arbitrator must be a Vietnamese citizen. It also means that the foreigner may be appointed to be an arbitrator in Vietnam by the parties and/or by the arbitration tribunal, which is consistent with the international economic integration of Vietnam. Furthermore, it is ushered by the Law on Commercial Arbitration that the foreign arbitration organisations shall be permitted to operate in Vietnam if these organisations have been legally incorporated and are operating in their foreign countries, and abide by the constitution and law of Vietnam.11
Accordingly, there are twooperational forms of foreign arbitration organisations in Vietnam including branch and representative office of the foreign arbitration organisations.12
Practical notes in drafting and implementing the arbitration agreement in the contracts. The first point shall be an agreement on dispute resolution by arbitration. In order for the dispute to be settled by arbitration, the Law on Commercial Arbitration requires that the arbitration settlement must be agreed by both parties in writing. It may be an arbitration standard clause in a contract or in a separate agreement before or after the dispute arises.13 As regulated in the Law on Commercial Arbitration,14 the following forms of agreement may also be regarded as a written form:
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agreement made through communication between the parties by telegram, fax, telex, email or other forms provided for by law;
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agreement made through the exchange of written information between the parties;
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agreement recorded in writing by a lawyer, notary public or competent institution at the request of the parties;
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in their transactions, the parties make reference to a document such as a contract, document, company charter or other similar documents which contains an arbitration agreement; and
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agreement made through exchange of petitions and self-defence statements which reflect the existence of an agreement proposed by a party and not denied by the other party.
Therefore, the parties should bear in mind that the settlement of a dispute by arbitration cannot be carried out in case of a dearth of acceptance of one party to the contract.
The second point relates to a time limit for initiating proceedings for dispute resolution by arbitration. The parties are of an initial understanding that their dispute shall be dealt with by arbitration but they do not usually focus on the time limit for initiating proceedings. According to both the Law and the Ordinance on Commercial Arbitration, in principle, the limit period of time for initiation of proceedings shall be two years from the date of infringement of legal rights and interests, unless otherwise stipulated by specialised law.15 Consequently, the parties shall pay special attention to such a time limit before taking any action to initiate proceedings by means of arbitration.
The third point is the signing date of the contract which contains the arbitration dispute resolution agreement as well as the applicable law for such contract. Accordingly, the contracts of which the signing dates were between 1 July 2003 to 1 January 2011 shall be governed by the Ordinance on Commercial Arbitration, and the ones signed from 1 January 2011 onwards shall be subject to the Law on Commercial Arbitration.
Case 1: The Ordinance on Commercial Arbitration shall apply for settlement of the dispute
Under the Ordinance on Commercial Arbitration,16 an arbitration agreement shall be invalid in the following cases where:
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disputes do not arise from commercial activities;
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the signatories of the arbitration agreement are not competent to sign by law;
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one signatory of the arbitration agreement does not have full civil act capacity;
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the arbitration agreement fails to specify or specifies unclearly the disputed objects or the arbitration organisation authorised to settle the dispute and there is no supplementary agreement on the same matter by the parties afterwards;
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the arbitration agreement has not been made in writing; or
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the signatories of the arbitration agreement are cheated, intimidated and request the arbitration agreement to be declared invalid. The statute of limitations for making such requests is six months as
from the date of signing of the arbitration agreement but must be prior to the date on which the arbitration tribunal holds the first meeting to settle the dispute.
From the experience of the authors, the arbitration agreement in most of the signed contracts which were subject to the Ordinance of Commercial Arbitration were considered to be invalid because of a failure to specify or clearly specify the arbitration organisation competent to settle the dispute and the involved parties have no additional agreement. Normally, the frequent and fundamental default of the parties to the contract is that to show the name of the arbitration organisation incorrectly and inadequately in their contract. Taking an example, the names ‘Vietnam International Center’ or ‘International Arbitration Center at the Vietnam Chamber of Commerce and Industry’ or ‘Vietnam International Centernext to the Vietnam Chamber of Commerce and Industry’ have been used in contracts which have resulted in the invalidity of an arbitration agreement as they are not the precise name (‘Vietnam International Arbitration Centre at the Vietnam Chamber of Commerce and Industry’) as instructed by the Vietnam International Arbitration Centre via its website (www.viac.org.vn). Hence, the exact name of the arbitration organisation of Vietnam should be written in the contract to make sure that the arbitration agreement as part of this contract shall remain valid and binding upon the parties.
In the event of the invalidity of an arbitration agreement, as advised above, the parties are able to seek another authority body in Vietnam to consider and decide their dispute, namely the court in compliance with the Resolution 05.17 Pursuant to this Resolution, although the arbitration agreement is available, their dispute shall be within the competence of the court if such arbitration agreement is invalid under
the Ordinance of Commercial Arbitration. Accordingly, the court shall be entitled to remedy the dispute if there is an agreement on arbitration which has been invalid and the defendant has no objection within seven working days after being informed: by the plaintiff that the dispute will be referred to the court for settlement; or by the court that a petition has been filed with the court to request settlement of the dispute.18 This solution facilitates the parties to find another authority body in Vietnam other than the arbitration which is eligible for dealing with their dispute in case of the invalidity of the arbitration agreement. Nonetheless, in the existence of a variety of shortcomings of the dispute resolution by the court, like a complex procedure and a long period of time for settlement, arbitration is seen to be a very favourable choice for the parties at the present time.
Case 2: The Law on Commercial Arbitration shall apply for settlement of the dispute
Under the Law on Commercial Arbitration, where the parties have reached an arbitration agreement but one party initiates a lawsuit at the court, the court basically shall refuse to accept the case unless the arbitration agreement is invalid or unrealisable.19 Currently, the cases on the invalidity of the arbitration agreement have been specified in the Law on Commercial Arbitration20 while those on the unrealisable arbitration agreement have been as yet unavailable, which can lead to confusionand difficulty in determining which cases are deemed as the unrealisable arbitration agreement for implementation.
With reference to Article 43.5 of the Law on Commercial Arbitration, it is likely that if the parties have an arbitration agreement but fail to indicate the form of arbitration or cannot identify a specific arbitration organisation, this case, upon the standpoint of the authors, may be deemed as the unrealisable arbitration agreement. As a result, once a dispute arises, the parties shall agree again on the form of arbitration or a specific arbitration organisation to settle the dispute. If no agreement can be reached, the following options may be available:
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the form of arbitration or an arbitration organisation for coping with the dispute shall be selected at the plaintiff’s discretion;21 or
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the dispute resolution shall be of the court’s competence upon the condition that one party initiates a lawsuit at the court.22
Conclusion
According to the Bao Moi newspaper,23 the average number of cases that were under the authority for settlement by a judge of the court of Vietnam is in the region of 30 to 50 cases per year, whereas an arbitrator has dealt with 0.25 cases for the same year. Besides, under the statistics provided by the Ministry of Justice of Vietnam through its poll of 237 individuals, these individuals were fond of the following solutions for their disputes:
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negotiation was the most popular with 57.8 per cent saying they would consider this;
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the court received a score of 46.8 per cent;
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22.8 per cent of respondents said mediation would be favourable; and
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arbitration received 16.9 per cent.
Clearly dispute settlement by the court seems to be more familiar and preferable with local enterprises and individuals as opposed to arbitration.
Of the reasons explaining why arbitration is still the least favoured option from the surveyed arbitration centres of Vietnam, the three following reasons can be listed as the major ones:
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the weak enforcement of the arbitration’s decision making up 61.4 per cent;
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the lack of trust among local enterprises on the arbitration settlement at 68.6 per cent; and
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the absence of understanding of local enterprises on dispute settlement by arbitration at 74.3 per cent. As a result, local enterprises and individuals should be made aware of this new and useful method of dispute settlement through a promotion of arbitration.
With the enactment of the Law on Commercial Arbitration, it is believed that dispute resolution by arbitration will become a widespread and indispensable choice in the coming years, deriving from the actual needs of the parties to the contract and a rapid increase in the number of international commercial transactions taking place not only in Vietnam but also across the world. Thus, in order to spur the parties to choose arbitration for the settlement of their disputes, the Vietnamese Government
should keep improving the Vietnamese law on arbitration and soon issue the detailed guidelines for an effective implementation of the Law on Commercial Arbitration.
Notes
1 Ordinance on Commercial Arbitration No 08/2003/ PL-UBTVQH11 passed by the Standing Committee of the National Assembly of Vietnam on 25 February 2003 (‘the Ordinance on Commercial Arbitration’).
2 Article 2, the Law on Commercial Arbitration.
3 Article 2.1, the Ordinance on Commercial Arbitration.
4 Article 43.5, the Law on Commercial Arbitration.
5 Article 18.6, the Law on Commercial Arbitration.
6 Article 17, the Law on Commercial Arbitration.
7 Article 17, the Law on Commercial Arbitration.
8 Article 50, the Ordinance on Commercial Arbitration.
9 Article 69, the Law on Commercial Arbitration.
10 Article 68.2, the Law on Commercial Arbitration.
11 Article 73, the Law on Commercial Arbitration.
12 Article 74, the Law on Commercial Arbitration.
13 Article 16.1, the Law on Commercial Arbitration.
14 Article 16.2, the Law on Commercial Arbitration.
15 Article 33, the Law on Commercial Arbitration and Article 21, the Ordinance on Commercial Arbitration.
16 Article 10, the Ordinance on Commercial Arbitration.
17 Resolution No 05/2003/NQ-HDTP of the Judges’ Council of the Supreme People’s Court dated 31 July 2003 providing the Implementation of a number of Articles of the Ordinance on Commercial Arbitration (‘the Resolution 05’).
18 Item 1.2.b, the Resolution 05.
19 Article 6, the Law on Commercial Arbitration.
20 Article 18, the Law on Commercial Arbitration providing the cases on invalid arbitration agreements.
21 Article 43.5, the Law on Commercial Arbitration.
22 Article 6, the Law on Commercial Arbitration.
23 Information and statistics were referred to in the online version of the newspaper at: www.baomoi.com/Luat-Trong-Tai-Cong-cu-giai-quyet-tranh-chap-thuong-mai/144/4585062.epi.
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