LLM Nguyen Trung Nam - EPLegal 

(Vietnam Investment Review)

“This may effectively discourage arbitrators in proceeding with any interim relief unless they are fully covered under professional liability insurance” Tony Nguyen, managing director of EPLegal, discusses

whether legal risks remain with the foreign parties under the landmark Commercial Arbitration Law, effective from January 1, 2011.

Being expected and welcomed by many Vietnamese lawyers and researchers, the Commercial Arbitration Law 2010 (CAL) No. 54/2010/QH12 finally took effect from January 1, 2011.

It superseded the Ordinance on Arbitration (OA) which was criticised with many restrictions and limitations. While CAL is praised by many as turning a new page of the development of international arbitration activities in Vietnam, it is witnessed that many foreign companies having businesses in Vietnam are still concerned about having their disputes settled in local arbitration centres. This article records and explains, at practical level, a number of remaining concerns by the foreign business community of potential pitfalls and legal risks under the CAL (regarding institutional arbitration) with regard to international arbitration in Vietnam. It also analyses the pros and cons of the options whereby the contracting parties chose arbitration seat within Vietnam nevertheless apply foreign arbitration rules, or when the parties settle the arbitration completely outside Vietnam but seek to enforce the award in Vietnam.

Pitfalls in appointing arbitrators and appointing authority

The CAL has removed restrictions on the nationality of the arbitrators under OA (which in many circumstances only allows Vietnamese to be arbitrators), but remain the requirement for the minimum qualifications of the arbitrators including (Art. 20.1, 20.2 CAL):

- Having full civil legal capacity under the Civil Code

- Having a university qualification and at least five years work experience in the same discipline which he/she studied.

The CAL accepts in special cases a person failing to meet the above requirements may still be appointed as arbitrator if he/she is an expert with highly specialised qualifications. However it is not clear who will decide this qualification. While the above restrictions are not in line with international standard (e.g. International Arbitration Act of Singapore provide no mandatory qualifications of appointing arbitrators) and a losing party may try to make use of them, they should not be a significant risk to the foreign parties as long as they ensure their appointed (foreign) arbitrator(s) has sufficient documented evidence that he/she meets the above requirements.

Another concern regards the quantity and quality of the arbitrators in the existing List of Arbitrators in Vietnamese arbitration centres. Currently the two most popular arbitration centres in Vietnam (Vietnam International Arbitration Centre-VIAC and Pacific International Arbitration Centre-PIAC) have relatively limited resources of arbitrators both in terms of quantity and the diversity of international disputes expertise in comparison to their next-door neighbors, the Singapore International Arbitration Centre (SIAC) and the Kuala Lumpur Regional Centre for Arbitration (KLRCA). VIAC currently has six foreign and 120 local arbitrators in its list, PIAC has 25 local arbitrators, compared to 426 international and 31 local arbitrators in SIAC and 333 international and 62 local arbitrators in KLRCA.

The above limited resources have created real concerns for foreign parties. Under the CAL in the case of disputes having foreign factor(s) both applicant and respondent are allowed to appoint an arbitrator outside the arbitration centre’s List of Arbitrators. However, if the Arbitration Tribunal is formed by three arbitrators then the third arbitrator shall be elected by the two arbitrators (selected by the parties) and if they fail (they normally do) then the chairman of the arbitration centre (the appointing authority) shall appoint an arbitrator from the centre’s List of Arbitrators to act as the chairperson of the Arbitral Tribunal.

Let’s put this in the context of arbitration at the VIAC with regard to a specialised oil and gas dispute between a foreign party and a Vietnamese, the foreign party will be fairly reluctant agreeing on its disputes being settled in Vietnam accordance with VIAC Rules because only a handful of arbitrators in VIAC’s List of Arbitrators, who are or had been typically working for giant Vietnamese state-owned corporations, would have oil and gas experiences. Under the CAL and VIAC Rules, it is likely that one of them will be appointed as the chairperson of the Arbitration Tribunal and a potential conflict of interests will arise on whether the objectivity of the Tribunal can be ensured. Under Article 42 of CAL, an arbitrator must refuse to resolve a dispute, and the parties have the right to request replacement of an arbitrator resolving the dispute if the arbitrator is a relative or representative of a party, or if he/she has an interest related to the dispute. Nevertheless, this relationship or interest is not easy to prove.

To avoid the above problem, the parties may select a location in Vietnam as the seat of arbitration while applying SIAC or KLRCA Rules to govern the dispute settlement procedures, the risk will be effectively avoided because under SIAC Rules, for example, if the two arbitrators cannot elect a third arbitrator to chair the tribunal then the SIAC Chairman will appoint an arbitrator (without limitation to any pre-selected list) and thus there are more chances of getting an unbiased tribunal chairman.

Uncertainty of interim relief

Under OA the arbitration tribunal has no power to order interim relief. This has been significantly improved under CAL which allows the arbitration tribunal to order one or more interim measures such as prohibition of changes in the status quo of the assets, requirement of interim payment, prohibition of transfer of asset rights.

The pitfall of this power is that under the CAL, if an arbitration tribunal orders a different form of interim relief from what is allowed by law, or such interim relief exceeds the scope of application by the applicant, thereby causing losses to the applicant or to the party against whom the interim relief was applied or to a third party, then the party incurring loss shall have the right to institute court proceedings for compensation. Furthermore, under CAL there’s no protection/immunity of arbitrators with regard to the claims against their decision. This may effectively discourage arbitrators in proceeding with any interim relief unless they are fully covered under professional liability insurance.

At a practical level, under the OA only the courts had the power to order interim relief. As CAL has been in effect for less than four months, there’s no precedent of whether the orders for interim relief will be automatically enforced at the execution departments and we expect that decrees/circulars in detailing and instructing the implementation of CAL should be in place to enhance this power of the Arbitration Tribunal.

Setting aside/enforceability of arbitral awards

Under CAL a court (no appeal and without leave of the court) may decide to set aside an arbitration award based on several grounds:

- There’s no arbitration agreement or such agreement is void

- The composition of arbitration tribunal was inconsistent with the agreement of the parties or contrary to CAL

- The dispute was not within the jurisdiction of the arbitration tribunal

- The award contains an item(s) which falls outside the jurisdiction of the arbitration tribunal then such item will be set aside

- Evidence supplied by the parties on which the arbitration tribunal relied to issue the award was forged

- An arbitrator received money, assets or material benefit from one of the parties affecting the objectivity of the award

- The arbitral award is contrary to the fundamental principles of the law of Vietnam.

Many uncertainties are and will remain associated with each of the above grounds especially for the law in action. Typical cases are where the parties failed to refer to the exact name of the arbitration centre in their arbitration agreement or no arbitration agreement, or the jurisdiction of the arbitration tribunal is unclear (e.g. some particular agreement was not categorised as a “commercial one” and thus not arbitrable). Fortunately under the new CAL the arbitrable disputes have been extended to not only disputes arising from commercial activities but also disputes between the parties, at least one of whom is engaged in commercial activities.

The definition of “fundamental principles of Vietnamese laws”. In the Courts’ practice this could be much broader than the normal foreign community could imagine. E.g. in the case of Energo-Novus, Moscow vs. VINATEX, the courts considered that the negligence by the arbitration tribunal of some documents certified by the Notary Public in Vietnam provided by VINATEX had amounted to the “contrary to the fundamental principles of Vietnamese laws”. In Tyco Service Singapore Pte Ltd vs. Leighton Contractors VN Ltd, a foreign contractor was operating in Vietnam without necessary permits/licences/registrations as required by laws, the disputes settled by the arbitration was set aside by the court as considered against the basic principles of Vietnamese laws.

The above risks, however, still exist (or even become more exposed) with an international arbitration award that seeks enforcement in Vietnam due to the enforcement procedures as further mentioned below.

No re-arbitration. Under the CAL when an award is set aside the parties must go to court to litigate the dispute unless the parties agree on the re-arbitration (i.e. the original arbitration agreement will become void). This is not conductive to international arbitration because there are various reasons for an award being set aside and the “killing” of the arbitration agreement when the award is set aside will narrow down the possibility of arbitration.

Enforcement of arbitral awards. A notable advantage of having arbitration in VIAC premise applying VIAC rules is that under the CAL and the Civil Procedural Code 2004 (CPC) the procedure to enforce a domestic arbitral award is much simpler than a foreign one. In particular a domestic institutional arbitration award will be enforceable with immediate effect as if it were a court judgment without a need for registration with the courts. On the contrary a foreign award must be filed with the Ministry of Justice (MoJ) and seek confirmation by the Vietnamese court.

Another advantage of having arbitration in a local arbitration centre and applying its rules is that under the consideration by Vietnamese courts, the international arbitral award will be subject to higher risk of being set aside, because there are more grounds provided under the CPC (Article 370) for the courts to set aside an international arbitral award compared to those under CAL. Most importantly, the award may be set aside if “the individual against whom, or body or organisation against which, enforcement is sought had not been notified properly and in a timely manner of the appointment of the arbitrator or the procedures for resolving the dispute by foreign arbitration, or had reasonable cause for failing to exercise its, or his or her, right to legal proceedings”. The qualification of “notified properly and in timely manner” may be highly controversial and this would be a good tool for the losing party seeking to set aside the award.

Vietnam venue but foreign rules: is it a domestic award and how it is enforced?

Let’s consider a case where the contract mentions Vietnam venue but applies SIAC Rules, it is not certain if the award will be considered “international” or “domestic”. The Civil Code defined that foreign arbitration awards mean “arbitration awards made outside the territory of Vietnam or awards made inside the territory of Vietnam by foreign arbitrators appointed by mutual agreement of the parties”. CAL defined foreign arbitration (which confusingly using the same Vietnamese term as foreign arbitrator) as “Arbitration established in accordance with foreign arbitration law which the party agree to select to conduct dispute resolution either inside or outside Vietnam. Given this uncertainty, two scenarios may happen:

If the award is considered domestic (because there are Vietnamese arbitrator(s) and the seat of arbitration is inside Vietnam) then enforcement is automatic without any filing at the MoJ and recognition need by a Vietnamese Court. If the award is considered foreign (because the arbitration tribunal is established based on SIAC Rules, not local arbitration centres’ rules) then it must still follow the above-mentioned recognition procedures.

Conclusion

From the above analysis we can conclude that under the new Law the most outstanding concern of a foreign party with regard to the arbitration in Vietnam is the appointment of qualified arbitrators and ensuring a fair and objective arbitration tribunal. Another concern one would have as for the law in action is the uncertainty of the interim relief order in case a party would want to use this tool. This becomes worse with the absence of the protection/immunity provided to the arbitrators in issuing such orders.

With regard to the enforceability of an arbitration award in Vietnam, it is encouraging that under the CAL, the option of Vietnam premise, applying the rules of a local arbitration centre is more advanced for all the parties in terms of procedures and the risk of the award being set aside. On the other hand, the contracting parties may consider the option of Vietnam premise, applying a foreign centre’s rules that may avoid the problem of appointing arbitrators but will leave a question as of the enforceability in Vietnam.