Resolving disputes through commercial arbitration is a suitable method in international commercial practice, which is known for its swiftness and efficiency. However, not all cases proceed seamlessly, particularly when the involvement of courts becomes crucial.

Resolving disputes through the use of commercial arbitration is a suitable method in international commercial practice. The advantages of this method lie in the expeditious resolution of cases, with the professionalism and expertise of arbitrators specialized in each specific case. However, limitations arise from the involvement of the courts at critical junctures.

In this regard, concerning domestic arbitrator rulings, the court has the authority to review and annul a ruling upon the request of one of the parties (typically the aggrieved party). As for foreign arbitrator rulings, the enforcing party must request the Vietnamese court to recognize and enforce the ruling within Vietnam, and the court has the discretion to refuse recognition by the provisions of the law. This article will address some typical reasons that Vietnamese courts have recently utilized.

When the party is required to enforce the foreign arbitrator’s ruling and has real estate in Vietnam

According to the provisions of Article 470, Clause 1, of the 2015 Civil Procedure Code, cases related to rights over real estate within the territory of Vietnam fall under the exclusive jurisdiction of Vietnamese courts (which means they cannot be resolved at foreign arbitration centers). However, there is currently no clear explanation of what constitutes a case related to rights over real estate in Vietnam. If we rely solely on the wording of this provision, it can be understood that the dispute involves ownership rights or other rights directly related to real estate.

Nevertheless, in a Judgment 09/2023/HS-PT (1) dated January 17, 2023, issued by the Supreme People’s Court of Hanoi, the Court did not recognize and enforce the foreign arbitrator’s ruling in the dispute between Global Payment Service (GPS), UTC Investment Co., Ltd, and VMG Media Corporation. The Court held that this was a dispute that could not be resolved through arbitration, following Vietnamese law.

The basis for this argument was the belief that recognizing and enforcing this ruling in Vietnam would involve the execution of VMG’s assets, both movable and immovable, in Vietnam. According to Article 470 of the Civil Procedure Code, only Vietnamese courts have jurisdiction over matters related to rights over real estate within Vietnam’s territory.

In our view, this argument made by the Court is not entirely persuasive. This is because the dispute in this case concerns rights and obligations under a share purchase agreement among the parties at VNPT Electronic Payment Corporation, specifically the representations and warranties made by VMG. There was no dispute between the parties regarding rights over VMG’s real estate in Vietnam.

The dispute was resolved through an arbitration award, and if there is a need to deal with the real estate of the party against whom the award is enforced during the execution stage, these properties should not be considered assets related to the case that has already been resolved.

It is also important to note that this argument could set a dangerous precedent for recognizing and enforcing foreign arbitration awards in Vietnam. If a party subject to enforcement owns any real estate in Vietnam, it could potentially render foreign arbitration awards nearly impossible to recognize and enforce. In such a scenario, the method of dispute resolution through foreign arbitration would lose its effectiveness for the parties involved.

The arbitration award of the domestic arbitrator is inconsistent with the principles of Vietnamese law

The recent Decision 12/2023/QD-PQTT(2) dated July 4, 2023, by the People’s Court of Hanoi City, has accepted the request of AO Water Company and Mr. Đỗ Tất T. to annul the arbitration award in dispute case 79/21 dated December 16, 2022, issued by the Vietnam International Arbitration Center (VIAC). The dispute between AO Company, Mr. T., and WP Pte (WP) was resolved by VIAC.

However, the Court’s Single Judge Panel found that the Arbitral Tribunal had rendered an award that contradicted basic principles of Vietnamese law, specifically the principle that arbitrators must be independent, impartial, and unbiased, and must comply with the law (Article 4(2) of the 2010 Law on Commercial Arbitration).

There are two main reasons consistently used by the single-judge panel to support their argument: (i) the Arbitral Tribunal used documents provided by WP before they were properly legalized by the consulate, and (ii) the Arbitral Tribunal did not approve the request for signature verification by AO Company and Mr. T. regarding the documents provided by WP.  In our opinion, both reasons are not persuasive.

Firstly, the 2010 Law on Commercial Arbitration does not require documents from foreign countries to be legalized by consular authorities when used in Vietnam. Additionally, the scope of regulation of the 2015 Civil Procedure Code and the 2010 Law on Commercial Arbitration is entirely independent of each other: while the Civil Procedure Code governs litigation activities in court, the Law on Commercial Arbitration regulates dispute resolution activities in arbitration.

Even if the provisions regarding the annulment of arbitral awards are also provided in the Law on Commercial Arbitration (rather than the Civil Procedure Code), it can be understood that the annulment of arbitral awards is just one stage in the process of dispute resolution through arbitration. In this process, the court, when annulling an arbitral award, must rely on the laws directly regulating the arbitration dispute resolution process, specifically the Law on Commercial Arbitration. Is the Single Judge Panel’s reliance on Article 478 of the 2015 Civil Procedure Code to require documents to be legalized by consular authorities convincing?

Furthermore, if we rely on Article 4(2) and Article 9(4) of Decree 111/2011/ND-CP, as cited by the Single Judge Panel, then the requirement for consular legalization would not be necessary, as the Arbitral Tribunal, as the recipient of the documents in Vietnam, did not request consular legalization. This approach is consistent with the corresponding laws of Vietnam, specifically the Law on Commercial Arbitration.

Secondly, regarding the Single Judge Panel’s assertion that the Arbitral Tribunal was not impartial by not approving the request for signature verification by AO Company and Mr. T. regarding the documents provided by WP, we believe this argument does not hold in the context of this case. According to the content of Decision 12/2023/QD-PQTT mentioned above, WP was confirmed by the owners of the signatures on the relevant documents, and these individuals also directly signed the documents before a notary public and swore that the signatures were theirs.

WP also obtained the opinion of professional lawyers in Singapore who confirmed that the signatures on the documents were genuine and legally valid. With such evidence, there is no reasonable basis for the Single Judge Panel to claim that the signatures on the documents were forged and, therefore, that the Arbitral Tribunal acted impartially.

In summary, the grounds and reasoning provided by the Single Judge Panel to demonstrate that the Arbitral Tribunal was not independent, impartial, unbiased, and did not comply with the law, resulting in an award that contradicted basic principles of Vietnamese law, are not well-founded and not entirely reasonable.

However, apart from this case, from another perspective, it can be seen that the provision in Article 4(2) of the 2010 Law on Commercial Arbitration is very broad and not clear. In addition to the very difficult-to-determine factors of “independence, impartiality, and lack of bias,” the requirement to “comply with the law” is also a very broad concept. According to this provision, if an arbitrator does not comply with any provision in legal documents, whether it is a law, decree, circular, or even a decision of a commune-level people’s committee, it could be considered a violation of the basic principles of Vietnamese law. This is a significant risk for arbitration awards.

The two cases we have cited here are just a few of the many cases in which arbitral awards may be annulled or not recognized and enforced in Vietnam for reasons that are not entirely convincing to the related businesses and the legal profession. This poses a significant barrier to the development of commercial arbitration in Vietnam and the choice of arbitration as a dispute resolution method. Additionally, it may create unfavorable precedents when applying this dispute resolution method.

1. The first dispute:

In this dispute, the plaintiff is GLOBAL PAYMENT SE and UTC INVESTMENT CO., LTD, and the defendant is VMG Media Corporation.  The dispute is related to a share purchase agreement between the parties at VNPT Electronic Payment Corporation, which was resolved at the Singapore International Arbitration Centre through an award issued on October 21, 2021.

According to the award, the defendant was required to execute the award by paying a total amount exceeding 517 billion Vietnamese Dong to the plaintiff. Subsequently, the plaintiff filed a request for recognition and enforcement of the award at the Vietnamese Court. However, on June 30, 2022, the People’s Court of Hanoi issued a decision not to recognize and enforce the award in Vietnam, citing one of the reasons as the dispute not falling within the jurisdiction of foreign arbitration.

Following this, the plaintiff appealed the decision of the People’s Court of Hanoi, and on January 17, 2023, the Higher People’s Court in Hanoi issued Judgment 09/2023/HS-PT, rejecting the plaintiff’s appeal and upholding the first-instance decision.

2. The second dispute:

In this second dispute, the plaintiff is WP PTE, and the defendants are AO Water JSC and Mr. Đỗ Tất T. The dispute concerns a share transfer agreement between the parties at SĐ Water JSC, which was resolved at the Vietnam International Arbitration Center through an award issued on December 16, 2022.

According to the award, the defendant was required to execute the award as per the plaintiff’s request. Subsequently, the defendant applied to set aside the Arbitration Award, citing one of the reasons as the Arbitration Award being inconsistent with the fundamental principles of Vietnamese law, specifically, the Arbitral Tribunal not being impartial in resolving the dispute. On July 4, 2023, the People’s Court of Hanoi issued Decision 12/2023/QD-PQTT, which annulled the aforementioned Arbitration Award, by the reasons presented by the defendant.

Read the original article in Vietnamese at The Saigon Times.