Recent Trends In The Annulment Of Arbitral Awards In Vietnam
The annulment of the arbitral award is one of the salient issues affecting the development of commercial arbitration in Vietnam. In 2019, a total of 18 cases on this matter were reported on the Supreme Court’s website, with 16 decisions rejecting the request for annulment and only 2 decisions where leave was granted.
Out of the 16 decisions rejecting the request for annulment, 11 concerned awards rendered in the context of real estate disputes opposing individual purchasers to T Real Estate Investment Company (T Real Estate), V Technology Construction and Development Joint Stock Company (VTech), and Mr. Do Viet T.
All these cases were decided by the HCMC People’s Court and involved broadly the same issues. As an example, this update will review Decision no. 1715/2019/QD-PQTT dated 22 November 2019 which was initiated by Mrs. Nguyen Thi Mong T. (Decision 1715).
The other 5 cases which rejected the requests for annulment are:
- Decision no. 251/2019/QD-PQTT dated 19 March 2019, Rubber Manufacturing Company L (RMC) XIR Ltd. (XIR) (Decision 251)
- Decision 1159/2019/QD-PQTT dated 16 September 2019, Company A v. HL Technical Services Trading Co (HL Co) (Decision 1159).
- Decision no. 1579/2019/QD-PQTT dated 7 November 2019, Company A Investment Company B (Decision 1579)
- Decision no. 10/2019/QD-PQTT dated 12 November 2019, Company HEV Company WV (Decision 10)
- Decision no. 1590/2019/QD-PQTT dated 12 November 2019, Mr. Do H. M Securities Company Ltd. (M Securities) (Decision 1590);
In contrast with the above, the first case where an award was annulled is Decision No. 1420/2019/QD-PQTT of the HCMC People’s Court dated 16 October 2019 opposing CK Group to QT Company Ltd and H.P.C. Marine Materials JSC (QT/HPC) (Decision 1420).
The second case is Decision No. 11/2019/QD-TT of the Hanoi People’s Court dated 14 November 2019 (Decision 11), which set aside the award rendered by the tribunal in the publicized dispute opposing Vinh Son – Song Hinh HydropowerJSC (VSH) to Powerchina Huadong Engineering Corporation Limited and China Railway 18th Bureau Group Co. Ltd (the Consortium).
This update provides a short summary of these cases, followed by a critique of the rulings.
This dispute arose out of contracts for the purchase of rubber between RMC and XIR. XIR initiated VIAC arbitration proceedings against RMC. In September 2018, the tribunal rendered an award in favor of XIR, ordering RMC to pay ca. USD 210,000 for amounts paid in advance and interests for late payment.
In November 2018, RMC initiated annulment proceedings, seeking to set aside the award on the grounds that (i) the tribunal based its decision on fraudulent and dishonest evidence provided by XIR, (ii) the award violates the basic principles of Vietnamese law as the tribunal based its decision on Article 25(1)(a) of the CISG.
The HCMC People’s Court rejected both arguments, holding that such arguments were related to the substantive contents of the dispute and that, pursuant to Article 71(4) 2010 LCA, the Court should not re-hear these issues.
This dispute arose out of a contract for the sale of digital goods between Company A and HL Co. VIAC arbitration proceedings were initiated but the parties were ultimately able to reach a mediated settlement pursuant to which HL agreed inter alia to reimburse VND 1.2 billion to Company A and half of the arbitration costs (ca. VND 48 million).
In April 2019, HL initiated annulment proceedings, requesting the court to set aside the award on the grounds that: (i) the authorized representative who signed the settlement agreement on its behalf “arbitrarily changed the opinion of [HL]”, such that it did not recognize or agree to the contents thereof, (ii) the hearing was held at the HCMC branch of the VIAC, in violation of the parties arbitration agreement which only referred to the VIAC without expressly stating the seat of the arbitration; and (iii) the authorized representative who attended the settlement meeting held opinion contrary to the will of HL’s legal representative, in violation of its duty as an agent of HL.
The HCMC People’s Court dismissed the first and third arguments of HL for a lack of evidence. It also rejected the second argument on the basis that it had not objected to holding the arbitration in HCMC during the proceedings.
This dispute arose from 8 contracts between Company A and Investment Company B for the sale and purchase of seafood products. In 2018, Company A initiated VIAC arbitration proceedings against Company B for violations of the 8 contracts, seeking more than VND 2.1 billion in compensation for the damages it suffered. In July 2019, the tribunal rendered its award in which it ruled partly in favor of Company A, ordering Company B to reimburse only ca. VND 1.1 billion.
In September 2019, Company A initiated annulment proceedings, seeking to set aside the award on the basis that (i) it contravened the basic principles of Vietnamese law and (ii) the procedure did not conform to the parties’ agreement and the provisions of the law. In support of its case, Company A submitted that, at the meeting, the tribunal had not collected documents it submitted and that it had failed to objectively review its evidence.
The HCMC People’s Court rejected these arguments, finding that the Tribunal had jurisdiction to resolve the dispute between the Parties under the 8 contracts at hand. Noting that neither party had objected to the authority of the Tribunal at the Hearing, the Court determined that the tribunal had not “violated the arbitration proceedings” and that the award did not violate the basic principles of Vietnamese law.
The judgment does not provide further details regarding the parties’ contentions or the Court’s ruling.
The dispute, in this case, arose out of a contract between HEV (as a contractor) and VW (as an employer) for the construction of a factory in an industrial zone in Bac Ninh province.
In November 2013, the parties signed a contract and an appendix to the contract. After HEV completed the works, the parties signed minutes of a final acceptance test showing that the works were completed. HEV then requested the payment of ca. VND 1.4 billion and VND 25.3 billion respectively due under the Contract and the appendix. VW then rejected the contents of the acceptance test and denied that it owed the amounts claimed by HEV.
HEV, therefore, initiated a VIAC arbitration against VW. During the proceedings, the Tribunal summoned VW’s chief accountant to give evidence at a hearing on VW’s payment responsibilities but she failed to appear.
Furthermore, HEV requested that the tribunal suspend the proceeding so that a valuation of the works may be conducted. The tribunal denied this request.
In August 2019, the Tribunal rendered an award rejecting the claims brought forth by HEV, which then initiated proceedings to annul the award. In support of its challenge, HEV argued that:
- The tribunal should have suspended the proceedings after its accountant failed to appear and request a court to summon her to the hearing pursuant to Article 47 of the 2010 LCA. The tribunal failed to so and thus violated the arbitration procedure.
- In view of the parties’ dispute regarding the acceptance procedure, the tribunal should have asked both parties to provide a valuation of the completed works. The tribunal failed to do so, thereby violating Article 46(3) of the 2010 LCA.
These arguments were rejected by the Hanoi People’s Court on the following grounds.
With regard to the issue of witness appearance at the hearing, the Court confirmed that decisions on this matter fell within the competence of the tribunal. In this regard, the Court noted that (i) the witness had been repeatedly called to appear but still failed to do so; (ii) the Tribunal ruled that the absence of the witness did not constitute an obstacle to the resolution of the dispute; and (iii) VW had not raised a contemporaneous objection at the hearing when the witness failed to appear. Accordingly, the Court found that the tribunal had not violated Art. 47 of the 2010 LCA.
With regard to the valuation of the works, the Court noted that the tribunal had provided a period of time for the parties to provide additional evidence before the final hearing. VW made no request for the valuation of evidence during this period and only raised the matter after the conclusion of the final hearing.
The Court, therefore, concluded that the tribunal’s decision to reject such request conformed with the VIAC Arbitration Rules and the 2010 LCA. The Court further noted that this issue concerned the merits of the dispute, which should not be re-heard at the annulment stage in accordance with Art. 71 of the 2010 LCA.
The dispute, in this case, arose out of 3 guarantee agreements between M Securities and Mr. Do. The details of the dispute are not disclosed in the judgment.
In January 2019, M Securities initiated VIAC arbitration proceedings against Mr. Do, seeking the payment of an outstanding balance under the guarantee agreements, together with interests and costs.
Mr. Do did not participate in the proceedings. On 26 April 2019, the tribunal rendered an award ordering him to pay the sum of ca. VND 1.9 billion within 30 days.
In May 2019, Mr. Do initiated proceedings to vacate the arbitral award on 4 grounds: (i) the notices, petitions, and evidence had not been sent to him, (ii) the VIAC had appointed an arbitrator on his behalf before the expiry of the 30 day period; (iii) a hearing took place although he did not file a defense and (iv) at the hearing, the Tribunal ruled on an additional issue for which he did not have the opportunity to present his case.
In its judgment, the HCMC People’s Court rejected these arguments on the following basis:
- The notice had been sent to the permanent residential address (and current address) of Mr. Do, as set out in the 3 guarantee agreements and confirmed by the representative of Mr. Do. The Court found that this was in line with Article 3(2) and 3(3) of the VIAC Rules;
- Under Article 12(2) of the VIAC Rules, Mr. Do had to appoint an arbitrator (or request the VIAC to do so on its behalf) within 30 days of the receipt of the request for arbitration. Failing this, the VIAC President has the authority to appoint the arbitrator. In that case, the record showed that the request for arbitration was delivered to Mr. Do’s registered address on 24 January 2019. The VIAC decision to appoint an arbitrator was issued on 1 March 2019, i.e. after the elapse of the 30-day period granted to Mr. Do.
- Articles 9(1), 9(4), and 10(1) of the VIAC Rules provide that the respondent must submit its statement of defense within 30 days from the receipt of the request for arbitration and that, if the respondent fails to do so, the arbitration can still proceed. In that case, the tribunal gave the notice to hold a hearing was issued on 29 March 2019, i.e. 58 days after Mr. Do had received the request for arbitration on 24 January 2019. Accordingly, the Court concluded that the tribunal had respected the time period granted to Mr. Do to file a defense before opening the hearing.
- The additional issue on which the tribunal ruled concerned the payment of additional interest for the period between the commencement of the arbitration and the hearing. This issue was related to the original demands of M Securities, which included the payment of a principal amount and interest for late payment. The Court thus found that the tribunal had the authority to decide this matter.
This dispute arose out of contracts between Mrs. Mong, T Real Estate, VTech, and Mr. Do regarding the sale & purchase of an apartment, the construction of an apartment, and contract appendices on social housing. Mr. Do was the legal representative of T Real Estate and VTech and acted as a guarantor of their obligations under the contracts with Mrs. Mong. The other details of the dispute are not disclosed in the judgment.
Mrs. Mong initiated VIAC arbitration proceedings for breaches of the above contracts. On 24 August 2019, the tribunal rendered in favor of Mrs. Mong, ordering T Real Estate and VTech to jointly pay an amount of VND 428 million within 30 days.
Should T Real Estate and VTech fail to make such payment in full, Mr. Do ordered to fulfill his guarantee obligation and pay any outstanding amount together with interest at a rate of 10% per year in accordance with Article 357 of the 2015 Civil Code.
On 3 September 2019, T Real Estate, VTech, and Mr. Do initiate proceedings to set aside the award, raising the following arguments:
(i) settling “multiple legal relations” in the same case violated the arbitration rules;
(ii) there was no arbitration agreement between Mr. Do, as a guarantor, and Mrs. Mong;
(iii) the tribunal applied an erroneous interpretation of Article 404 of the 2015 Civil Code;
(iv) the request for arbitration was sent to the personal address of Mr. Do instead of the headquarters of T Real Estate and V Tech;
(v) the Tribunal ruled on an additional issue for they did not have the opportunity to present their case;
(vi) the award violated the basic principles of Vietnamese law, namely Article 3(5) of the 2015 Civil Code;
(vii) the award damages for the entire period during which the contract was terminated, and (viii) the award refers to the concept of “property rights arising from contracts” which does not exist under the 2015 Civil Code.
The Court rejected all these arguments on the following basis:
- The consolidation of the cases against T Real Estate, VTech, and Mr. Do was appropriate “to ensure the correct settlement” of the dispute;
- Do, as a legal representative of T Real Estate and VTech, had signed the contract appendices on social housing. In parallel, he signed a guarantee undertaking for the obligations of the two companies. Thus, having agreed on arbitration as ‘legal representative’, it could not be said that Mr. Do had not agreed on arbitration as a ‘guarantor’.
- Articles 3(2) of the VIAC Rules and 12(2) of the 2010 Law on Commercial Arbitration (2010 LCA) both allow that notices be sent to the address of the representative of the parties.
- The additional issue on which the tribunal ruled concerned the payment of additional interest for the period between the commencement of the arbitration and the hearing. This issue was related to the original demands of Mrs. Mong, such that the tribunal had the authority to decide this matter.
- The other grounds raised to challenge the award concerned the substantive contents of the dispute which were resolved by the tribunal. Pursuant to Article 71(4) of the 2010 LCA, the Court should re-hear such matters.
This dispute arose out of a claim for non-contractual damages between CK Group and QT/HPC.
In July 2019, the tribunal rendered an award ordering CK Group to pay ca. USD 195,000 to QT/HPC, plus arbitration costs and expenses.
QT initiated proceedings to annul the award, arguing that it violated the basic principles of Vietnamese law. In support of this argument, QT submitted that the parties had agreed on the application of the IBA Rules where the VIAC rules and the 2010 LCA are silent. However, in its award the tribunal did not apply the IBA Rules, referring only to the VIAC Rules and 2010 LCA. The HCMC People’s Court rejected this argument on the basis that the tribunal had the discretion to apply the IBA, and that its decision not to do so was in line with the parties’ agreement.
QT also argued that the award violated principles of objectivity and equality as the tribunal had failed to consider key evidence presented on various items of quantum. The Court rejected this argument on the basis that it concerned the substantive contents of the dispute, which should not be re-heard at the annulment stage in accordance with Art. 71 of the 2010 LCA.
Lastly, QT argued that the tribunal exceeded its jurisdiction in the award by ruling on claims brought forth by CK Group which did not fall within the scope of the parties’ arbitration agreement. The Court accepted this argument, noting that in the arbitration agreement only applied to disputes arising out of 5 specific items listed in the contract. In its award, the tribunal ruled on claims for expenses that did not fall within those 5 specific items, despite the fact that QT had raised an objection in this regard during the proceedings.
The Court therefore concurred with QT that the tribunal had acted ultra vires by ruling on the expense claim. It further concluded that the section exceeding the tribunal’s jurisdiction could not be separated from the rest of the award because “the award cleared the mutual obligations” of the parties, such that it had to be annulled in its entirety.
The dispute, in this case, arose out of a contract for the construction of the 220 MW Upper Kon Tum Hydropower Plant (the Project), for which VHS is the investor. The project began in 2009, when the Consortium secured the contract, submitting a tender bid that was ca. 55% lower than the second cheapest bidder.
Between 2009 and 2014, the Project encountered several delays and disruptions.
In July 2014, the Consortium unilaterally terminated the contract after having completed only ca. 25% of the works. The Consortium sought compensation in the amount of ca. VND 2.3 trillion for unpaid construction works, contractual penalties and other costs.
In August 2014, the Consortium initiated VIAC arbitration proceedings, appointing Mr. Peter HJ Chapman as co-arbitrator. Subsequently, Messrs. Dang Quang and Yasunobu Moto were respectively appointed as co-arbitrator and chairman by the Respondent and the VIAC.
The contract did not specify the venue for the arbitration. Through correspondence, the parties agreed that Hanoi be the venue of meetings for the arbitration and, in May 2015, the tribunal issued a procedural order confirming the same.
In May 2016, the tribunal granted an application for provisional emergency measures (the EM Ruling), requiring VHS to deposit ca. VND 211 billion in a joint bank account with the Consortium.
VHS objected to the EM Ruling as unlawful and initiated a lawsuit against Messrs. Chapman and Yasunobu seeking the damages it incurred as a result thereof. In August 2016, the Hanoi People’s Court accepted the case.
Thereafter, the tribunal decided that, unless VHS retracted its lawsuit, the hearing would be moved to Singapore and ultimately to Osaka, on the basis that the security of the arbitrators was jeopardized. VHS objected to this change of location, maintaining that the hearing should be held in Hanoi.
In March 2019, the hearing was held in Osaka. During the hearing, the tribunal heard evidence from the experts appointed by the Consortium.
In April 2019, the tribunal issued a final award in favor of the Consortium, ruling that it had the right to unilaterally terminate the contract and receive ca. VND 2.1 trillion (≈USD 94 million) in compensation.
Later that month, VHS requested the Hanoi People’s Court to set aside the award on the basis that (i) the procedure followed by the tribunal did not comply with the parties’ agreement, (ii) the tribunal had committed a serious violation of the 2010 LCA and (iii) the award is contrary to the basic principles of Vietnamese law.
In its ruling, the Court upheld the objections of VHS, annulling the arbitral award on the following basis:
- Pursuant to Article 11(1) of the 2010 LCA, the parties may agree on the venue of the arbitration. In this case, the Tribunal’s decision to relocate the hearing to Osaka violated the parties’ agreement on Hanoi the venue of the arbitration.
- Under Article 56(2) of the 2010 LCA, the tribunal may proceed with the arbitration if the respondent fails to participate, but must resolve the dispute based on the existing documents and evidence. In this case, VHS did not participate in the hearing but it had submitted evidence and documents. The tribunal disregarded some of the evidence presented by VHS on the basis that it had the discretion to do so under the IBA Rules on the Taking of Evidence, which were adopted as non-binding guidelines in the arbitration. The Court considered the rights of VHS were adversely impacted by its non-participation at the hearing and the tribunal’s decision to exclude evidence. The Court thus ruled that the tribunal’s award was not “based on the existing documents and evidence”
- Under Article 46(3) of the 2010 LCA, a tribunal may appoint an expert to evaluate damages. In this case, the tribunal did not do so and instead relied on the opinion of the expert presented y the Consortium.
The above decisions are reflective of the current environment and judiciary response to the enforcement of arbitral awards in Vietnam. On the one hand, in decisions no. 1579, 1590 and 1715, the HCMC People’s Court sent a positive message by refusing to set aside the awards. A number of lessons can be drawn from the Court’s reasoning in these cases. Notably, disputing parties involved in arbitration proceedings in Vietnam should keep in mind that:
- Objections to the authority or jurisdiction of a tribunal should be clearly made in the pleadings and at the hearing;
- Objections to the procedural conduct of the arbitration should be raised contemporaneously during the proceedings, failing which a party will be deemed to have waived its right to raise such matters.
- The pleadings, documents and notices must be sent to the correct address and recipient(s) as required by the 2010 LCA and the applicable arbitration rules;
- Courts will not sanction an unjustified failure to participate in the proceedings.
- Claims for additional interests running during the term of the arbitration are within the tribunal’s competence;
- Courts should defer to tribunals for issues related to the substantive contents of the dispute.
However, in contrast with the above, Decision no. 11 of the Hanoi People’s Court raises a number of concerns regarding the state of commercial arbitration in Vietnam in general and, in particular, the enforcement of awards.
The first ground retained by the Court touches upon the underlying issue of the immunity of arbitrators. Although common law and civil law countries differ in their approach on the matters, most arbitration friendly jurisdictions offer immunity to arbitrators. The purpose of this privilege is to shield arbitrators from liability for the actions or omissions they perform in the context of their functions. Many institutional arbitration rules provide for such immunity.
The rationale behind this principle is that the role of arbitrators, as decision-makers, is of a quasi-judicial nature. As a consequence, arbitrators need a degree of security to exercise it in an independent and impartial manner. Furthermore, public policy mandates that arbitrators be immune against claims from the parties, which would otherwise create an undue burden on the judicial system if allowed. Generally, this immunity has limits and does not cover situations where arbitrators act (i) intentionally, arbitrarily or fraudulently; or (ii) outside the scope of their mission as decision-makers.
The 2010 LCA and the VIAC Rules do not provide for such immunity, which explains why VHS was allowed to sue the arbitrators in the first place. This lacuna is a hurdle to the development of international arbitration in Vietnam. Indeed, leading arbitrators will be reticent to sit on Vietnam-seated arbitrations if they fear that may face civil or criminal liability. Furthermore, as seen in this case, allowing judicial intervention in the arbitral proceedings is counterproductive. It goes against the principle of judicial non-interference in the arbitral proceedings.
The question of arbitrator immunity is also a salient issue in other jurisdictions. In 2016, the UAE passed an amendment to their criminal code pursuant to which arbitrator could face criminal liability if they failed to act in an impartial or unbiased manner. What followed was an outcry and strong criticism from the arbitration community, fearing that such amendment could jeopardize Dubai’s (and the UAE’s) position as a regional and global hub for arbitration. In 2018, the UAE criminal code was again revised, repealing the provisions on the criminal liability of arbitrators.
The remaining grounds raised by the Court in Decision 11 relate to the collection and admissibility of evidence. They are a good example of the dichotomy between the adversarial approach of common-law style procedures, which has permeated international arbitration, and the inquisitorial approach of civil law jurisdictions such as Vietnam. The Court’s ruling raises a number of issues in this regard.
First, the Court does not acknowledge that the parties had initially agreed on having the IBA Rules as guidelines for the taking of evidence, which is a standard practice in international arbitration proceedings.
Second, arbitral tribunal should have a broad discretion with regards to the admissibility, relevance, materiality and weight of evidence This latitude granted to arbitrators ensures that they can reach a fair and equitable decision and that the proceedings are conducted efficiently in terms of time and cost. In this case, the Court rejected the use of the IBA Rules without explaining how the tribunal’s decision exceeds the scope of its discretion to exclude evidence, or how was VHS deprived of its right to present its case.
Third, under Article 46(3) of the 2010 LCA, the tribunal has a right, but not an obligation, to appoint an expert for the evaluation of damages. Rather, under 46(1) of the 2010 LCA, it’s the parties that have the obligation to provide evidence in support of their case and prove their arguments.
Fourth, the judgment does not mention any contemporaneous objection of VHS to the use of the IBA Rules or of party-appointed experts. Likewise, the judgment does not state that VHS requested the appointment of an expert by the tribunal.