Commercial arbitration, as an alternative to lawsuits to resolve disputes, has not become popular in Viet Nam. In the country's two leading cities, Ha Noi and HCM City, the number of commercial lawsuits averages 1,200-1,500 cases per year resolved by the People's Courts, compared to about 60-80 cases per year handled by commercial arbitration centres.
In contrast, the International Arbitration Centre in Singapore settled 599 cases in 2007, while the China International Economic and Trade Arbitration Commission settled a total of 1,118 cases and the Hong Kong International Arbitration Centre 448 cases.
Dispute resolution by arbitration is generally expected as faster, more convenient, more confidential and less biased than resolution through court systems which are frequently already overburdened. Nevertheless, companies in Viet Nam still have yet to develop the habit of selecting arbitration as the dispute resolution method in commercial transactions or they have limited knowledge of arbitration and view it as a new concept.
The legal framework for arbitration has also remained limited, based on the 2003 Ordinance on Commercial Arbitration, which contains many vague provisions that have undermined the certainty of businesses in the enforceability of arbitration awards.
Businesses, however, may expect some changes soon. The National Assembly passed the Law on Commercial Arbitration in June, and the new law will take effect on January 1, 2011.
The ordinance had established only limited competence for commercial arbitrators to resolve disputes arising from commercial transactions between individuals and organisations engaged in trade. A party not doing business that entered into a commercial contract with another party doing business could not therefore use arbitration. If the dispute was between two organisations not engaged in trade, they were also foreclosed from using arbitration.
Under the new Law on Commercial Arbitration, disputes no longer must arise from commercial transactions as a pre-condition for arbitration. If one party is engaged in commercial activities and the other is not, parties may select arbitration as a dispute resolution method. The new law also allows other laws trigger dispute resolution by arbitration. For instance, the Law on Investment may have provisions allowing arbitration in disputes between investors related to investment.
Contractual choice
The new law also adopts international practice by respecting an agreement between the parties to a contract to select arbitration as a dispute resolution method. Article 16 also follows the Model Law on International Commercial Arbitration approved by the UN Commission on International Trade Law (UNCITRAL) in June 1985, providing that (1) an agreement on selection of arbitration can be indirectly established if, when entering into a transaction, parties refer to another document such as a contract, articles of incorporation, or other similar document which contains an arbitration clause, or (2) an agreement on selection of arbitration can be indirectly established through communications in claim submission wherein a party agrees to the selection of arbitration and another party does not disagree.
The new law also provides that an agreement to use arbitration can be established by parties' requests through lawyers, prosecutors or other competent organisations.
While the new law respects the parties choice of arbitration, it may also disrespect the selection in certain cases. For instance, arbitration clauses can be invalidated to protect consumer interests.
Under the old ordinance, if the arbitration clause of an agreement failed to specify or specified unclearly the exact institution authorised to arbitrate the dispute, and the parties were later unable to reach agreement, the agreement on arbitration was deemed invalid. The new law makes a considerable improvement by providing that, in such a case, the plaintiff has the right to choose a competent arbitration institution.
Defining the commencement of arbitration proceedings is also meaningful for statute of limitations purposes. The ordinance did not define the commencement time of arbitration proceedings, generating some arguments over right to file a petition for arbitration when the statute of limitations had expired.
The new law regulates that the time of commencement for an arbitration proceeding is the time of the designated arbitration centre's receipt of the statement of claim. For settlement by ad-hoc arbitration, the case commences upon the respondent's receipt of the statement of claim.
Under the ordinance, if any party disagreed with an arbitral award, it had the right to appeal to a competent court. This established the practice for losing parties to make court claims challenging the legality of the arbitral awards, even without reasonable grounds. The new law increases the requirements that there should be appropriate evidence and grounds for requesting a court to review the arbitral award.
To increase the certainty of dispute resolution, the new law also gives immediate effect to a court decision revoking an arbitral award, which is not otherwise appealable.
The new law also includes specifics on court powers to appoint or replace an arbitrator, establish an ad hoc arbitration tribunal, decide on the claims related to an invalid arbitration agreement, resolve unenforceable arbitral awards, settleclaims related to power of an arbitral tribunal, issue injunctive relief, or revoke arbitral awards.
Many businesses do not like arbitration because arbitrators lack the authority to apply injunctive relief. The new law gives arbitration tribunals that authority, including the power to retain or attach assets in dispute, prevent their transfer, or require their preservation, storage, sale or disposal, as well as the power to require interim payment of claims. These improvements will help increase the attractiveness of commercial arbitration and mitigate actions damaging to the rights and interests of parties during arbitration proceedings.
The new law is also not strict that an arbitrator must be Vietnamese. This leaves some room for other guiding documents to clarify how a foreigner can become an arbitrator in local disputes.
In accordance with Viet Nam's WTO commitments, the new law also allows foreign arbitration organisations to operate in Viet Nam through a representative office or branch. A branch of an foreign arbitration organisation has rights to perform the same functions as a Vietnamese arbitration centre, including to appoint arbitrators or establish arbitration tribunals; provide arbitration and mediation services and other commercial dispute resolution services; and collect arbitration and other lawful fees and to pay remuneration to arbitrators.
An award issued in Viet Nam by an arbitral tribunal appointed by a branch of a foreign arbitration organisation shall be considered an award of foreign arbitration. Such an award is not immediately enforceable and it must undergo procedures for recognition by a Vietnamese court before enforcement in Viet Nam.- VNS
Viet Nguyen, partner, and Nghia Nguyen, attorney-at-law, Bizconsult