Dispute settlement by commercial arbitration, real situation and proposals for law enhancement

Abstract:

 

Commercial arbitration is a long-established system used by industrialized countries across the world. Aside from settling conflicts in court, the parties' decision to use "Arbitral Tribunals" - commercial arbitration - as the resolution of issues. The use of commercial arbitration for conflict resolution is progressively gaining acceptance in Vietnam. The legal framework for commercial arbitration is being developed over time, and along with its accomplishments, it also displays certain limits.

 

In this article, the author group will present various practical concerns affecting conflict resolution through commercial arbitration, providing ideas to enhance the legal frame for commercial arbitration.

 

Key words: “Commercial arbitration,” “Legal framework for commercial arbitration”, "Arbitral Tribunals," and "Commercial Arbitration Law."

 

I. AN OVERVIEW OF COMMERCIAL ARBITRATION AND COMMERCIAL ARBITRATION LAW IN VIETNAM

 

1. Formation and development

 

Looking back at the history of commercial arbitration in Vietnam, as the country opened its doors to economic and socio-cultural integration, changes in the legal frame  were required to create favorable conditions for various economic entities' business activities and foreign investments in Vietnam. This modification was in accordance with the international treaties in which Vietnam had participated and subscribed. Being aware of the vital role of the arbitration as the method for dispute resolution, the State established commercial arbitration regulations in the 1990s through Decree No. 116-CP dated September 5, 1994, which outlined the organization and operation of economic arbitration, and Decision No. 204-TTg dated April 28, 1993, which established the Vietnam International Arbitration Center. On February 25, 2003, the National Assembly's Standing Committee adopted the Law on Commercial Arbitration, ushering in a new chapter of the arbitration legislation evolution in Vietnam.

 

However, Order on Commercial Arbitration 2003 exposed certain shortcomings throughout the implementation process. As a consequence, Law on Commercial Arbitration 2010 ("Arbitration Law'') was adopted to replace Order on Commercial Arbitration 2003, marking a significant step in enhancing Vietnam's institutional structure and commercial arbitration operations. The Arbitration Law 2010 included various new provisions that aligned with the United Nations Commission on International Trade Law (UNCITRAL). These developments have brought Vietnamese law more in line with international commercial arbitration standards and practices, producing a more conducive climate for business dispute settlement. The legal instruments issued and enhanced by the State to comply with the realities of commercial arbitration dispute settlement are as follows: Decree 124/2018/N-CP, dated September 19, 2018, amends Decree 63/2011/N-CP, which governs the 2010 Arbitration Law; Resolution 01/2014/NQHĐTP dated March 20, 2014, providing guidelines for the implementation of the provisions of the Arbitration Law by the Judicial Council of the Supreme People's Court;

 

The provisions of Civil Procedure Code 2015 provide the procedures for settling business and commercial disputes related to arbitration activities (Article 88), and the Law on Enforcement of Civil Judgments 2008 (amended and supplemented in 2014) govern the execution of arbitration decisions.

 

The Commercial Arbitration Law of, which has been in force since January 1, 2011, has now been in existence for more than ten years. Along with its accomplishments, laws regarding commercial arbitration have steadily shown its limitations and shortcomings. As a result, to consider and be aware of the current legislative requirements governing commercial arbitration operations in Vietnam, it is necessary to study, assess, and evaluate the existing inadequacies to make these regulations more relevant to the modern period.

 

2. Outstanding legal provisions in the system of Commercial Arbitration

 

Firstly, according to the legal provisions, the disputes settled by Commercial Arbitration are those arising through the commercial activities, involving at least one party engaged in commercial activities. Hence, not all disputes can be resolved through commercial arbitration.

 

Secondly, commercial arbitration may only be used to settle disputes in case there is an arbitration agreement between the parties. Unlike the process of resolving disputes in court, where parties have the right to initiate a lawsuit and request the court to adjudicate on the dispute without the need for prior agreement, in the context of commercial arbitration, this right is not automatically protected by the law. Regarding the resolution of disputes through commercial arbitration, Clause 1 of Article 5 of the 2010 Law on Commercial Arbitration stipulates: “A dispute shall be settled by arbitration if the parties have an arbitration agreement. An arbitration agreement may be made either before or after a dispute arises.” Accordingly, if the parties choose  for this dispute resolution method, they must agree in advance and record it in the contract or through an agreement following the occurrence of the dispute.

 

Thirdly, the arbitration award is binding and final, meaning that it is conclusive and effective from the date of issuance (Clause 5, Article 61 of Law on Commercial Arbitration 2010). Accordingly, once an arbitration panel has issued an award on a dispute, that award will not be reconsidered by any other arbitral body, and it will be immediately enforceable, except in cases where the award is annulled by a Court.

 

Fourthly, the parties may reach agreement on venues for dispute settlement (according to Clause 1, Article 11 of Law on Commercial Arbitration 2010). With this provision, The Commercial Arbitration Law creates a flexible framework for conflict settlement, allowing the parties participating in the dispute resolution process to select an appropriate and convenient location for arbitration. This contributes to ensuring the objectivity of dispute resolution and is considered a major advantage of commercial arbitration. The clauses described above are regarded the "backbone" of commercial arbitration legislation and are the focus areas that contribute to the benefits of this dispute resolution process over litigation in court.

 

II. REALITY AND EXISTING CHALLENGES IN RESOLVING DISPUTES THROUGH COMMERCIAL ARBITRATION IN VIETNAM

 

1. The present reality of commercial arbitration in settling issues

 

According to the statistical data from the Vietnam International Arbitration Centre (VIAC), in 2021, VIAC received and processed 270 new dispute cases, representing an increase of approximately 21% compared to 2020. Among these cases, domestic disputes accounted for a rate of 42.7% (~115 cases); disputes involving at least one foreign direct investment (FDI) party accounted for 39.2%, while the remaining cases had foreign elements. Comparing these figures with the statistics from the judiciary in the Annual Report on Activities in 2021, from October 1, 2020, to September 30, 2021, "...the courts handled 16,577 commercial business cases; resolved and tried 10,088 cases, achieving a rate of 61% (the number of cases handled decreased by 2,679; resolved and tried decreased by 5,157). The primary focus of cases handled and resolved by the courts in commercial business is disputes in the field of financial investment, banking (4,702 cases), and sales of goods (3,008 cases)…". In comparison to the number of business disputes resolved by the courts, the figure currently being handled by the Vietnam International Arbitration Centre (VIAC) is relatively insignificant.

 

Commercial arbitration has been adopted in our country for nearly 30 years, bringing numerous positive aspects and providing an option  of additional dispute resolution for parties. While commercial arbitration is no longer an unfamiliar option for dispute resolution, the number of cases resolved through commercial arbitration remains significantly lower compared to the number of disputes settled in the courts.

 

According to statistics from the Vietnam International Arbitration Center in 2021, 44.4% of disputes were related to the sale of goods, followed by 27.8% for service-related disputes and 18.9% for construction disputes, with other disputes involving real estate, logistics, insurance, and M&A accounting for a smaller portion. When commercial conflicts are resolved through arbitration, enterprises may handle their concerns quickly and reach agreements that balance the parties' intended interests without wasting time. Under current legal provisions, the parties must still have an arbitration agreement in order for commercial arbitration to take place.

 

In 2021, up to 44.4% of conflicts were connected to the sale of products, with service-related disputes ranking second at 27.8% and construction disputes ranking third at 18.9%. The other issues covered real estate, logistics, insurance, and mergers and acquisitions, although their proportions were small. Businesses may efficiently solve their difficulties while obtaining agreements that match the intended interests of the parties when resolving commercial disputes through commercial arbitration, all without taking an excessive amount of time.

 

To have a dispute handled by commercial arbitration, the parties must still include an arbitration agreement clause, according to existing legislative regulations. Commercial arbitration cannot be used to resolve a dispute if the Contract between the two parties does not specify it or if no separate agreement is established after the problem occurs.

 

Larger enterprises or those collaborating with foreign companies are more likely than medium and small-sized enterprises to suggest commercial arbitration as a means of resolving conflicts.

 

However, the onset of the Covid-19 pandemic in the years 2020-2021 prompted new advancements in mediation and conflict resolution to adapt to pandemic conditions. Arbitration hearings progressively turned to online settlement techniques, which originally achieved a certain level of efficacy in terms of decreasing travel costs and contributing to the avoidance of Covid-19 spread.

 

2. The challenges within the current commercial arbitration legal framework:

 

The jurisdiction to resolve disputes through commercial arbitration is restricted to matters that are arbitrable under the law. In Article 2 of the Commercial Arbitration Law, the types of disputes that fall under the jurisdiction of arbitration are as follows: "Disputes between parties arising from commercial activities; Disputes between parties, at least one of whom is engaged in commercial activities; Other disputes between parties as prescribed by law to be resolved through arbitration."

 

However, there are still multiple interpretations in the situation of "disputes arising between parties, at least one of whom is engaged in commercial activities," resulting in a lack of uniformity in application. This provision can be interpreted in two ways: either one of the parties to the dispute must be engaged in commercial activities, regardless of the nature of the dispute's subject matter, or only the party engaged in commercial activities is considered, and the dispute subject must be related to commercial activities - those activities aimed at generating profits.

 

For example, labor relations conflicts may fulfill the criteria of "at least one of whom is engaged in commercial activities," yet the Labor Code does not allow commercial arbitration jurisdiction to adjudicate labor disputes between people and business companies. Instead, such issues are resolved by bodies such as labor conciliators, labor arbitration councils, and people's tribunals.

 

2.2. Regarding arbitration agreement

 

According to current commercial arbitration regulations, disputes are addressed by arbitration if the parties have an arbitration agreement. The arbitration agreement might be made before to or after the occurrence of the dispute. In actuality, many situations involve contending parties who do not have an arbitration clause in their contract. When a dispute arises, the parties may select arbitration as a form of conflict settlement due to the benefits inherent in this process.

 

However, once a dispute has arisen, it is generally difficult for the parties to get together and negotiate an arbitration agreement. This is due to the fact that when a conflict arises, the parties may become uncooperative and hesitant to cooperate. Commercial arbitration regulations should be more flexible in order to make it simpler for parties to use arbitration as a dispute settlement mechanism. As a result, changes to the laws could be made so that, even if no prior arbitration agreement exists, when one party initiates arbitration proceedings and the other party does not contest the arbitral tribunal's jurisdiction within a specified period, it should be considered as consenting to the arbitral tribunal's jurisdiction.

 

2.3. Obstacles from procedures

 

Firstly, concerning the legal status of third parties with relevant rights and obligations. In the context of a dispute, the involvement of third parties with rights and responsibilities linked to the disputed topic is not confined to the disputing parties alone. The existing commercial arbitration legislation appears to disregard such third parties' legal status in respect to the issue. In practice, disagreements arising between the initial claimant and response can have a considerable influence on the interests of other parties. The arbitration statute appears to be deficient in provisions that address the legal standing of these third parties. In reality, even though the dispute is between the claimant and respondent, the arbitration result might possibly influence the rights of other parties, as indicated in the hypothetical scenario below:

 

Hypothetical scenario: Plaintiff - Credit Institution A initiates a claim against Respondent - Company B at a Commercial Arbitration Tribunal, involving a loan agreement previously executed between the two parties. In this case, the Bank proposes to the Arbitration Council to: (i) demand repayment of the loan by the respondent; and (ii) seek disposal of the secured property, which is the right to use the land, based on the mortgage contract that has been registered as a secured transaction. A third party, Party C, has assets such as residential homes, industries, and other development projects on the contested property parcel. The treatment of Company B's secured property will have a substantial influence on Party C's interests. The arbitration laws lacks provisions addressing the legal position of other parties in terms of applicable rights and responsibilities, as well as provisions permitting these third parties to participate in the proceedings. As a result, the third party has no way of learning about the issue, potentially infringing on their rights.

 

To meet the practical requirements for effectively resolving disputes and avoiding situations where the resolution of a case affects the rights of third parties, the Commercial Arbitration Law should include provisions for third parties to participate in proceedings, with a similar manner as the Civil Procedure Code. If the arbitration panel deems it necessary, a third party may involve in the proceedings. Alternatively, a third party can request participation on their own, or at the request of the plaintiff or defendant, and the arbitration panel may accept their involvement as a third party in the proceedings.

 

Secondly, in terms of the timeframe for submitting papers and evidence, one of the benefits of commercial arbitration as a dispute resolution process is its speed. However, present commercial arbitration regulations have various flaws that a disputing party might use to delay the determination of a dispute, particularly the restrictions regulating the time for producing documentary evidence.

 

The existing commercial arbitration regulations provide no provision regarding the final deadline for parties in dispute to submit evidence supporting their arguments. Because of this absence of regulation, disputing parties may produce essential papers and evidence connected to the issue at any moment, producing difficulties and delays in the arbitration process. For example, if one party presents new evidence that the other party and the arbitral tribunal have never accessed before, and this new evidence is critical and has the potential to change the entire substance of the dispute, the arbitral tribunal may not have sufficient time during the arbitration session to comprehensively examine this new evidence. This can result in delays in the dispute resolution process.

 

Thirdly, concerning the grounds for setting aside an arbitration award:  Arbitration is essentially a form of "private adjudication." Nevertheless, during the dispute resolution process, there is still a need for the involvement and intervention of the courts, which act as state authorities in resolving disputes. The law has provisions to establish the relationship between the courts and arbitration activities. Specifically, Article 414 of the 2015 Civil Procedure Code regulates civil matters related to the activities of commercial arbitration in Vietnam that fall under the jurisdiction of the courts. These include: Appointment and replacement of arbitrators; Application, modification, or revocation of interim emergency measures; Annulment of arbitration awards; Resolution of complaints against decisions of the arbitration council on the ineffectiveness of arbitration agreements, unenforceable arbitration agreements, and the jurisdiction of the arbitration council; Collection of evidence; Summonsing witnesses; Registration of arbitration awards; Other civil matters specified by the law on commercial arbitration in Vietnam. However, the most profound intervention by the courts in the activities of arbitration is the courts' authority to set aside arbitration awards, as provided in Article 68 of the 2010 Law on Commercial Arbitration. One of the commonly used grounds for setting aside an arbitration award is when the award "contravenes the fundamental principles of Vietnamese law."

 

Although Article 14 of Resolution 01/2014/NQ-HDTP provides guidance on the grounds for setting aside arbitration awards when the "arbitral award is contrary to the fundamental principles of Vietnamese law," this guidance remains somewhat ambiguous, resulting in varying interpretations and, in some cases, potential abuse in an attempt to annul arbitration awards.

 

A real-life example: In Decision No. 07/2019/Q-PQTT issued July 18, 2019, the People's Court of Hanoi determined the reasons for canceling the following arbitration award "... At the hearing on January 25, 2019, V had validly submitted hard copies of the two aforementioned documents as well as Mr. Tran Van C's witness statement." Furthermore, V was only told on the day of the hearing, January 25, 2019, that the Arbitration Council had decided, at S's request, to allow additional witnesses to participate in the hearing and present testimony.

 

Therefore, V did not receive notice of the Arbitration Council summoning additional witnesses to participate in the hearing for their own defense, which adversely affected the rights of the respondent. Even though the respondent had objected to the submission of the summons papers by VIAC and the Arbitration Council, and this objection had not been resolved, the Arbitration Council violated Article 12 of the Law on Commercial Arbitration, which regulates the sending of notifications and the notification process. In summary, the above circumstances indicate that the Arbitration Council acted unfairly during the dispute resolution process. The Arbitration Council violated fundamental principles of Vietnamese law, specifically violating Article 5 of the 2005 Civil Code (Article 3 of the 2015 Civil Code) regarding the principle of equality, and Article 4 of the Law on Commercial Arbitration regarding the principle of dispute resolution by arbitration, which is synonymous with treating V unfairly."

 

The above-mentioned real-life case demonstrates that one procedural error made by the Arbitration Council, without even delving into whether it could change the nature of the case or the arbitration decision, is sufficient grounds for the court to annul the arbitration award on the grounds of "arbitration award contrary to fundamental principles of Vietnamese law."

 

According to statistics published on the Official website for publishing the verdicts and decisions of the Supreme People's Court, to date, more than 150 arbitral awards have been annulled. As time progresses, the number of annulled arbitral awards continues to rise. Although commercial arbitration is an expeditious dispute resolution method with many advantages, in many cases, parties opt not to resolve disputes through arbitration due to concerns that the arbitral awards could be set aside by the Court.

 

Fourth, the issue of enforcing arbitral awards: According to Article 66 of the Law on Commercial Arbitration, when the voluntary execution period expires and the party forced to execute the arbitral award does not voluntarily execute it and does not request the annulment of the arbitral award, that party is entitled to apply for the enforcement of the arbitral award. However, to request the enforcement of an arbitral award, the requesting party must prove that the arbitral award has not been annulled by the Court. In practice, it is often challenging for the parties to request a competent Court to confirm whether an arbitral award has been annulled or not, as civil procedure law does not provide a clear legal framework obliging the Court to make such confirmations. This situation leads to delays in the enforcement of arbitral awards at the civil enforcement agency. Furthermore, the legal framework does not explicitly define whether determining the legal status of an arbitral award is the responsibility of the civil enforcement agency or the parties involved, which creates difficulties in the process of handling enforcement matters.

 

Moreover, according to Article 11 of Law on Commercial Arbitration 2010, the place for resolving arbitration disputes can be within the territory of Vietnam or outside the territory of Vietnam. As stipulated in point g, paragraph 2 of Article 7 of Law on Commercial Arbitration 2010, concerning requests for the annulment of arbitral awards and the registration of arbitral awards, the competent Court is the Court where the arbitral tribunal rendered the arbitral award.

 

However, the issue is that if the parties choose a place for dispute resolution outside the territory of Vietnam and the arbitral award is rendered outside the territory of Vietnam, which court has jurisdiction to annul the arbitral award according to  unaddressed regulations in arbitration law.

 

III. SOLUTIONS FOR ENHANCING LEGAL FRAMEWORK FOR COMMERCIAL ARBITRATION IN VIETNAM

 

After a period of implementation, the legal framework regarding commercial arbitration in Vietnam has exposed certain limitations and challenges. From this existing reality, the authors outline several solutions to enhance the legal framework for commercial arbitration in Vietnam, as follows:

 

Firstly, given that arbitrators fundamentally serve as a private jurisdiction, they should be enabled to handle all disputes between equal and freely consenting parties. The law needs to expand the jurisdiction of commercial arbitration towards resolving all disputes involving at least one commercial entity.

 

Secondly, to facilitate the disputing parties with the access to the method of dispute resolution through commercial arbitration, the law should introduce provisions allowing the Arbitral Tribunal to maintain jurisdiction in cases where there is no arbitration agreement. This would occur when one party initiates arbitration, notifies the other party, and the other party, despite receiving notice, does not object within a reasonable time frame (approximately 30 days from receiving the Arbitral Tribunal's notification).

 

Thirdly, for a comprehensive resolution of the dispute and to protect the legitimate rights of third parties, commercial arbitration law should stipulate the legal standing of third parties with interests and obligations connected to a similar case, much like the regulations for parties with relevant interests and obligations in civil litigation.

 

Fourthly, to ensure the fast resolution of cases, which is one of the advantages of commercial arbitration, the law should define a reasonable period within which parties must provide their evidence, arguments, and supporting documents. Documents and evidence submitted after this deadline, without a justifiable reason, should not be admissible.

 

Fifth, regarding the grounds for setting aside an arbitral award, the commercial arbitration law should be adjusted to specify that even if the award violates fundamental principles of Vietnamese law but does not affect the essence of the case or the arbitration award, it shall not constitute a basis for the court to set aside the arbitral award.

 

Sixth, to establish a convenient mechanism for the enforcement of arbitral awards, the law should introduce a coordination mechanism between the court and the civil enforcement authority in verifying the legal validity of the arbitral award. This coordination would determine whether any party has submitted a petition to set aside the arbitral award, serving as a basis for initiating the arbitration award enforcement process.

 

Seventh, concerning the jurisdiction to set aside an arbitral award when the award is issued outside the territory of Vietnam, this authority may be conferred to the court where either party has its headquarters or residence. Alternatively, this authority may be transferred to the People's Courts of Hanoi or Ho Chi Minh City.

 

CONCLUSION

 

The resolution of commercial disputes through arbitration in Vietnam emerged relatively late compared to other countries in the world and in the region. However, alongside significant efforts by the government to reform the judicial system, improve the investment environment, and adapt to international integration, the legal framework for commercial arbitration in Vietnam has been continuously improved. This article provides a brief overview of the development, reforms, achievements, limitations, and future directions for the regulation of commercial arbitration in Vietnam. It aims to acknowledge the successes and challenges in the resolution of disputes through commercial arbitration in Vietnam and suggests changes that align with the current era.

 

REFERENCES

 

I. LEGAL DOCUMENTS:

 

1. Law on Commercial Arbitration 2010;

 

2. Civil Code 2015;

 

3. Decree 124/2018/ND-CP dated September 19, 2018, amending Decree 63/2011/ND-CP guiding the Law on Commercial Arbitration;

 

4. Resolution 01/2014/NQ-HDTP dated March 20, 2014, guiding the implementation of some articles in Law on Commercial Arbitration issued by the Council of Judges of the Supreme People's Court.

 

II. OTHER REFERENCES:

 

5. VIAC, Annual Report 2021 of the Vietnam International Arbitration Centre (VIAC) (link: https://www.viac.vn/bao-cao-thuong-nien.html);

 

6. Annual Reports on the work of 2021 and the directions and key tasks of 2022 of the People's Courts announced on the official website: https://www.toaan.gov.vn

 

6. Doan Trung Kien and Nguyen Thi Van Anh, Research and Discussion of the Legal Journal No. 06/2020 on the Issue of Improving the Legal Framework for Commercial Arbitration in Vietnam.

 

7. Master Luong Thanh Quang, Discussing the Urgent Temporary Measures within the Jurisdiction of Commercial Arbitration (https://thongtinphapluatdansu.edu.vn/2017/03/30/bnve-cc-bien-php-khan-cap-tamthoi-thuoctham-quyen-p-dung-cua-trong-ti-thuong-mai/)

 

8. Dr. Do Van Dai and Dr. Tran Hoang Hai (2011), "Law on Commercial Arbitration," specialized book, National Political Publishing House.

 

9. Textbook on the Law on Commercial arbitration - University of Law Ho Chi Minh City, Hong Duc Publishing House.

 

10. Dr. Dang Thanh Hoa (University of Law, Ho Chi Minh City) and Master Nguyen Van Son (Civil Court of Provincial People's Court of An Giang), Procedural mechanisms for protecting the legal rights and Interests of third parties in relevant matters.

 

Link PDF: Dispute settlement by commercial arbitration, real situation and proposals for law enhancement

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