Law on Commercial Arbitration in Vietnam: A journey of development

07/04/2021
 

Associate Prof. Dr. Do Van Dai

Head of Civil Law Faculty of Ho Chi Minh City University of Law

VIAC Arbitrator

 

Achievements

Law on Commercial Arbitration (“LCA”) enacted in 2010 was considered a major step forward for the development of commercial arbitration in Vietnam. Compared with the previous years and with international standards, LCA has made remarkable progress, namely recognizing enterprises’ freedom of choice, broadening the scope of arbitration, raising the arbitral tribunal’s authority, valuing court assistance (especially interim measures enforcement), encouraging flexibility in language of arbitration, and improving party’s autonomy in arbitration while maintaining proper manners during arbitral proceedings.

Throughout 10 years of enforcement, LCA has been an important legal framework for the development of arbitration. In fact, thanks to LCA, there was growth in both quality and quantity of arbitration institutions; hence enterprises now have a wider selection, the number of disputes  resolved by arbitration is higher than ever before, and enterprises also benefit from the greater number of arbitrators. Owing to LCA, arbitral activities as well as arbitration awards have progressively improved, resulting in the increasing trust in Vietnam’s arbitration system of enterprises.

The aforementioned development of arbitral activities is depicted in the leading arbitration institution in Vietnam – Vietnam International Arbitration Centre (VIAC). At VIAC, the number of Arbitrators on the List of Arbitrators in 2010 was xxx, and in 2019 this number was yyy. Regarding the quality, VIAC’s awards are issued in various languages, such as Vietnamese, English, and French and are highly evaluated domestically as well as internationally.

Drawbacks of LCA

Being passed over ten years ago, LCA are not consistent with other recently amended legislations with regard to several matters. For instance, 2015 Civil Code expanded the possibilities of civil dispute resolution by arbitration; however, LCA has no compatible regulations with the Civil Code on this matter. Likewise, Civil Procedure Code provided cassation procedures for Court’s decisions on foreign arbitration awards; yet LCA has no similar rule for Vietnamese arbitration awards.

After ten years, there are articles of LCA reported as unsuitable, which turn into obstacle to the development of arbitration. Besides, LCA also contains vague regulations, resulting in arguments that negatively affect arbitral activities. One example is LCA provides that arbitration awards shall be cancelled if “the award contravenes the fundamental principles of Vietnamese law”. Nonetheless, this is an ambiguous regulation causing many arguments and is often exploited to annul arbitral awards.

Different from countries with developed arbitration system, LCA has no article regulating that the Court needs to assist arbitration. This issue leads to the fact that a great number of arbitration awards have been cancelled by the Court and it still takes the Court a considerable amount of time to decide matters relating to arbitration. The consequences are obvious: 92% of FDI enterprises refuse to use litigation, but the proportion of FDI enterprises referring to domestic arbitration is lower than those referring to foreign arbitration, even though Vietnam’s arbitration has the advantage of having its awards directly enforced without the recognition proceedings. In Vietnam, there are over 20 arbitration institutions serving enterprises, especially VIAC has experienced resolving international disputes with hundreds of millions of dollars in value.

Proposals for amendment

With Vietnam’s strong international economic integration, there is a special need for the amended version of LCA for the sake of the development of arbitration in Vietnam in order to unburden the Court of its workload (along with reducing the budget for litigation). As the Government directed in Resolution 99/NQ-CP “Develop a Scheme on completing the law on contracts and resolving civil disputes by means of commercial arbitration, commercial mediation and other alternative dispute resolution methods in a unified, consistent, effective and protecting property ownership manner.” In the time to come, we need to devise a scheme for amendments and here are several proposals:

The United Nations have already composed Model Law on Commercial Arbitration. This particular document has been used by many arbitration systems around the globe to modify domestic law on arbitration. Systems with excellent arbitral activities like France, Hong Kong and Singapore rely on this model law to improve their legislations. To clearly refer to UN Model Law helps gain trust from enterprises in using arbitration, which further develops arbitration. When drafting LCA in 2010 we actually did refer to Model Law, but it was not significant enough to persuade the business community that Vietnam followed international standards. Therefore, this time we should emphasise the role of Model Law and perhaps include reference to Model Law in the introduction (there is a precedent of a system doing this).

When amending LCA, we must ensure the consistency between LCA and other legislations so as to maintain “unified, consistent, effective manner” as in the aforementioned Resolution 99 of the Government. To guarantee consistency with 2015 Civil Code, 2015 Civil Procedure Code, 2014 Law on Enforcement of Civil Judgments, etc. should be of great importance. Consequently, legislations related to arbitration must be reviewed and a scheme to amend LCA should proposed with an aim of ensuring consistency. When modifying LCA, we need to revise and omit unsuitable regulations that prevent the development of arbitration, along with comparing with application in reality to seek any drawbacks and possible solutions.

Supreme People’s Court of Vietnam issued Resolution with progressive regulations of arbitration, namely the solution to the case in which parties agree on both litigation and arbitration. Hanoi People’s Court and Ho Chi Minh City People’s Court have reasonably resolved several matters relating to arbitration. When amending LCA, we should consider incorporate those progressive regulations and solutions into LCA. This will expose Vietnam’s arbitration system to enterprises, especially foreign enterprises, as they have the habit of using statutes more than sub-law documents or judgments.

Together with international integration, Vietnamese arbitration has to face strong competition from foreign arbitration, especially Hong Kong and Singapore. In fact, many disputes involving Vietnamese parties are brought to Hong Kong or Singapore to resolve as these legal systems are arbitration-friendly. Vietnamese enterprises do not benefit from this reality, the reasons for which are dispute resolution by foreign arbitration is much more time-consuming, uneconomical and the situation requires employing foreign personnel instead of Vietnamese personnel, which is a loss for Vietnam’s economy. Thus, with an aim of developing Vietnam’s arbitration, LCA itself needs to clearly support arbitral activities, which some nations have done such as Russia in the latest amendment.

Arbitral activities always require supervision and assistance of the Court. The Court plays a critical role in the growth of arbitration, and in countries with developed arbitration, specialisation of the judge in charge is highly valued. Current LCA does not distinctly require the judge in charge to be specialised in arbitration, which leads to unjustified decisions on arbitral matters that hinder arbitral activities, especially those of judges not working in the Economic Court. Therefore, when modifying LCA, we should be concerned about the specialisation of judges in charge of arbitral matters.

Arbitral activities in Vietnam are becoming more and more professional thanks to VIAC as the leading institution and a role model with esteemed experts and excellent supporting mechanism. Now we have an enterprises community that are accustomed to using arbitration to integrate in international transactions; in other words, we have a solid foundation; however, whether this foundation can be utilised effectively depends on mechanism regulated by legislations, especially LCA. I hope that we can inherit previous advantages and achievements to establish a beneficial legal framework based on the aforementioned proposals so that our operating arbitration institutions such as VIAC can become the next destinations for international disputes like SIAC, HKIAC and KCAB in the region.

*This research paper is made to order by the Science Council under Vietnam International Arbitration Centre (VIAC) and only reflects the author’s opinion. VIAC uploads this paper on its official website with the aim of providing valuable information for the reference of the Arbitrators, the parties, other participants in the arbitral proceedings pursuant to VIAC’s Rules of Arbitration, as well as those who are interested in arbitration. Any reference and citation to this research made by a third party shall not be valid or recognized by VIAC. VIAC shall not explain or answer any requests or inquiries related to this research from a third party.

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