By: Frederick Burke1Frederick Burke is manager partner in Baker & McKenzie (Vietnam) Ltd. He leads the Vietnam Dispute Resolution Practice and is an active arbitrator at the Vietnam International Arbitration Center. and Tran Chi Anh2Tran Chi Anh is a senior associate in Baker & McKenzie’s Ho Chi Minh City office. Tran has advised and represented major clients in arbitration cases and arbitral award enforcement procedures in Vietnam.
A. Legislation
Domestic and international arbitration in Vietnam continues to be governed by the Law on Commercial Arbitration (LCA),3Law on Commercial Arbitration No. 54/2010/QH12 of the National Assembly adopted on 17 June 2010 (LCA). to which no legislative amendment was made in 2015.
The recognition and enforcement of foreign arbitral awards remains subject to the relevant provisions of the Civil Procedure Code (CPC).4Law on Civil Procedures No. 24/20004/QH11 of the National Assembly adopted on 15 June 2004, as amended in 2011 (CPC). On a related note, on 25 November 2015, the National Assembly of Vietnam adopted a new Civil Procedure Code, replacing the CPC, effective on 1 July 2016. However, to date, the final text of the new Civil Procedure Code has not yet been released.
B. Cases
Despite the fact that Vietnam has been a member of the New York Convention since 1995, Vietnamese courts have recognized only a limited number of foreign arbitral awards. According to the statistics of the Supreme People’s Court published on its website,5See http://toaan.gov.vn/portal/page/portal/tandtc/Baiviet?p_page_id=1754190&p_cateid=1751909&article_details=1&item_id=105206303 in 2013 and the beginning of 2014, there were 12 requests for recognition and enforcement of foreign arbitral awards submitted to Vietnamese courts. Although Vietnamese courts already resolved 11 of these requests, only one foreign arbitral award was recognized for enforcement in Vietnam. Regarding the remaining cases, Vietnamese courts stopped the resolution of one case because the applicant withdrew its request, and refused to recognize nine foreign arbitral awards. The enforcement cases are not published, so our access to information about the number of successfully recognized and enforced foreign arbitral awards in Vietnam is extremely limited. In general, the enforcement landscape does not appear promising, even in the near future.
On a related note, Vietnamese courts tend to interpret the conditions for refusing recognition broadly and, to some extent, arbitrarily, thereby rejecting most requests. The most-used grounds for refusing recognition include lack of authorization of relevant persons under Vietnamese law, minor technical grounds and awards being contrary to fundamental principles of the laws of Vietnam. In addition, Vietnamese courts tend to apply their Vietnamese law perspectives when reviewing the validity of arbitration agreements, the procedural issues and even the contents of foreign arbitral awards. In some cases, Vietnamese courts have interpreted the arbitration procedures based on regulations of Vietnamese litigation procedures, without considering the applicable rules of arbitration and international treaties. This further adds to the uncertainty of the enforceability of foreign arbitral awards in Vietnam.
Regarding domestic arbitration, a domestic arbitral award is binding upon the parties and enforceable, unless it is set aside by a decision of the court. A decision setting an award is final and not subject to appellate procedures under Vietnamese law. At a conference early in 2015, an arbitrator of the Vietnam International Arbitration Center (VIAC) informally shared some interesting facts, as follows:
• There were 124 VIAC cases in 2014.
• Out of 124 cases, 25 cases were conducted in a foreign language.
• About five or six cases were set aside.
B.1 Award Contrary to Fundamental Principles of Vietnamese Law
Among the most interesting court cases relating to arbitration in the last year was the case between Company X, a French entity, and Mr. Nguyen Van L, a Vietnamese citizen (“Mr. L”) regarding the exercise of a put option under an agreement supplementing a share purchase and sales agreement (the “Agreement”).
In 2007, Mr. L entered into an agreement to sell to Company X 5 percent of the shares in a joint stock company (“Company Y”) owned by Mr. L. In 2008, Mr. L and Company X further entered into the Agreement, which included a put option according to which Mr. L agreed to buy back Company X’s shares in Company Y from Company X “within the Put Option Exercise Period for a price equal to an amount in USD.” The Agreement provided that all disputes arising out of this agreement would be finally referred to VIAC for resolution.
In 2014, within the Put Option Exercise Period stipulated in the Agreement, Company X sent a Put Option Exercise Notice to Mr. L. Mr. L refused to buy back the shares in accordance with the put option. Company X submitted a request for arbitration to VIAC requesting the enforcement of the put option. The arbitral tribunal issued an award (the “Award”) in the claimant’s favor. In January 2015, Mr. L submitted a request to the People’s Court of Ho Chi Minh City, Vietnam (the “Court”) to set aside the arbitral award.
On 20 December 2014, the Court issued Decision No. 342/2015/QD-PQTT, dated 16 April 2015 (the “Court Decision”) on setting aside the Award. In the Court Decision, the Court set aside the Award on the ground that the Award was contrary to the fundamental principles of the law of Vietnam. Specifically, the Court stated that the Award demanding Mr. L to buy back the put-option shares for a price in Vietnam dongs equal to an amount in US dollars contravened a fundamental principle of Vietnamese law, namely the Principle of Complying with Law (specifically, forex regulations restricting the use of US dollars in price listings) as provided under Article 11 of the Civil Code.6The Civil Code, passed by the National Assembly on 14 June 2005, effective on 1 January 2006 (“Civil Code”).
Under Vietnamese law, the court should only set aside an arbitral award if there are serious procedural flaws during the arbitration proceedings or if the award is deemed contrary to fundamental principles of Vietnamese law. However, in this case, the Court appears not to have a valid ground for setting aside the Award. The price provision of the put option in the SPSA does not contravene applicable regulations on forex control in Vietnam. The put option agreement in the Agreement should not be subject to invalidation on that basis. Furthermore, this forex issue does not amount to a fundamental principle of Vietnamese law. The Court Decision is highly questionable and demonstrates the Court’s incorrect and arbitrary application of the law in setting aside the Award.
C. Costs in International Arbitration
C.1 Allocation of Costs
Article 34.1 of the LCA sets out the elements of arbitration fees, which include:
(a) Remuneration and travel and other expenses for arbitrators
(b) Fees for expert consultations and other assistance at the request of the arbitration tribunal
(c) Administrative fees
(d) Fees for the arbitration center’s appointment of an arbitrator for an ad hoc arbitration at the request of the parties in dispute
(e) Fees for use of other necessary services provided by the arbitration center
Such arbitration fees are to be set by the arbitration center, or by the arbitration tribunal in the case of dispute resolution by an ad hoc arbitration.7LCA, Article 34.2. Unless otherwise agreed by the parties in dispute or provided by the procedural rules of the arbitration center or the arbitration tribunal, the losing party is to bear the costs of arbitration.8LCA, Article 34.3. For example, the Rules of Arbitration of VIAC, in force as from 1 January 2012, (the “VIAC Rules”) grant the arbitral tribunal the discretion to allocate the costs of arbitration unless otherwise agreed by the parties in dispute.9VIAC Rules, 34.1. To be specific, according to Article 34.2 of the VIAC Rules, the arbitral tribunal has the power to decide whether one party shall bear all or part of the legal costs or other reasonable expenses incurred by the other party.10VIAC Rules, Article 34.2.
Fee Structure
For requests for arbitration and counterclaims specifying the monetary value in dispute, according to the Schedule of Arbitration Costs of VIAC in force as from 24 March 2014, (“VIAC’s Cost Schedule”), VIAC’s arbitration costs for disputes resolved by an arbitral tribunal comprising of three arbitrators are calculated based on the value in dispute.11See http://eng.viac.vn/bieu-phi. For instance, for a claim from 100,000,000,001 to 500 billion VND, the arbitration costs will be 363 million VND plus 1.5 percent of the amount in dispute over 100 billion VND.
For disputes resolved by a sole arbitrator, the applicable arbitration fees will be 70 percent of the fees for disputes heard by an arbitral tribunal of three arbitrators.
Where a request for arbitration or counterclaim does not specify the amount in dispute, the president of VIAC is entitled to fix the arbitration fees by taking into consideration the nature of the dispute, the time that may be required to resolve it, and the number of arbitrators hearing the case.12See http://eng.viac.vn/bieu-phi.
C.2 Security for Costs
Security for costs in an arbitration proceeding aims to ensure that the respondent can recover its legal costs should the claims of the claimant be dismissed and such costs awarded. This concept of security for costs is not available under Vietnamese law.
Nevertheless, under the LCA, the respondent may file a counterclaim against the plaintiff, including a claim for costs. After the counterclaim is accepted by the arbitral tribunal for resolution, the respondent may apply for interim relief to either the arbitral tribunal or court to request one or more interim relief measures against the claimant (e.g., freezing the claimant’s bank accounts or assets with value equivalent to the counterclaims) to ensure the enforcement of the resulting arbitral award. In this case, prior to ordering the interim relief, the arbitral tribunal/the court has the right to require the applicant to deposit cash or other valuables for security.13CPC, Article 120 and LCA, Article 49.4. The applicant is responsible for its request and must compensate the other party or a third party for damages suffered (if any) due to the issuance of unjustified interim relief.14CPC, Article 101 and LCA, Article 49.5.
C.3 Recovery of Costs
The LCA does not specifically set out whether outside counsel’s time charges may be recoverable. However, in practice, the arbitration tribunal is likely to accept the whole or part of the winner’s claim on outside counsel’s time charges or other fees, provided that the winner can provide evidence of outside counsel’s costs, such as legal service agreements and invoices issued by outside counsel. The costs of a party’s in-house counsel and other members of a party’s staff (contract managers, engineers, etc.) in an arbitration proceeding are unlikely to be recoverable.