The bases upon which to refuse recognition and enforcement of Foreign Arbitral Awards in Vietnam have recently received plenty of concern due to the increasing demand for arbitral awards to be recognized and enforced in Vietnam. Due to the principle of sovereignty, the recognition and enforcement of foreign arbitral awards is subject to potential refusal. In other words, once an arbitral award falls within the specified situations in which the recognition and enforcement of Foreign Arbitral Awards might be refused, said arbitral award would be rendered ineffective within the territory of Vietnam.
Refusal of Recognition and Enforcement of Foreign Arbitral Awards is a special procedure
Refusal of Recognition and Enforcement of Foreign Arbitral Awards is performed upon the request of the entities specified in clause 1 Article 425 of Civil Code Procedure 2015 amended and supplemented in 2019, 2020, and 2020 (hereafter referred to as “BLTTDS 2015”)
Accordingly, after the assessment of the request and enclosed documents, materials as well as the opinions of the parties, the Court shall decided based on the bases listed in Article 459 BLTTDS 2015 to refuse the request, thereby neither recognizing the effect the foreign arbitral award nor performing any enforcement within the territory of Vietnam.
Although the wording of the term is “Refusal of Recognition and Enforcement”, the term should be interpreted as “Refusal of Recognition and Refusal of Enforcement”. This stemmed from the basics of any judgment, award, or decision, which is, once a judgment, award, or decision is not recognized (no effect is given), the judgment, award, or decision would also be unenforceable.
Regarding the assessment procedure, although “Refusal of Recognition and Enforcement” is a special procedure, BLLDS 2015 does not have a separate section or provision on this procedure. This is the main difference between the procedure for refusal of recognition and enforcement of foreign arbitral awards and the procedure for refusal of recognition and enforcement of foreign civil judgments, decisions in Vietnam.
What are foreign arbitral awards?
In order to analyze the bases for the refusal of recognition and foreign arbitral awards specified in Article 459 BLTTDS 2015 or their equivalent in Article V New York Convention 1958, it is important to have a firm understanding of “foreign arbitral awards”
Arbitral Awards
“Arbitral Awards” is the term used in as well as the subject of New York Convention 1958. According to BLTTDS 2015, the subject of the recognition and enforcement procedure are “arbitral awards”, however, Law on Commercial Arbitration 2010 provide otherwise in differentiating between “arbitral decisions” and “arbitral awards”.
Differences between arbitral decisions and arbitral awards
It should be noted that “foreign arbitral decisions” could only be considered for recognition and enforcement if they are decisions that resolve the whole dispute, or in other words “arbitral awards”
This is because, throughout the dispute resolution process, Arbitral Tribunals do not only issue decisions resolving the whole dispute (arbitral award) but also other decisions, such as hearing decisions; suspension decisions; interim relief decisions;…
“Foreign” elements in foreign arbitral awards.
According to the laws of Vietnam, for foreign arbitral awards to be enforcable in Vietnam, they must first undergo recognition and enforcement procedures
Article I New York Convention 1958
“Foreign” elements of arbitral awards could be determined based on: (i) princple of territory or territorial approach, and (ii) non-domestic awards[1]
As such, according to New York Convention, foreign arbitral awards shall include:
(i) Arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought; and
(ii) Arbitral awards not considered as domestic arbitral awards of the country where the recognition and enforcement of such awards are sought;
The Laws of Vietnamz
“Foreign” elements of arbitral awards depend on the nationality of the tribunal who issued the arbitral award.
Accordingly, the principle of territory is not the decisive factor in determining the “foreign” elements of arbitral awards, instead, it is the nationality of the Arbitral Tribunal
To be specific, an arbitral award could be considered as foreign arbitration award per the Laws on Commercial Arbitration if the Arbitral Tribunal who issued the arbitral award is established under foreign laws, regardless of where the seat of arbitration is or where the arbitral award is made.
For example, if an arbitral award is made outside the territory of Vietnam, however, the Arbitral Tribunal is established under the VIAC Rules and the laws of Vietnam, said arbitral award could be considered as domestic arbitral award per the Laws on Commercial Arbitration.
More than 35% of foreign arbitral awards faced refusal of recognition and enforcement in Vietnam
According to the statistics on the recognition and enforcement of foreign arbitral awards in Vietnam announced by the Ministry of Justice on September 25, 2020[2]. Out of 82 foreign arbitral awards, 32 faced refusal of recognition and enforcement. This is a fairly significant rate, especially considering the New York Convention has 169 members at the time of writing.
Vietnam has made internalization of the bases for refusal of recognition and enforcement of foreign arbitral awards specified in Article V of the New York Convention, the corresponding internalization could be found in Article 459 BLTTDS 2015. Specifically:
– Type 1: Bases that could only be invoked if the party against whom the award is invoked furnished proof to the competent authority (clause 1)
– Type 2: Bases that could be invoked based on the Court’s discretion (clause 2)
However, based on the similarity of the scope, these bases could also be categorized into the following groups:
(1) Arbitration Agreement;
(2) Arbitral Jurisdiction;
(3) Arbitral proceedings;
(4) Validity of the Award;
(5) Content of the Award;
Bases for refusal of recognition and enforcement of foreign arbitral awards
Refusal of recognition and enforcement of foreign arbitral awards due to arbitration agreements
The capacity to establish Arbitration agreements
“Parties to the agreement do not have the capacity to establish arbitration agreements per the applicable laws of each party”[3]
First, New York Convention and BLTTDS 2015 both use the term “parties to the agreement” to refer to entities under some incapacity. In practice, only one of the parties needs to be under some incapacity is sufficient for the refusal of recognition and enforcement in Vietnam to be invoked.
Second, although neither of the documents has elaborated on the term “incapacity”, considering the context of the article, this term is often interpreted as legal personality, legal capacity as well as the jurisdiction of the representative who signed the arbitration agreement[4]
In practice, arbitration agreements are either incorporated into the contract as a clause or made into a separate agreement. With the latter, if the signee is an authorized individual (e.g. Deputy Director) instead of the legal representative (e.g. Director), a check should be performed on the scope of authorization to ensure that the authorized individual has been given the power to sign arbitration agreements.
In case no such power could be found within the scope of authorization, the authorized individual could be deemed as under “incapacity” thus rendering the concluded arbitration agreement invalid.
In reality, Vietnam’s Courts would, at their own discretion, determine the capacity to establish arbitration agreements of parties based on the conflict of laws principles of Vietnam’s private international laws instead of allowing parties to agree on the applicable laws. In which, for natural persons, the applicable laws shall be determined based on lex personalis (nationality or residence). For legal persons, applicable laws shall be determined based on lex societatis (where the registration is made or where the headquarters is situated).
Although this application has achieved certain success, Court’s practices in Vietnam pertaining to the determination of applicable laws still have their share of flaws, specifically, the Courts still apply the laws of Vietnam in cases where it’s obvious that the applicable law should be the laws of the legal person’s country of nationality[5]
Validity of arbitration agreements
“Arbitration agreement is not valid under the law to which parties have subjected it or, failing any indication thereon, under the law of the country where the award was made”[6]
To invoke this basis, award debtors often refer to the form of the arbitration agreement, namely, the agreement would be null and void unless it is made in writing. This approach is made popular due to the preference for online exchange via email, fax, etc over direct exchange due to the former’s convenience found in commercial activities especially, international ones.
However, this approach is no longer as popular due to the detailed stipulations on the forms of arbitration agreement specified in clause 2 Article 16 Laws on Commercial Arbitration 2010.
Aside from the above-mentioned approach, award debtors also refer to the nullification of the main contract, in which the arbitration agreement is contained, to request the refusal of recognition and enforcement of arbitral awards.
Similarly, this approach is no longer effective because of the Court’s recognition of the separability of the arbitration agreement from the main contract, even if the arbitral agreement is a clause of that contract. This separability of arbitration agreements is ensured through the principles of party autonomy.
Refusal of recognition and enforcement of foreign arbitral awards due to arbitral jurisdiction
Disputes shall not be resolved via arbitration
“Disputes shall not be resolved via arbitration according to the laws of Vietnam”[7]
This basis results from the fundamental that arbitration does not hold jurisdiction over all disputes.
In accordance with Article 2 Laws on Arbitration Agreement 2010, arbitration only has jurisdiction over disputes arising out of commercial activities. Moreover, Article 2 Decision No. 453/QD-CTN has also limited the scope of recognition and enforcement of arbitral awards in Vietnam to arbitral awards resolving “disputes arising out of commercial relationships”
Furthermore, as this basis is specified in clause 2 Article 459 BLTTDS 2015, the Court could refuse recognition and enforcement of arbitral awards at their own discretion. In other words, the award debtor does not have to take any action.
The concerned dispute falls outside the scope of the arbitration agreement
“Foreign arbitral award on disputes that fall outside or exceed the scope of the request by parties to the arbitration agreement. In case the decision could be separated into issues not requested by parties and issues requested by parties for settlement by foreign arbitration, the decision on requested issues might be recognized and enforced in Vietnam”[8]
This basis results from the fundamental that arbitration only holds jurisdiction over issues that parties have agreed to resolve via arbitration.
Accordingly, foreign arbitral awards shall not be recognized if the Tribunal gives their decision on issues (i) not requested by parties, or (ii) exceeds the scope of the request of parties to the arbitration agreement. This means arbitration could not resolve issues not included in the request of parties or not within the scope of the request (even if the issue falls within the scope of the arbitration agreement). Additionally, for issues that parties have not agreed to be resolved via arbitration, arbitration also could not resolve such issues even if the disputes arose out of commercial activities as analyzed above.
However, the Civil Procedure Code does allow for for partial recognition and enforcement of foreign arbitral awards even if the involved issues fall outside of arbitration jurisidction, provided that the decisions on issues requested by parties within such awards could be separated. Overall, this provision allows award creditors to enjoy better protection of their legitimate rights in comparison to the refusal of the entire award.
Refusal of Foreign Arbitral Awards based on arbitral proceedings
Award debtors are not informed in a timely and proper manner
“Award debtors who are not informed of the appointment of Arbitrators, the arbitral proceeding at the foreign arbitration institution in timely and proper manners or could not exercise their procedural rights due to legitimate reasons”[9]
Award debtors not being properly informed of the appointment of Arbitrators or arbitral proceedings is considered a grave violation. Since if award debtors are not informed of the appointment of Arbitrators and arbitral proceedings, their legitimate rights could have been impaired, thereby directly affecting the outcome of the arbitration process.
To be specific, in arbitral proceedings, Arbitrators shall first be appointed by parties to the dispute. As such, parties would often appoint their trusted Arbitrators who possess comprehensive knowledge in the relevant and experience dealing with similar disputes. Or in the cases of arbitral proceedings, if award debtors are not informed of the procedure in a timely and proper manner, they might not have enough time to prepare their case or exercise their rights to claim (if any)
“The composition of the foreign arbitral tribunal or the arbitral procedure of the foreign arbitration institution was not consistent with the agreement of the parties, or, failing such agreement, was not consistent with the law of the country where the arbitration took place”[10]
For this basis to be invoked, the “Arbitral tribunal, proceedings” must be deemed inappropriate upon comparison with the “arbitration agreement” or “the law of the country where the arbitration took place” if the relevant issues are not specified in the former.
Regarding the composition of the arbitral tribunal, currently, arbitration institutions often allow parties to appoint either 1 or 3 arbitrators as members of the arbitral authority. Therefore, in case there exists an agreement between parties on the number of arbitrators or the appointment of specific arbitrators, the arbitral tribunal must be established in accordance with such agreement. Alternatively, if one of the parties was stripped of their rights to appoint arbitrators, the arbitral award shall also not be recognized.
Regarding the arbitral proceedings, the main point of this basis is to address the fundamental differences between the agreed arbitral proceedings and the actual arbitral proceedings applied by the Arbitral Tribunal. For example, the parties have agreed to apply the Arbitration Rules of a certain arbitration institution (ICC Arbitration Rules), however, the arbitral tribunal follows the arbitration rules of another arbitral institution (SIAC Arbitration Rules) throughout the arbitral proceedings.
Refusal of Foreign Arbitral Awards due to violation of fundamental principles of the laws of Vietnam
Statistically speaking, this is one of the most notable bases for the refusal of recognition and enforcement of arbitral awards due to the vagueness of the term “fundamental principles of the laws”.
In general, most countries or conventions, such as the New York Convention 1958, would often use the term “public policy” instead of “fundamental principles of the laws”. While there is a difference in the terms used, this basis mainly serves the purpose of preserving the public policy in Private International Law.
In Vietnam, the term “fundamental principles of the laws” is defined in point dd clause 2 Article 14 of Resolution No. 01/2014/NQ-HDTP as “fundamental principles for the legislation and implementation of the laws of Vietnam”. However, it could be seen that the above definition is vague and leaves much to be desired as it tremendously limits the possibility for arbitral awards to be recognized and enforced in Vietnam.
Refusal of Foreign Arbitral Awards based on their validity
Non-binding Arbitral Awards in countries where the arbitration took place shall not be recognized and enforced.
This basis is specified in point e, clause 1, Article 459 Civil Procedure Code 2015. The reason for this basis is that the demand for recognition and enforcement of arbitral awards, in principle, only exists when the awards have become binding in countries where the arbitration took place.
However, the laws of Vietnam have yet to provide clear instructions on when foreign arbitral awards are “non-binding on the parties”[11] for this basis. This is mainly because most Arbitration Rules or laws of countries tend to provide that the effective date of arbitral awards is the date of issue.
Set-Aside or Suspended Arbitral Awards
“The arbitral award has been set aside or suspended by a competent authority of the country in which that award was made or under the law of which, that award was made”[12]
Based on the principle of sovereignty and laws, the Civil Procedure Code of Vietnam has provided that set-aside arbitral awards in countries where the arbitration took place shall not be recognized and enforced in Vietnam.
Accordingly, the authority who has the power to set aside awards is described by the New York Convention as authorities who have the power to “supervise” awards. Moreover, the Civil Procedure Code uses the term “has been” as the basis for refusal.
This means that this basis could only be invoked when there is an official decision to set aside arbitral awards issued by the competent authority. In other words, while there is no official decision to set aside arbitral awards, this basis could not be invoked for any request to set aside arbitral awards or during the processing of said request.
Conclusion
Alongside the arbitral proceedings, the recognition and enforcement of Foreign Arbitral Awards is also of paramount importance as it could significantly affect the enforcement of awards. Therefore, diligence is advised throughout the arbitration process, as negligence of the foregoing could directly result in the refusal of recognition and enforcement of foreign arbitral awards.
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[1] Le Nguyen Gia Thien “Phán quyết trọng tài nước ngoài theo Công ước New York 1958, thực tiễn áp dụng tại một số quốc gia và đề xuất áp dụng tại Việt Nam”, People’s Court Journal dated 01/03/2018, access via: https://tapchitoaan.vn/phan-quyet-trong-tai-nuoc-ngoai-theo-cong-uoc-new-york-1958-thuc-tien-ap-dung-tai-mot-so-quoc-gia-va-de-xuat-ap-dung-tai-viet-nam
[2]Statistics on Recognition and Enforcement of Foreign Civil Judgment, Decisions, Foreign Arbitral Award. Access at: https://moj.gov.vn/tttp/Pages/dlcn-va-th-tai-Viet-Nam.aspx?fbclid=IwAR1wTsvb5Sl_61pjUiNMLqyP3XoWsNlzAi_GgZCsp1D44t0a8Rl5eF4pqAM
[3] Point a, clause 1, Article 459 Civil Procedure Code 2015
[4] Nguyen Ngoc Lam, Textbook for Laws on Commercial Arbitration, Hong Duc Publishing House, Ho Chi Minh City, 2021, page 323
[5] See more: Tuong Duy Luong, “Thực tiễn giải quyết đơn yêu cầu công nhận và cho thi hành phán quyết trọng tài nước ngoại tài Việt Nam và một số điểm cần lưu ý”, access at: “http://hvta.toaan.gov.vn/portal/page/portal/tandtc/baiviet?p_page_id=1754190&p_cateid=1751909&article_details=1&item_id=105206303
[6] Point b, clause 1, Article 459 Civil Procedure Code 2015
[7] Point a, clause 2, Article 459 Civil Procedure Code 2015
[8] Point d, clause d, Article 459 Civil Procedure Code 2015
[9] Point c, Clause 1, Article 459, Civil Procedure Code 2015
[10] Point dd, Clause 1, Article 459, Civil Procedure Code 2015
[11] Nguyen Ngoc Lam, “Giáo trình Pháp luật Trọng tài Thương mại”, Hong Duc Publishing House, Ho Chi Minh City, 2021, page 334.
[12] Point g, Clause 1, Article 459, Civil Procedure Code 2015.