Foreign firms show more interest in arbitration

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Over the past few years, many lawsuits against local enterprises have been filed by foreign partners to international arbiters.

According to the People’s Supreme Court, the number of applications for the recognition and enforcement of international arbitral awards has strongly increased over recent years, with two in 2011, 16 in 2012 and 26 in 2013. Of this number, 30 cases have been resolved.

During the period from January 2005-June 2014, the number of such applications was 52 in Hanoi and 52 in Ho Chi Minh City, as well as a small handful in other localities.

It is likely that more lawsuits will be filed in the time to come at international courts of arbitration, instead of local courts whose capacity remain limited and which fail to protect foreign enterprises’ interests when doing business in Vietnam.

In June 2012, Swiss-based Louis Dreyfus Commodities Suite SA asked the Ministry of Justice and Hanoi’s People’s Court to recognise and enforce the International Cotton Association arbitral tribunal’s ruling against locally-owned Dong Phat Joint Stock Company.

Earlier in October 2011, the tribunal tried a dispute in sales contracts involving these two companies. It finally required Dong Phat to return over $748,000 plus interest to the Swiss company.

According to a report by the Trade and Civil Law Research Division under the People’s Supreme Court’s Trial Science Institute, regarding Vietnam’s law, local judges did not find it difficult to apply regulations.

“However, it is really difficult for them to understand international law and regulations like the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, of which Vietnam is a member,” said this report. “Also, Vietnam’s data system remains underdeveloped, making it hard for lawyers to update information and resolve arbitral awards handed down by international arbitration courts.”

According to EuroCham in Vietnam, one of the main reasons why foreign investors avoid the Vietnamese courts is that they feel insecure about the independence of judges.

“Although great progress has been made in the development of Vietnam’s judicial system in the last 20 years, it is fair to say that more work needs to be done to improve the transparency and efficiency of proceedings in Vietnamese courts. Foreign investors still tend to avoid settling business disputes at the Vietnamese courts and will often provide in contracts for dispute resolution by arbitrations,” said EuroCham in its Whitebook 2015 released last December in Hanoi.

According to the book, foreign investors in Vietnam generally choose to provide for dispute resolution by international arbitrations where the value of the contract is substantial. Although international arbitration is often costly and time consuming, an international arbitral award is generally enforceable in most jurisdictions around the world under the convention.

However, according to the Trade and Civil Law Research Division, some local courts refused to recognise and enforce foreign arbitrators’ awards because they were contrary to basic principles of Vietnamese law as stipulated in the Law on Civil Procedures.

“For example, Hanoi’s People’s Court has rejected three foreign awards,” said a division representative.