Ambiguous rules dent foreign arbitration process

Unfortunately, this situation often leads parties with weaker cases to avoid arbitration and instead wait for the dispute to be settled, only to challenge the recognition of the foreign arbitral award before the Vietnamese court.

Minh Nguyen, Lawyer, Dentons LuatViet

Vietnam became a contracting state of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1995. Since then, the recognition and enforcement procedure for foreign arbitral awards has been governed by the 2005 and current 2015 Civil Procedure Codes. However, the implementation of these legal provisions remains unclear, particularly regarding the circumstances under which a foreign arbitral award should not be recognised.

This lack of clarity results in varying interpretations of the law between courts, leading to arbitrary decisions and violations of Vietnamese legal principles.

One of the most frequently abused grounds for not recognising foreign arbitral awards is the recognition and enforcement of the award of foreign arbitrators in Vietnam is contrary to the fundamental principles of the law. This is because there is no specific regulation or guidance demonstrating what the fundamental principles of the Vietnamese law are, and how recognition and permission for enforcement are contrary to these principles.

In judicial practice, Vietnamese court applies regulations on the annulment of domestic arbitral awards to foreign arbitral awards. According to the 2010 Law on Commercial Arbitration and Resolution No.01/2014/NQ-HDTP, a domestic arbitral award can be set aside if it is deemed contrary to the fundamental principles of Vietnamese law. These principles are defined as the fundamental principles governing the establishment and implementation of the law.

An illustrative case was a decision issued by the People’s Court of Ho Chi Minh City in January. The court relied on Resolution 01 to determine the fundamental principles of Vietnamese law. The court considered provisions that frequently appeared in various legal documents as fundamental principles, including the principle of “freedom and voluntary agreement in civil relations” and the principle of “guaranteeing the right to request the court or arbitration to protect legitimate rights and interests”.

Based on this interpretation, the court refused to recognise an award from the Arbitral tribunal of the Singapore International Arbitration Center on the grounds that the tribunal had violated the fundamental principles of Vietnamese law. However, the court’s application of analogous laws and its focus on the content of the award rather than the recognition and enforcement requirements specified in the Civil Procedure Code were not convincing.

This flawed approach may inadvertently lead the court to reconsider a dispute that has already been resolved through arbitration, which is prohibited by the Civil Procedure Code.

Moreover, determining the fundamental principles of Vietnamese law based solely on the frequency of occurrence in legal documents is not a genuinely reasonable approach. Although Resolution 01 provides examples of fundamental principles, such as freedom and voluntary commitment, it is evident that the universal effect of a principle cannot be solely measured by its frequency in the legal document system.

This open regulation not only leads to arbitrary interpretations by parties opposing the recognition of foreign arbitral awards, but also creates inconsistencies among courts at different levels.

To prevent the abuse of legal loopholes and ensure the execution of foreign arbitral awards, there is a need to reinforce the existing legal provisions. In 2019, the Justice Council of the Supreme People’s Court released a draft resolution providing guidance for the recognition and enforcement of foreign arbitral awards in Vietnam’s first-instance courts. If adopted, this resolution would unify court perspectives, creating a safe and favourable investment environment for foreign investors while ensuring consistency and fairness in the recognition and enforcement process.

The recognition and enforcement of foreign arbitral awards in Vietnam face challenges due to unclear legal provisions, misapplication of laws, and flawed interpretations. To address these issues and provide certainty to international investors, it is crucial to strengthen the legal framework governing the recognition and enforcement of foreign arbitral awards.

By doing so, Vietnam can establish a transparent and reliable system that upholds the principles of fairness and consistency in resolving international disputes.

More consistent foreign arbitration rules needed for investment Viet Nam has made significant progress in aligning its policies on foreign arbitral awards with international standards, but it needs to foster enforcement capacity to enhance trust and confidence of foreign businesses.

Links emphasised for arbitration relations Many businesses face international disputes during the process of either signing contracts with foreign partners or operating abroad, raising the importance of collaboration with international arbitration centres.