Arbitration move to see foreigners rest easy at night

July 23, 2010 | 11:34
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The newly-introduced Law on Commercial Arbitration, effective from January 1 next year, is expected to engineer more effective commercial dispute settlements in Vietnam

The new law will offer foreign investors peace of mind when investing in Vietnam

On June 17, 2010, the 12th Legislature of the National Assembly passed, together with seven other laws, the Law on Commercial Arbitration (“Law 2010”), which will come into force on January 1, next year.

The law is seen as an important instrument for Vietnam’s economic integration into the international community. Vietnamese legislators have addressed several shortcomings of current laws essentially based on the Ordinance on Commercial Arbitration of 2003 (“Ordinance 2003”) for enabling the arbitration system to gain public faith amid dispute settlements.

Some new points of Law 2010 can be explained below. The first point is that the Law 2010 will widen the scope of arbitration for dispute settlements.

Limited competence scope is one of the shortcomings of current laws restraining commercial arbitration and making it less attractive in the eyes of parties to a dispute, as arbitration can only rule on commercial field issues as predetermined and listed by law.

Thanks to Law 2010, disputes related to the rights and interests of parties arising out of contractual obligations or non-contractual obligations with respect to non-commercial activities may be settled via arbitration. That is provided that there is at least one party undertaking a commercial activity or those may be settled by arbitration under the laws.

As a result, the scope of dispute settlement by arbitration is no longer limited to disputes in the commercial field as under Ordinance 2003. In addition, the definition of subjects is also broadened, according to which “the parties” regardless of being trader or not, can turn to the arbitration for dispute settlement.

This provision remedied a gap in the Ordinance 2003 where arbitration is only permitted for settling disputes between “organisations and individuals doing business”. It is expected that with the above regulations, the number of contentious affairs referred to the arbitration will increase after Law 2010 comes into force.

A new foreign angle

The Law 2010 will also accept the foreign nationality of an arbitrator and arbitration, which is a big step.

Law 2010 does not limit an arbitrator’s nationality to only be Vietnamese. That means that foreigners can be appointed as arbitrators in Vietnam if they satisfy all conditions applicable to an arbitrator, being entrusted and selected by the parties to a dispute or appointed by an arbitration centre or court.

This provision is for the purpose of responding to demand during Vietnam’s enhanced economic integration into the international community. As a result, parties with a foreign element may prefer to choose arbitration as they can freely select the most convenient person to participate in the arbitration tribunal.

In addition, to avoid previous confusion, Law 2010 defines foreign arbitration as incorporated under foreign arbitration laws and operating in accordance with foreign rules on arbitration proceedings, selected by the parties to carry out the dispute settlement outside or within Vietnam.

Law 2010 also confirms the right of arbitration centres to apply injunctive relieves. In comparison to Ordinance 2003 and in response to the situation on the ground, Law 2010 considerably improves arbitration by reserving the right to decide on the application of a number of injunctive relieves for the arbitration tribunal at the request of either of the parties. This will aid arbitration proceedings to operate more effectively, to protect rights and legitimate interests of the parties to a dispute.

This model is pre-eminent in international commercial arbitration and is suitable with Vietnam’s reality and Civil Proceedings Code. More closely prescribed conditions and grounds for abrogation of arbitration awards will also become a reality.

Under Law 2010, either party wishing request for abrogation of an arbitration award must have sufficiently grounds to prove that the arbitration tribunal has given its award in one of events specified in Law 2010.

It relates to evidence or the arbitrator’s obligations that adversely affect objectivity and impartiality of the arbitration award. This provision aims to minimise the number of arbitration awards requested for abrogation and force the parties to carefully consider if they have sufficiently grounds supporting their request for arbitration award abrogation before bringing a claim to the court for such request.

Consumers are in for greater protection

Regarding disputes between enterprises and consumers, although the arbitration clause has been recorded in general terms and conditions for provision of goods or services elaborated in advance, arbitration agreements will be only valid if the supplier obtains consumer approval for such agreement.

This provision is based on the fact that generally, consumers are put into positions of risk and face being abused by terms and conditions in a pre-printed contracts of the goods seller or the service supplier. As a result, regulations protecting consumers in necessary circumstances are needed.

However, arbitrators’ liability will be limited.

Under Law 2010, subject to a court verdict, the arbitration tribunal may bear the liability to make compensation to the damaged parties if applying other injunctive relieves or exceeding the request of the applicant and causing damages to the applicant, the applied party or a third party.

This provision is essentially suitable with legislative practices and experiences in many countries for the purpose of encouraging the sense of law and the arbitrators’ objectivity and impartiality.

Law 2010 allows parties in a dispute with foreign element or involving a foreign-invested enterprise to agree on the language used in arbitration proceedings. In case of lacking such agreement, the language will be decided by the arbitration tribunal. Law 2010 reuses the dispute with the foreign element definition in the Civil Code. These provisions will ease foreigners’ concerns when investing in Vietnam and address differences between civil and arbitration laws.

Another byproduct of Law 2010 is the intensified relationship between the court and the arbitration, or the so called assistance and supervision role played by the court regarding arbitration.

The extension of arbitration competence scope is meaningful and enforceable in proceedings only if it is supported by the courts, such as in collecting evidence, applying injunctive relieves, recognition and enforcement of foreign arbitral award.

This is because arbitration is a non-governmental and private jurisdiction, not a state agency. Law 2010 provides a series of new regulations to determine this important legal relationship, in which the arbitration will enjoy a timely assistance from the court. However, the principle of arbitration independence from the court is still ensured during the dispute settlement.

Regarding the competence determination between the arbitration and the court, Law 2010 says that in case where there is already an arbitration agreement for dispute, the court will have to refuse receiving the claim brought to it by either of the parties, unless such agreement is considered by the court as null and void or non-enforceable. Furthermore, Law 2010 lists a number of the court assistance to the arbitration.

They include announcing the arbitration agreement is null and void, determining the arbitration tribunal competence, appointing and replacing arbitrator, assisting in evidence collection and storage, ensuring the witness presence, applying injunctive relieves, resolving request for arbitration award abrogation and registering arbitration award. These regulations substantially comply with international arbitration laws and practices, and ensure that the arbitration proceedings will be smoothly conducted without any delay. This is a condition for the arbitration’s fruitful operation.

The bigger picture

Finally, Law 2010 also sets out selection rules for parties to settlement bodies. Law 2010 establishes an important principle that, in the course of arbitral proceedings, if a party has been aware of breach of laws or arbitration agreement, e.g. an arbitration agreement is invalid, there is no arbitration agreement or an arbitration tribunal has not the competence for dispute settlement, but did not protest within a certain duration, this party will be deemed to be deprived from the right to claim arbitration or a court hearing.

This provision is for the purpose of effectively preventing abusive activities in arbitral proceedings, prolonged dispute settlements or repeated hearing, seen during the implementation of Ordinance 2003.

Though there are still some small points which remain unsolved. But, in comparison with Ordinance 2003 and precedents, Law 2010 is generally recognised as an effective pathfinder for development of arbitration system in Vietnam.

It approaches the standards of modern laws and international arbitral practices and taking into account actual conditions of Vietnam, a solid foundation for boosting Vietnamese arbitration competitiveness to gain domestic and foreign enterprises’ trust for dispute settlement.

By Vision & Associates lawyers Vuong Son Ha and Luu Tien Ngoc.

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