Cancellation of arbitral awards due to contravention of the fundamental principles of Vietnamese law

Commercial arbitration is a method of dispute resolution that serves as an alternative to court proceedings, based on the agreement of the parties, offering highly flexible and respecting their autonomy in commercial activities. Arbitral awards are final and binding, thereby helping to reduce the burden on the court system and promoting efficiency in both domestic and international commerce. However, to ensure compliance with the law and to protect the public interest, the Law on Commercial Arbitration 2010 grants the court the right to order the cancellation of arbitral awards in certain exceptional circumstances. 

Circumstances in which arbitral awards shall be cancelled under the Law on Commercial Arbitration 2010 

Under Article 68 of the Law on Commercial Arbitration 2010, arbitral awards might be cancelled if one of these following grounds exists: 

• There is no arbitration agreement or arbitration agreement is invalid; 

• The arbitration council’s composition or procedures of arbitral proceedings is/are incompliant with the parties’ agreement of the Law; 

• The dispute falls beyond the arbitration council’s jurisdiction; when an arbitral award contains the detail falling beyond the arbitration council’s jurisdiction, such details shall be cancelled; 

• The evidence provided by the parties on which the arbitration council bases to issue the award is counterfeit; An arbitrator receives money, assets or other material benefit from one disputing party, thus affecting the objectivity and impartiality of the award; 

• The award contravenes the fundamental principles of Vietnamese law. 

Among those grounds, “the contravention of the fundamental principles of Vietnamese law” is considered a vague and controversial basis, which is difficult to determine and apply in an objective manner, yet remains one of the most frequently cited grounds by courts for the cancellation of arbitral awards. 

What are “fundamental principles of Vietnamese law”? 

The Law on Commercial Arbitration 2010 does not provide a specific definition of what constitutes the “fundamental principles of Vietnamese law”. However, based on judicial practice and legal doctrine, this term is commonly understood to refer to foundational legal principles that are universal in nature and govern the entire legal system. For example: The principle of equality, the freedom of contract, good faith, honesty, the right to a trial of faith and the prohibition of acts that seriously violate social ethics…. 

According to Resolution No. 01/2014/NQ-HDTP of the Council of Judges guiding the implementation of the Law on Commercial Arbitration, an arbitral award shall only be cancelled on the ground of contravention of the fundamental principles of Vietnamese law if the following two conditions are met simultaneously. 

1. The Arbitral Award contravenes one or some basic rules of Vietnam’s law, which are not adhered to by arbitral tribunal when issuing the arbitral award. The fundamental principles of Vietnamese law are understood as basic behavioral norms that have overarching validity in both the formulation and implementation of Vietnamese law; and
2. The arbitral award seriously infringes upon the interest of the State, the lawful rights and interests of either party or some third person. 

Precedent No. 42/2021/AL of the Council of Judges of the Supreme People’s Court affirms that: “The fundamental principles of Vietnamese law are those principles enshrined in the Constitution and in major codified statutes such as the Civil Code, the Criminal Code, the Commercial Law, among others. 

However, in dispute resolution practice, the phrase “contravention of the fundamental principles of law” is often simply interpreted as a violation of normative legal documents, including not only laws but also sub-law instruments such as ordinances, resolutions, decrees, and circulars. 

This interpretation is not consistent with the provisions of the 2015 Civil Code. 

According to Article 123 of the 2015 Civil Code, a civil transaction shall only be rendered null and void if it violates a prohibition of law or goes against social morality. This is a new provision that significantly narrows the scope of void civil transactions compared to the 2005 Civil Code. 

For example: The parties to a contract use a foreign currency as the unit of value for price determination. This agreement contravenes the provisions of the Ordinance on Foreign Exchange (a sub-law instrument), but does not violate any law, and therefore shall not be rendered null and void. 

However, if the arbitral tribunal upholds the above-mentioned transaction, such recognition may be considered a “contravention of the fundamental principles of Vietnamese law”, and the arbitral award is thereby at risk of being set aside by the court. 

It can be reasoned that the Law on Commercial Arbitration 2010, which was enacted prior to the 2015 Civil Code, still inherits the provisions of the 2005 Civil Code regarding null and void civil transactions. However, the provision under the 2015 Civil Code that a civil transaction shall only be rendered null and void if it violates a prohibition of law represents progressive legal development. Therefore, the Law on Commercial Arbitration should be adopted and amended accordingly to ensure that arbitral awards are no longer set aside on this ground. 

Related posts

1. Common cases of non-recognition of foreign arbitral awards in Vietnam
2. In which case the foreign arbitral award shall not be recognized and enforced in Vietnam?
3. Identification of judgment enforcement agencies competent to enforce arbitral awards

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