Common cases of non-recognition of foreign arbitral awards in Vietnam

In Vietnam, foreign arbitral awards are recognized and enforced on the basis of international treaties or the principle of reciprocity.1 However, the recognition of a foreign arbitral award for enforcement in Vietnam hinges on the Court’s review process. Currently, the rate of unrecognized arbitral awards in Vietnam is relatively high due to various reasons.2 This article presents common cases or reasons for which Vietnamese Courts may not recognize foreign arbitral awards.  

1. Parties lack the legal capacity to enter into the arbitration agreement under the applicable law for each party 

The recognition of foreign arbitral awards in Vietnam follows the provisions of the Vietnamese Civil Procedure Code 2015 and related laws. Article 459 of the Civil Procedure Code 2015 explicitly states that the Court will not recognize a foreign arbitral award if the debtor presents well-founded and legal evidence to object to the recognition request. This is applicable when the arbitral award falls under any of the cases listed in the article, including situations where the parties lack the legal capacity to enter into the arbitration agreement under the applicable law for each party. 

The arbitration agreement is a prerequisite for resolving disputes through arbitration.3 Therefore, assessing the legal capacity of the signatories is crucial in determining the agreement’s validity. According to the Civil Procedure Code 2015, the determination of legal capacity is based on the law applicable to each party. Specifically, resolving the problem of which country’s law applies to determine whether the person signing the arbitration agreement has the legal capacity to do so will be determined by applying the conflict of laws principles of the court where the recognition and enforcement are required, usually the law of the state where individuals reside and the law of the state where organizations are established.4 The court cannot base on the provisions of Vietnamese law to determine that the person signing the arbitration agreement of the foreign party does not possess the capacity (competence) to sign that arbitration agreement and vice versa, it cannot base on the provisions of foreign law to determine that the Vietnamese person signing the arbitration agreement does not have the capacity (competence) to sign that agreement.5

According to Decision No. 01/2017/KDTM-ST of the People’s Court of Thai Binh province on non-recognition of the arbitral award dated November 27, 2013 of the Arbitrators of the International Cotton Association (ICA), the Court was based on the fact that four sales contracts between the two parties only had signatures without the name and position of the signer, but during the settlement proceedings, the creditor could not present documents proving individuals who signed the contract are authoritative. Therefore, the arbitration agreement lacks a binding effect on the parties. Consequently, the International Cotton Association’s acceptance to resolve a dispute without an arbitration agreement contradicts Article 2 of the New York Convention.6 

2. The debtors being agencies, organizations or individuals are not promptly and properly informed of the appointment of an arbitrator or the dispute resolution procedure at a foreign arbitration due to legitimate reasons, preventing them from exercising their procedural rights 

This is one of the common reasons for Vietnamese Courts to decide not to recognize arbitral awards in Vietnam. In principle, arbitration proceedings are conducted with the purpose of resolving disputes between the parties, so the parties must be treated fairly and facilitated to exercise their rights and obligations, which includes having a full opportunity to present the case.7 Failure to promptly and properly notify debtors of arbitrator appointments, dispute resolution procedures at a foreign arbitration, or other legitimate reasons hindering the exercise of procedural rights constitutes a serious violation of their legitimate rights and interests. In such cases, the resulting arbitral award lacks fairness for the parties and is not eligible for recognition and enforcement. 

According to Decision No.39/2021/QĐ-PT, the High People’s Court in Ho Chi Minh City declared not to recognize and enforce the arbitral award No.SG2019002, reference number SHIAC 2019-0606 dated July 24, 2019, of the Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Center) because the debtor cannot exercise his procedural rights.  

Specifically, the Court noted that the Arbitration Commission commenced the second hearing on April 21, 2019. However, it wasn’t until April 18, 2020, that the SHIAC Secretariat received additional evidence from the petitioner. The documents in the file did not provide evidence of the SHIAC Secretariat sending the mentioned documents to the debtor, and the time of sending was not indicated. Simultaneously, if, according to the procedure for sending and express delivery of DHL parcels, it takes at least 24 hours (from the SHIAC Secretariat’s receipt of the parcel), that is, April 19 or April 20, 2020, for DHL to successfully deliver it to the debtor. This timeframe is insufficient for the debtor to prepare documents, hire a lawyer, interpreter, and apply for a visa to enter China and arrive in time to attend the second hearing at SHIAC’s location, which was opened by the Arbitration Committee on April 21, 2020. Furthermore, the Arbitration Commission’s failure to serve a document extending the time limit for making the arbitral award and not delivering a document explaining the reason for shortening the time to the debtor violated their right to information. As a result, the debtor was unable to file a complaint against this decision at a higher level to protect their rights.8 

​3. The composition of the foreign arbitrator and the dispute resolution procedure employed by the foreign arbitrator are not in line with the arbitration agreement or the laws of the country where the foreign arbitral award was declared, if the arbitration agreement does not address these matters

When evaluating the recognition of an arbitral award, the Court shall refer to the arbitration agreement or the law of the country where the foreign arbitrator’s decision was declared, in case the arbitration agreement does not stipulate such issues, to determine the composition of the foreign arbitrator and whether the foreign arbitrator’s dispute resolution procedures align with the arbitration agreement or the laws of the country where the foreign arbitrator’s award was declared.9 

According to Decision No. 188/2021/QD-PT dated March 31, 2021, of the High People’s Court in Hanoi, the arbitral award No. 5171 (2016) S.Z.A.ZI dated August 15, 2017, of the Guangzhou Arbitration Commission of China was not recognized due to violations of arbitration proceedings. Specifically, the arbitration tribunal, in this case failed to consider the debtor’s counterclaim, thereby infringing upon Article 19 of the Arbitration Rules of the Guangzhou Arbitration Commission. This failure led to the case falling within the category of non-recognition, as specified in Point dd, Clause 1, Article 459 of the Civil Procedure Code 2015.10

4. Recognition and enforcement of foreign arbitral awards in Vietnam contravene the fundamental principles of law of the Socialist Republic of Vietnam 

For this reason, regardless of whether the debtor provides legitimate evidence to the Court opposing the recognition of the arbitral award, the Court shall not recognize the arbitral award if it determines that the recognition and enforcement of such a foreign arbitral award contradict the fundamental principles of the law of the Socialist Republic of Vietnam.  

Unlike the term ‘public policy’ used in the New York Convention of 1958 for the recognition and enforcement of foreign arbitral awards, Vietnamese law employs the term “fundamental principles of Vietnamese law” for non-recognition of arbitral awards. The interpretation of what constitutes these basic principles of Vietnamese law is currently not directly and clearly guided, leading to a perspective that this regulation results in a lack of uniformity in application.11 In fact, Resolution No. 01/2014/NQ-HDTP, issued by the Judge Panel of the Supreme People’s Court, guides the basis for canceling an arbitral award under Article 68 of the Commercial Arbitration Law 2010, stating that an award violating the basic principles of Vietnamese law refers to a violation that affects the construction and implementation of Vietnamese law. Whether this guidance can be similarly applied to the basis of “fundamental principles of law of the Socialist Republic of Vietnam” for non-recognition of arbitral awards remains unclear. However, it seems reasonable to consider that the provisions of Resolution 01/2014/NQ-HDTP may not be directly applicable to the provisions of the Civil Procedure Code 2015, as the resolution explicitly provides guidance on grounds for canceling arbitral awards under the Commercial Arbitration Law 2010, excluding provisions of civil procedure law. 

Despite the aforementioned concerns, the non-recognition and enforcement of foreign arbitral awards in Vietnam due to contravention of the basic principles of the law of the Socialist Republic of Vietnam is relatively common. 

Cassation Decision No. 05/2022/KDTM-GĐT, dated April 29, 2022, issued by the Judge Panel of the Supreme People’s Court, highlights the common occurrence of non-recognition and enforcement in Vietnam of an award from the Singapore International Arbitration Centre (SIAC) due to contravention of the basic principles of the law of the Socialist Republic of Vietnam. The Court’s arguments centered around the following issues:  

Firstly, the convertible loan contract and guarantee contract, signed in Vietnam between a foreign legal entity (creditor) and a Vietnamese company and two Vietnamese citizens (debtors), lack Vietnamese translation or interpreter services for the parties. Notably, the guarantee contract was solely executed in English, without notarization or authentication, and the guaranteed transaction was not registered with a competent Vietnamese agency. Meanwhile, Article 20 of the Convertible Loan Contract and Article 17.1 of the Guarantee Contract stated “This Guarantee Contract and the rights and obligations under this Guarantee Contract will be construed and governed according to Vietnamese law” and SIAC’s award dated 02/5/2019 also explicitly stated “Vietnamese law as the applicable law to the dispute”.   

Secondly, the creditor provided a convertible loan in USD to the debtor. However, the creditor, not being a credit institution authorized by the Vietnamese Government to operate as per Article 4 and Article 20 of the Law on Credit Institutions 2010, results in a violation of Vietnamese law. Consequently, this arbitration award is not recognized and enforced in Vietnam.12

In conclusion, the arbitration award is the outcome of the dispute resolution process between the parties, and the enforcement of the award is crucial in achieving the purpose of dispute resolution. Therefore, it is essential for disputing parties to ensure that arbitral awards are not refused during the recognition and enforcement process in Vietnam by maintaining appropriate behavior throughout the dispute resolution process. 

(1) Article 424 of Civil Procedure Code 2015. 

(2) Nguyen Manh Dung (2020), Report on assessment, comparison of the Vietnamese law and the UNCITRAL Model Law regarding the recognition and enforcement of arbitration awards and recommendations on applying the UNCITRAL Model Law in Vietnam, p. 28.

(3) Clause 1, Article 5 of Law on Commercial Arbitration 2010.  

(4) Pham Thi Hong My (2020), Non-recognition and enforcement of foreign arbitral awards in Vietnam – View from a practical case, Journal of Foreign Economic Relations No. 21. 

(5) Tuong Duy Luong, Practices of resolving applications for recognition and enforcement of foreign arbitral awards.

(6) See: Ministry of Justice, Database for recognition and enforcement of foreign court judgments and decisions, foreign arbitral awards, No. 80.

(7) Article 18 of the Model Law on International Commercial Arbitration of the United Nations Commission on International Commercial Law 1985.

(8) Refer to: https://congbobanan.toaan.gov.vn/2ta790030t1cvn/chi-tiet-ban-an

(9) Tuong Duy Luong, ibid. 

(10) IDVN Lawyers (2023), Recognition and enforcement in Vietnam of foreign arbitral awards.

(11) Bui Le Hieu, Pham Quynh Nhu (2023), Experiences of several countries in recognizing and enforcing foreign arbitral awards – Suggestions for improving Vietnamese law, Legal Electronic Magazine.

(12) References: Nguyen Hai An (2023), Reasons why Vietnamese courts do not recognize foreign arbitral awards, People’s Court Journal; Chu Minh Duc (2022), Cases lacking sufficient grounds for recognition and enforcement in Vietnam of foreign arbitral awards, People’s Court Journal. 

 

Disclaimers:

This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.

For issues related to the content or intellectual property rights of the article, please email cs@apolatlegal.vn.

Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to  Dispute Resolution and contact our team of lawyers in Vietnam via email info@apolatlegal.com.

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