Vietnam’s arbitration law has experienced several phases of development, from placing little faith in arbitration  in the 1990s to the current position of substantially supporting arbitration activities. An upcoming arbitration law will take this even further. This article briefly traces the history of the arbitration regulations in Vietnam, the main problems encountered so far and the imminent developments.

 

Pre – 2003 period

Period to 2003, arbitration activities in Vietnam were regulated by Decree 116 which effectively did not recognise the enforceability of arbitral  awards. It provided that if one party was unhappy with the arbitral award, that party could initiate a court action to have the matter tried afresh. Thus, under this legal framework, few arbitration activities developed in Vietnam. If arbitration was ever agreed in contracts between Vietnamese parties and foreign parties, this was invariably arbitration outside Vietnam such as in Singapore, Hong Kong or London.

 

Post – 2003 period

In 2003, Vietnam enacted an Ordinance on Commercial Arbitration (“the Ordinance”) with the hope of changing the above situation. The Ordinance is a comprehensive arbitration law which in particular provides that arbitral awards are enforceable as court judgments. This was hoped to lead to a significant increase in the number of arbitrations in Vietnam.

 

However, the reality has been disappointing. For each year since 2004, only less than 50 cases were handled by all the seven arbitration centre in the country. The courts were still responsible for resolving 97.5% of commercial disputes in Vietnam. For example, in 2007, 226 disputes were heard before the Hanoi Commercial Court and 1,000 disputes were tried before the Commercial Court of Ho Chi Minh City. That means that each judge in Hanoi would hear about 32 cases and each in Ho Chi Minh City would hear 59 cases in that year. In stark contrast, in 2007, only 30 disputes were  referred to the Vietnam International Arbitration Centre (“the VIAC”) which has 123 arbitrations on its list. The average caseload for each arbitrator at the VIAC is therefore only 0.25 case per year.

 

A main reason for this situation rests with the Ordinance itself. It does not give parties and Tribunals sufficient freedom and flexibility in conducting arbitral proceedings. It suffices to mention three main problems. First, the Ordinance requires that arbitrators be Vietnamese nationals. Consequently, arbitration centres in Vietnam can only admit Vietnamese arbitrators to their panels, which makes them unattractive to foreign parties. Furthermore, while the Ordinance allows foreign arbitrators in disputes involving foreign parties, joint venture companies and wholly foreign owned companies in Vietnam, notwithstanding the real foreign interests in them, are not considered “foreign parties”.

If these companies choose to arbitrate in Vietnam, they cannot appoint foreign arbitrators.

As a result, they simply choose to arbitrate in other jurisdictions where they have the freedom to appoint arbitrators of any nationality.

 

“… the draft Arbitration Law recognises that foreigners can act as arbitrators in Vietnam and can be admitted to panels of Vietnamese arbitration centres.”

Secondly, the Ordinance does not authorise arbitral tribunals to issues interim relief orders which are often essential for efficient arbitral proceedings. The Ordinance requires parties to seek such interim relief from the relevant court. The likely delay in such court application may make it ultimately futile.

 

Thirdly, in and ad hoc arbitration, the Ordinance does not authorise the use of an appointing authority other than Vietnam courts. It requires that the parties, in case where they fail to agree on an arbitrator, must apply to the relevant court for the appointment. In other words, the parties do not have the freedom to agree in advance that if they disagree on an arbitrator, an institution such as the Permanent Court of Arbitration or the London Court of International Arbitration will appoint an arbitrator for them. This restriction has deterred foreign parties from using ad hoc arbitrator in Vietnam because they fear that an appointment by the court will not be objective nor reliable.

 

The Draft Arbitration Law

Recognising the above and other problems with the Ordinance, Vietnamese law makers are now drafting a new Arbitration Law, to be enacted in late 2009, effective in late 2010. Currently, this Arbitration Law is into its third draft. Many problems in the Ordinance have been addressed. Overall, this draft Law indicates a much higher degree of faith in the arbitration system. It suffices to mention a few main points below.

 

First, the draft Arbitration Law recognises that foreigners can act as arbitrators in Vietnam and can be admitted to panels of Vietnamese arbitration centres. This means that foreign parties, joint ventures and wholly foreign owned companies in Vietnam will be more likely to arbitrate in Vietnam as they can appoint non – Vietnamese arbitrators. The second important improvement is that the draft law authorises an arbitral tribunal to, on the application of a party, issue interim relief orders. Thirdly, the draft Law provides for the immunity of arbitrators from liability in connection with the proceeding. Fourthly, this draft Law extends beyond commercial arbitration and contemplates arbitration in respect of non – commercial activities, subject to a narrow exclusion list. All these seem very conducive to development of arbitration activities in Vietnam.

 

However, some problems remain. The draft Law still does not allow parties in an ad hoc arbitration to agree on an appointing authority to appoint arbitrators where the parties disagree. As in the Ordinance, the draft Law requires parties to apply to the relevant court for such appointment. Unless addressed in a subsequent draft, this provision will continue to deter ad hoc international arbitrations in Vietnam. In the next decade, before Vietnamese arbitration centres develop sufficiently to win the confidence of the public, foreign parties, if they choose to arbitrate in Vietnam, will be more likely to use ad hoc arbitrations. If so, they will need full flexibility in conducting their arbitrations, including particularly the freedom to appoint arbitrators or, in case they cannot agree, to entrust such appointment to an internationally recognised arbitral institution. If they do not have this freedom, parties will simply continue to arbitrate in other jurisdictions where such freedom is well recognised.

 

In addition, a few other issues remain in the draft Law. For example, similar to the Ordinance, the draft law allows the tribunal, in case of a dispute involving a foreign party, to apply foreign law if chosen by the parties but only to the extent such choice of foreign law and its application is not inconsistent with fundamental principles of Vietnamese law. Such qualification seems vague and inconsistent with international practice. As another example, according to the draft Law, an arbitration centre may only appoint arbitrators from its own panel. This unnecessarily fetters the flexibility of an arbitration centre.

 

Overall, it must be recognised that the draft Arbitration Law, compared to its predecessors, places considerably more faith in the arbitration system. The problems discussed above in the current draft law hopefully will be addressed in subsequent draft so that the Arbitration Law, once enacted, will constitute a satisfactory foundation for arbitration activities in Vietnam. At the same time, it is also unrealistic to expect too much. In the context of a young legal system and judiciary which is in need reform, it will not be easy for Vietnamese law makers to pass provisions potentially seen as “too favourable” to arbitrators. For example, how can an arbitrator expect to be immune from liability while the judges themselves are currently personally liable if their decisions are overturned on appeal? 

Dr Dang Xuan Hop
Senior Associate
Allens Arthur Robinson, Hanoi, Vietnam