Where Should Companies Arbitrate Disputes with Vietnamese Companies?


Domestic arbitration in Vietnam may be more attractive than many think.


Parties who qualify for arbitration in Vietnam may use four types of dispute resolution. These are as follows: 1) An international arbitration forum governed by a specific foreign law, 2) an international arbitration forum governed by Vietnamese law, 3) a Vietnamese arbitration forum governed by international law, and 4) a Vietnamese arbitration forum governed by Vietnamese law. Of these four, only Vietnamese arbitration that is governed by Vietnamese law yields a Vietnamese award. The remaining combinations can only be selected if the contract being arbitrated governs activity which meets one of the following requirements: a) at least one of the participating parties is a foreign individual, agency or organization; b) the participating parties are all Vietnamese citizens, agencies or organizations, but the establishment, change, performance or termination of such relationship occurred in a foreign country; or c) the participating parties are all Vietnamese citizens, agencies or organizations, but the subject of such civil relationship is in a foreign country. Civil Procedure Code of Vietnam (Nov. 2015)


I. Considerations


The benefits of Vietnamese arbitration as a dispute resolution mechanism should not be dismissed–even for those who may have an inclination to present before international arbitration forums. While foreign companies often opt for international arbitration, Vietnamese arbitration forums provide significant benefits including:  1) higher possibility of recognition in Vietnam, 2) decreased legal and administrative costs, and 3) a wide range of options in the selection of a forum, the skills and background of the arbitrators, and the governing law. Vietnamese arbitration generally provides great flexibility and autonomy for parties to contract for the type of tribunal they desire.


A. Vietnamese arbitration awards have higher recognition rates in Vietnam


One major concern regarding foreign arbitration awards is that they will not be recognized by a Vietnamese court. Foreign arbitration awards require a filing with the Ministry of Justice as well as confirmation by a Vietnamese court in order to be recognized and enforced. Decisions made by a court regarding recognition are final and cannot be appealed. Foreign arbitration awards can be denied in Vietnam when: 1) they violate procedural requirements (format, representation, notification, and authorization), or 2) when they violate the “fundamental principles of Vietnamese law.” Resolution 01, Guiding the Implementation of A Number of Provisions of the Law on Commercial Arbitration (Mar. 20, 2014).


Recently, courts have elaborated on the concept of “fundamental principles of Vietnam Law”. The elaboration presents a two-prong conjunctive test which requires: (i) that the principle breached violates “the basic principles on conduct the effect of which is overriding in respect of the development and implementation of Vietnamese law.”; and (ii) that the award “violates the interests of the government, and the legitimate rights and interests of third parties.” If both of these prongs are met, courts must set aside the award. Resolution 01, Guiding the Implementation of A Number of Provisions of the Law on Commercial Arbitration (Mar. 20, 2014).


Recognition, however, can still be a significant problem for foreign awards. In determining recognition, and perhaps prompted by this concept, courts will often follow Vietnamese law to determine whether the award should be recognized. Awards in which foreign law is applied and which favor foreign companies are more likely to be perceived as biased and in “violation of fundamental principles of Vietnamese law.” While the Vietnamese government has urged courts to apply the rules selected by the party (Official Letter No. 246/TANDTC-KT), recognition can still be problematic.  In some circumstances, the merits of a case will be reviewed. See Toepfer v. Sao Mai (2011), The Appellate Court – Supreme People’s Court in Hanoi. In other cases, courts may deny recognition because of concerns of whether the arbitration agreement entered into was done by an authorized agent. See Strategic Think Tank LLC and 260 Architects v Sudico (2014), Decision No. 07/2014/QDST_KDTM of the People’s Court of Hanoi.


According to a statistical review of Supreme Court decisions from January 2005 to June 2014, 52 requests for recognition of foreign arbitral awards were made. (Memorandum produced by Russin &Vecchi). Out of these 52 awards, 23 were recognized. In the city of Hanoi, as few as 18% of foreign arbitration awards were recognized while in Ho Chi Minh City almost 80% of awards were recognized. These court decisions are especially problematic for companies which have foreign awards because of their finality.


Another challenge to recognition is the possibility of delay. While the CPC requires that courts issue a decision regarding recognition and enforcement of an award within 20 days of receipt of a petition, there may be administrative delays resulting in recognition taking as long as one or two years. While not all resolutions of petitions take this long, it remains a possibility and should be a concern of companies when deciding between Vietnamese or international arbitration.


In contrast, Vietnamese arbitration awards governed by Vietnamese law are automatically recognized by courts resulting in conservation of time and valuable resources. Additionally, when the jurisdiction of a Vietnamese tribunal is challenged, Vietnamese courts will rarely interfere. In 2015, there were 13 requests to challenge VIAC awards, and none succeeded. Trade & Investment Issues and Recommendations. Whitebook 2017, at 55.Vietnamese dispute resolution forums seldom take longer than a week and without the long recognition and enforcement process, parties may maximize the chance to reach an amicable and efficient resolution.


B. Vietnamese Arbitration forums and arbitrators have lower costs


International arbitration has a significantly higher cost than Vietnamese arbitration. In determining whether to choose Vietnamese or foreign arbitration, parties should keep in mind these costs. Administrative fees, costs of arbitrators, travel costs, expert consultation, and other necessary services for arbitration can run much higher in an international setting. For disputes of smaller value, the benefits of Vietnamese arbitration may outweigh those of international arbitration. The following chart depicts the costs of arbitration under Vietnamese arbitration through Vietnam International Arbitration Centre (VIAC) (http://eng.viac.vn/bieu-phi) and international arbitration through the International Chamber of Commerce (ICC). (https://iccwbo.org/dispute-resolution-services/arbitration/costs-and-payments/cost-calculator)  The costs listed represent the average cost of a three arbitrator panel based on the amount in dispute during the year 2017. The numbers below are estimates which may be subject to slight variance and do not include a budget for the arbitrator’s expenses. Costs are subject to changes in exchange rates.

Table 1

Amount in Dispute Vietnam International Arbitration Centre Arbitration Cost International Chamber of Commerce Arbitration Cost
$          4,399 $       725 $  10,691
$         43,990 $   3,773 $  21,392
$       219,950 $  11,516 $  55,242
$       439,900 $  17,565 $  87,257
$    2,199,500 $  46,598 $219,948
$    4,399,000 $  70,793 $288,331
$  21,995,000 $158,773 $464,238
$100,000,000 $458,773 $744,727


C. Vietnamese arbitration forums provide a wide range of options, such as forums, arbitrators, and governing law


In Vietnam, Vietnam International Arbitration Centre (VIAC) is the most frequently used dispute resolution forum. In 2015, 146 new cases were registered with the VIAC. Trade & Investment Issues and Recommendations. Whitebook 2017, at 53.There are, however, numerous other arbitration centers to choose from including Asean International Commercial Arbitration Centre (ACIAC), Hanoi Commercial Arbitration Centre (HCAC), Ho Chi Minh City Commercial Arbitration Centre (TRACENT), Pacific International Arbitration Centre (PIAC),Can Tho Commercial Arbitration Centre, and The East Arbitration Centre. The centers each retain their autonomy from the Vietnamese court system and offer their own list of arbitrators and rules.


Arbitrators in Vietnam now include people who span the globe and have fluency in dozens of languages and experience in a vast range of foreign laws including U.S. and European law. For example, VIAC maintains a list of over a hundred arbitrators ranging from managing partners in U.S. based law firms to Vietnamese law professors. (http://eng.viac.vn/danh-sach-trong-tai). Many are trained in non-legal disciplines with backgrounds in business, science, medicine, or other fields which can provide valuable experience to disputes that may benefit from technical knowledge. Companies can preselect their arbitrators and name them in agreements that may later be arbitrated. So long as an arbitrator meets the requirements set forth by law, he or she can be chosen as an arbitrator for any disputes that may arise from the commercial activity.


II. Conclusion


There is a growing recognition among foreign companies that Vietnamese arbitration can offer significant benefits when compared to international arbitration. One must look at the parties to the dispute, the amount in controversy, cost, availability of qualified arbitrators, and the ease of enforcement in Vietnam. In many circumstances, Vietnamese arbitration may indeed be the better option.


Lauren Sun is a 2L at Columbia Law School interested in international arbitration. She was employed at a corporate firm in Vietnam this past summer where she worked on cross-border transactions and researched possible dispute resolution mechanisms.