Vietnamese High Court Makes It Crystal Clear That International Arbitral Proceedings Don’t Follow The Civil Procedural Code

Background

There has been a long and intensive debate within the Vietnamese arbitration academic and practitioners community about whether arbitral proceedings in Vietnam must follow the Civil Procedural Code (the “CPC”). The fundamental trouble for most arbitration practitioners is that the CPC contain various court-style requirements and restrictions that are not suitable to the international arbitration world. A typical example is the requirement under Article 478 of the CPC 2015 and Article 4.1 of the Decree 111/2011/ND-CP that documents issued by foreign organisations must be consularly legalised for use in the civil proceedings. There is no such requirement under the Commercial Arbitration Law 2010, but some provincial courts have decided that POAs issued by a foreign party should be legalised in arbitral proceedings (see my commentary in Tai Seng v Chunghwa (https://arbitrationblog.kluwerarbitration.com/2023/07/26/vietnamese-court-sets-aside-arbitral-award-for-failure-to-legalize-poa-an-abuse-of-due-process-requirements/).

In a very recent case,  Ho Chi Minh People’s High Court (“HCM High Court”) issued a much welcomed decision No. 95/2023/KDTM-PT dated 24 August 2023 (“Decision 95”), which stated that where the parties agreed to arbitrate at SIAC, the SIAC arbitral rules, and not the regulations under the CPC, shall apply. The CPC shall apply only to the extent of the procedure for application for recognition and enforcement of international arbitral awards. This may have great impact (and pressure) on the domectic arbitration practices as explained below.

The SIAC award and the challenge against recognition in Vietnam

On 08 September 2017, Sojitz Plan-net Corporation (“Sojitz”) (a Japanese company) and Rang Dong Holding JSC (“Rang Dong”) (a Vietnamese company) signed a share purchase agreement (“SPA”).

A dispute arose when Sojitz alleged Rang Dong not to fulfil its post-closing covenants under the SPA. Subsequently, Sojitz terminated the SPA and requested Rang Dong to return 90% of the already-paid share purchase price (equivalent to VND 156,937,500,000), but Rang Dong avoided doing so. Sojitz commenced an arbitration against Rang Dong with Singaporean International Arbitration Centre (“SIAC”). On 06 July 2022, the tribunal issued its Arbitration Award No. 090 (“Award 090”), wherein the tribunal upheld Sojitz’s claims and awarded to Sojitz damages of VND 156,937,500,000, legal costs of VND 585,974.35, arbitration costs of SGD 371,563.6, and other reasonable expenses.

On 08 July 2022, Sojitz sent letter to request Rang Dong to proceed its payment specified in the Award 090. However, Rang Dong did not fulfil its payment obligation. Sojitz submitted an application for recognizing and enforcing Award 090 in Vietnam.

In its objection, Rang Dong argued that the Award 090 contravenes the right to freely and voluntarily enter into agreements under Clause 3.2 of the Civil Code 2015 when the SIAC arbitrators did not consider Vietnamese law, the governing law of the SPA, during the proceedings. Rang Dong affirmed that the request for returning of 90% of the already-paid share purchase price would be the request for compensation for damages under the Commercial law 2005, and therefore Sojitz must prove (i) Rang Dong’s breach of contract, (ii) Sojitz’s actual loss, (iii) Rang Dong’s breach of contract is the direct cause of Sojitz’s actual loss. Whereas SIAC determined the amount Sojitz requested not to be liquidated damages but rather implicit repayment liability, Rang Dong declared further that there is no such term “implicit repayment liability” under Vietnamese law, and those, altogether, amount to the violation of the fundamental principles of Vietnamese law, which is the ground for rejecting recognition and enforcement of the award No. 090.

In the first instance, Ho Chi Minh People’s Court (“HCM Court”) agreed with Rang Dong and declined to recognise and enforce the Award 090. On 16 January 2023, Sojitz appealed the whole decision of HCM Court.

Proving actual loss when “implicit repayment liability” arising:

The current Vietnamese laws do not provide legal regulations on “liquidated damages” or “implicit repayment liability”. These two terms refer to the liability to compensate a pre-estimated amount without proving the actual loss when certain breach of contract arised. This is very common in international construction contracts or M&A deals and widely accepted in many countries. However, Vietnamese law only provide two available sanctions: penalty and compensation for damages. Liquidated damages or implicit repayment liability do not fall in any of these two sanctions and generally are not accepted by Vietnamese court. This is a disadvantage of Vietnamese jurisdiction in the context that the economy is going international and the legal framework should enhance itself to match with the international standard.

On the other hand, the tribunal courts seem to excessively base on the reason “contravene the fundamental of Vietnamese laws” when deciding to set aside the arbitration award. The definition of “contravene the fundamental of Vietnamese laws” is too broad and causing different interpretation by different tribunal courts. This has interacted with the substance of the disputes and violate the principle that the court does not retrial the case.

Lower court’s opinion:

(a) Non-legalisation documents/evidence

The lower court lined with the debtor’s argument that documents and evidence submitted by Sojitz to the tribunal were copies and sent via email, which was not certified, notarised, or legalised by authorities pursuant to laws. Therefore, documents and evidence provided by Sojitz were not legitimate evidence. Therefore, Award 090 contravenes fundamental principles of Article 6 (Supply of evidence and proof in civil procedures), Article 95 (identifying evidence), and Article 108 (Assessing evidence) of Civil Procedure Code 2015 (“CPC 2015”).

(b) Assessment of evidence

The lower court also accepted the debtor’s argument that the Award 090 was only based on the witness statement (i.e., Mr Katsuhiro Nishimura) and did not examine the legitimacy of the evidence comprehensively, objectively, sufficiently, and accurately. Furthermore, Mr. Katsuhiro Nishimura worked for Sojitz for 31 years. Therefore, the tribunal fail to examine the evidence objectively under Article 108 of CPC 2015.

The HCM High Court’s decision and reasoning:

The court held that Sojitz and Rang Dong agreed to appoint SIAC and the SIAC Rules to settle the dispute. Therefore, the arbitral procedures will be conducted in accordance with SIAC Rules instead of other provisions of CPC 2015. The provisions of CPC 2015 only apply to the procedures of recognising and enforcing arbitral award.

The HCM High Court held that Award 090 did not fall within the conditions of not recognising and enforcing the arbitral award in Vietnam. Therefore, the HCM High Court rejected the decision of the first – instance court.

Under Article 458.4 of CPC 2015, when considering the application for recognition and enforcement, the panel shall not conduct re-trial over the dispute’s merits when the foreign arbitrator’s award has been issued. The court shall be only entitled to examine the foreign arbitrator’s award and accompanying papers and documents with provisions of Chapter XXXV and Chapter XXXVII of this Code, other relevant Vietnam’s law provisions and international treaties.

Commentary:

The HCM High Court’s decision should be warmly welcomed by the arbitration community. It is rational and reconcilable with the international arbitration best practices. For example, under SIAC Rules 2016, Article 19.2 provides: “The tribunal shall determine the relevance, materiality and admissibility of all evidence. The tribunal is not required to apply the rules of evidence of any applicable law in making such determination”.

In the context of recent Decisions No. 1768/QD-PQTT dated 06 October 2020 (“Decision 1768”)[1] and Decision No. 12/2023/QD-PQTT dated 04 July 2023 (“Decision 12”),[2] where the Courts set aside the award due to non-legalised power of attorney, it is important for arbitration practitioners to learn that the domestic arbitration centres are now being put in a disadvantageous position as they are being tied to the CPC with unnecesary procedural burden. Following Decision 95, parties chosing foreign seats and arbitral rules for settling their disputes will have the benefit of flexibility and avoidance of any requirements under the CPC. This brings in a great pressure on the domestic arbitral institutions to lobby for a more flexible approach by the Vietnamese courts on the domestic arbitral proceedings, and certainly a good starting point is to avoid the application of the CPC to their procedural rules.

Notably, Decision 95 does not only make a clear cut between the international arbitral rules and any civil procedural rules under the CPC. It also addresses and highlights a number of other matters on recognition and enforcement of arbitral awards:

Firstly, it makes clear that the fact that the tribunal does not refer to Vietnamese law does not amount to violation of the fundamental principles of Vietnamese law. The Court rejected the lower court’s ruling that it is a violation of the fundamental principles of Vietnamese law if the parties chose Vietnamese law to govern their contract, but the Tribunal did not refer to Vietnamese law. The High Court instead referred to the fact that the Tribunal had settled the dispute on the basis of the parties’ freedom of agreement (page 8 Decision 95).

Secondly, the High Court reconfirm the principle that any substantive issues determined by the Tribunal (including a party’s request for off-setting of awarded damages) shall not fall within the scope of the Court’s review. This reflects the double jeopardy principle under Article 458.4 of the CPC.

Last but not least, the Court (i) referred to Article V of the New York Convention and (ii) considerred the principle under the CPC and the Civil Code that if there are differences between the domestic law and international treaties to which Vietnam is a party, the international treaties shall prevail, to conclude that the Award 090 does not fall under cases of rejection of recognition and enforcement in Vietnam. By reference to these principles, the Court implied that the conditions for considering recognition and enforcement of foreign arbitral awards are those of the New York Convention and not the domestic laws. This has a significant impact on the assessment of the potential challenges to enforcement on the ground of violation of the “fundamental principles of Vietnamese laws”. This line of arguments should now be rejected and replaced with the violation of Vietnamese “public order”.