Enforcement of Foreign Arbitral Awards in Vietnam27 April 2020
"The percentage of applications for enforcement of foreign arbitral awards which have been rejected by the Vietnamese courts is notably high."
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, (commonly known as the “New York Convention”) came into force in Vietnam on 11 December 1995. However, there remains significant uncertainty as to the extent to which foreign arbitration awards can be enforced in Vietnam. The percentage of applications for enforcement of foreign arbitral awards which have been rejected by the Vietnamese courts is notably high. For example, the Supreme People’s Court rejected 46% of applications for enforcement of foreign arbitral awards (24 out of 52) from 2005 to 2014.
The Supreme People’s Court’s issuance of resolution 01/2014/NQ-HDTP (the “Resolution”), designed to decrease the number of awards being annulled unreasonably, and the Civil Procedure Code 2015¹ (the “CPC”), which is considered to have made Vietnam’s legal system more arbitration friendly, have coincided with a lower incidence of applications for enforcement being rejected. For example, the Hanoi People’s Court rejected 33% of applications from 2014 to 2017, and the Ho Chi Minh City People’s Court rejected 31% from 2011 to 2018.
Enforcing foreign arbitral awards in Vietnam
Article 451.1 of the CPC includes a limitation period for the filing of an application for recognition and enforcement of a foreign arbitral award, which must be completed within three years of the date from which the award has legal effect.
The Vietnamese courts’ jurisdiction for the enforcement of foreign awards is conditional upon either: (a) the award debtor being domiciled or having its headquarters in Vietnam, or (b) the asset(s) related to the enforcement being located in Vietnam (CPC, Article 39.2(e)).
Importantly, the first decision of recognition and enforcement of a foreign arbitral award is obtained through inter partes proceedings. Only if the award debtor requests the court to carry on proceedings in their absence, or the award debtor is absent twice, will the court proceed with hearing the application without the award debtor in attendance (CPC 458.3). In contrast, in England and Wales the award creditor may apply to the court for leave to enforce the award on an ex parte basis.
Applications for recognition and enforcement of foreign arbitral awards in Vietnam must also include the original or certified true copy of the foreign arbitral award and the original or certified true copy of the arbitration agreement between the parties, in line with Article IV of the New York Convention. If the arbitration agreement is in the form of a clause within an agreement, the whole agreement must be provided. Article 453 of the CPC requires such documents to be notarised, legalised and translated into Vietnamese before being submitted to the Ministry of Justice or the court.
"In Vietnam, all documents and evidence filed in legal proceedings for recognition and enforcement form part of the public record."
In practice, parties are often requested to submit additional documentation to evidence signatory capacity and/or the proper conduct of arbitration including business registration certificates, legal opinions on foreign laws, and written confirmations of couriers to prove service of certain documents.
In terms of appeal, a first decision granting or denying enforcement of an award can be appealed to the High People’s Court, and the decision handed down by the High People’s Court may in turn be appealed under cassation or retrial procedures.
One important point for consideration when contemplating enforcement of an arbitral award in Vietnam is that all documents and evidence filed in legal proceedings for recognition and enforcement form part of the public record, unless evidence comes under certain exceptions. Such exceptions include evidence relating to state secrets, trade secrets, or personal information relating to individuals’ private lives. Generally, the Vietnamese courts’ judgments on recognition and enforcement are posted on that court’s e-portal, in Vietnamese only. This practice erodes the extent to which arbitral proceedings remain private, which is often considered to be a key benefit of arbitration as opposed to litigation.
As of November 2018, court fees in Vietnam were relatively low-filing fees of VND3m (approximately US$129) must be included with a request for recognition and enforcement of a foreign arbitral award, and any appeal of the decision of the first instance court requires payment of an additional appeal court fee advance of VND300,000 (approximately US$13).
Common reasons for non-enforcement by the Vietnamese courts
1. Invalid service on the award debtor
A key reason cited by Vietnamese courts for refusing to recognise and enforce foreign arbitral awards has been that the award debtor was not promptly and duly informed of the appointment of the arbitrators or of the arbitral procedure. For example, in the case of Wisdom vs. Hao Hung,² the arbitral institution in Hong Kong had sent notice by email to the staff of the award debtor rather than the legal representative of the award debtor. Therefore, when serving notice on the defendant, it is crucial to ensure that contractual notice provisions and notice requirements as prescribed by Vietnamese law are adhered to. Moreover, it is best practice to obtain confirmation of delivery from the courier.
2. Contrary to the principles of Vietnamese law
The Vietnamese Courts’ tendency to refuse to enforce arbitral awards due to infringement of the basic principles of Vietnamese law has generated considerable uncertainty for commercial parties seeking to obtain enforcement of arbitral awards in Vietnam. For example, in the case of Toepfer v Sao Mai (2011), the Supreme Court of Hanoi found that the award creditor’s failure to mitigate its loss was contrary to the principle of good will under Article 6 of the Vietnamese Civil Code.³ In addition, the Court considered the UK arbitral tribunal’s (Grain and Feed Trade Association) granting of liquidated damages to be in conflict Vietnamese law on actual and direct damages and, therefore, Article 11 of the Civil Code requiring compliance with Vietnamese law.
In 2014, the issuance of the Resolution specifically sought to tackle the number of arbitral awards being unreasonably rejected for breaching a principle of Vietnamese law. Pursuant to Article 14.2 of the Resolution, the Vietnamese court reviewing the application must consider the following two questions: (a) whether the principle that is alleged to have been breached is one of the “basic principles on conduct, of which effects are most overriding in respect of the development and implementation of Vietnamese legal system”; and (b) whether the award “violates the interests of the government, and the legitimate rights and interests of third party(ies)”.
However, there remains significant room for interpretation in relation to the Resolution and the principles set out in the Civil Code.
In any event, advice from local counsel should be sought at the drafting stage when contracting with a Vietnamese party or in relation to assets located in Vietnam, in order to minimise the risk of infringing principles of law or specific provisions of Vietnamese legislation.
3. Lack of authority and formalities
Another ground often cited by the Vietnamese courts for non-enforcement is incapacity of a signatory to bind a party to the arbitration agreement. There have also been cases where the arbitration agreement has been deemed invalid, for example through the award debtor failing to sign the document containing the arbitration clause. Such cases bring into light the importance of ensuring that the necessary corporate authorities are reviewed, and that the arbitration agreement, or the agreement containing the arbitration clause, is duly executed by all parties.
"It appears that the Vietnamese courts are becoming increasingly more amenable to the recognition and enforcement of foreign arbitral awards."
On the whole, it appears that the Vietnamese courts are becoming increasingly more amenable to the recognition and enforcement of foreign arbitral awards. A further resolution containing more guidance provisions from the Supreme People’s Court on the CPC is also anticipated.
However, despite recent developments and the potential for greater certainty on the horizon, commercial parties should consider maximising the enforceability of foreign arbitral awards at an early stage by carrying out the following steps:
- At the point of negotiating agreements which involve a Vietnamese party or Vietnamese assets, ensure that no provisions conflict with specific or basic provisions of Vietnamese law. Seek advice from Vietnamese counsel and obtain a legal opinion;
- Prior to signing, verify that all signatories have corporate authority to bind the relevant party; and
- When serving notice on another party to an arbitration agreement, ensure that the contractual notice provisions are complied with, as well as the rules under Vietnamese law. Again, it is advisable to obtain legal advice in order to ensure such rules are being duly adhered to, and that service of such notices is on time.
Lastly, if there is a bilateral investment treaty in place between the country from which the award originates and Vietnam, this may provide an alternative mode of enforcing an award for an award creditor that is unable to obtain a decision from the Vietnamese courts.
Trainee Theo Cleminson also contributed to this article.