Dr. LE HONG HANH
The legal system governing commercial arbitration in Vietnam still has problems which should be taken into consideration in the process of improving the law.
The first problem relates to the application of laws, whether the 2003 Ordinance on Commercial Arbitration (the Ordinance), the Commercial Law (the Law) or the Civil Code and the Civil Procedure Code. Article 4 of the Law provides for the application of specialized laws to specific commercial activities and the Civil Code to commercial activities not defined in the Law. While defining a commercial activity in a broad meaning, the Law only stipulates a number of commercial acts. Therefore, for many goods and service-related commercial activities, the application of law is not mentioned in the Law. When an arbitrator applies certain legal provisions to the settlement of trade disputes, problems related to dispute settlement mechanisms in specialized laws will arise.
Second, the Law (Clause 2, Article 5) allows parties in relations involving foreign elements to negotiate to apply foreign law or international practice provided that those laws or practices do not contravene Vietnamese law. It is hard to prove such contravention in many arising economic or trade relations.
Third, legal provisions on the invalidation of contracts are also problematic, creating obstacles to dispute settlement. Those provisions themselves and their practical enforcement pay more attention to the form of contract than the true will of the contractual parties. Courts, even some arbitrators, are prone to declare the invalidity of a signed contract which is being or even has been completely performed only because of breach of contract form.
Fourth, arbitration practice shows that arbitration agreements regularly create obstacles in identifying the jurisdiction of arbitration. Under Articles 3 and 5 of the Ordinance, arbitration, not a court, has jurisdiction to settle a dispute under an arbitration agreement even though the parties bring their cases to court. In practice, many disputes arise from contracts involving invalid arbitration agreements. Who will consider and decide whether those agreements are invalid?
The last problem is the determination of foreign elements under current law and the Ordinance. Foreign elements are mentioned in most legal documents, especially the 2005 Civil Code and the 2004 Civil Procedure Code, but criteria for their determination are not touched on in an adequate and unified manner.
A comprehensive solution
The best solution to improving existing legal provisions on commercial arbitration is to draft a law on commercial arbitration, rather than revising the Ordinance and issuing new decrees.
The promulgation of a law on commercial arbitration will help raise the effect of legal provisions on arbitration. The promulgation of such a law in replacement of the Ordinance is also in line with the orientations for legal system development under Political Bureau Resolution No. 48-NQ/TW, emphasizing the necessity to end the promulgation of legal documents in the form of ordinance and reduce the issuance of decrees. The Resolution also required further improvement of a legal framework governing the settlement of economic disputes through arbitration, negotiation and conciliation.
A law on commercial arbitration will also help redress in a comprehensive manner problems in current legal provisions on commercial arbitration. Given that commercial arbitration is addressed in many laws, it is hard to deal with inconsistencies between the Ordinance and these laws by promulgating a new ordinance. A law on commercial arbitration would also bring arbitration activities to a more deserving position in present economic and social life.
Challenges posed by WTO accession, especially commitments on legal services, force Vietnam to find new ways of dealing with arbitration as a service opened to foreign persons and organizations. Current legal limitations related to foreign arbitration organizations should be re-considered.
Issues in drafting a new law on commercial arbitration include:
a/ Consistency of the commercial arbitration law with the legal system
Inconsistencies in the legal system will, as a matter of course, affect the application of law. An arbitrator’s job is to apply law to specific facts after analyzing them in an adequate and comprehensive manner in order to issue a correct ruling. However, these inconsistencies make it hard for the arbitrator to fulfill his or her job.
A solution is to review all relevant legal documents. Arbitration law is procedural law which depends on substantive law. It is impossible to promulgate arbitration procedures to deal with a problem arising from a specific commercial activity if a relevant law does not permit the settlement of disputes through arbitration. To ensure consistency of the commercial arbitration law with other provisions in the legal system is also a requirement of Vietnam’s WTO commitments.
b/ Basic principles for promulgation of a law on commercial arbitration
A law on commercial arbitration should contain provisions which only orientate arbitration activities while granting arbitration centers the maximum professional autonomy. Otherwise, the role of arbitration, as a social institution and an alternative method of dispute settlement, would be restricted.
Such a law should assign autonomy to the Association of Arbitration Organizations in arbitration-related issues, like the Law on Lawyers.
The law’s provisions concerning the statute of limitations for initiating a case of arbitration charges should be regarded “buffer” ones which are applicable only in cases in which arbitration center procedures and rules are silent. In other words, these provisions should be clear and specific so that the court will not reject arbitral awards due to their failure to be aware of the “buffer” value of those provisions.
The law should give a higher status to professional rules in the settlement of issues related to arbitrators and dispute settlement methods and skills.
c/ New ways of approaching fundamental issues of commercial arbitration
The law should take into greater consideration the genuine will of all parties rather than restricting arbitrators to procedural regulations only.
It should grant arbitrators the power to determine the invalidity of arbitration agreements without requiring the court’s re-consideration, i.e., the arbitration council’s decision on the validity of an arbitration agreement should be final unless there is explicit proof of violations of procedural law in the process of issuing the decision.
Its provisions on arbitration agreements should be consistent with those of the UNCITRAL Model Law on International Commercial Arbitration.
Commercial arbitration’s jurisdiction to settle disputes should be based on arbitration agreements. Current legal provisions on commercial arbitration restrict commercial arbitration’s jurisdiction to relations between business individuals or organizations. The future law on commercial arbitration should not follow the way of approaching this issue as stipulated in Article 2 of the Ordinance.
The definitions of “commercial activity” in the Ordinance (Clause 3, Article 2) and the Commercial Law (Clause 1, Article 3) are not identical. The definition in the Commercial Law is more general, covering also disputes between company members and between company members and a company which arise in the course of setting up, operation or dissolution of the company, and disputes related to the trading of shares or bonds. Meanwhile, the 2004 Civil Procedure Code contains provisions on economic disputes and matters (Articles 29 and 30), and the Enterprise Law provides a definition of “business”. Those definitions should be interpreted consistently for the purpose of determining the jurisdiction and scope of operation of commercial arbitration.
Under the Ordinance, a court may apply temporary urgent measures while a dispute is settled by a arbitration council. Reality has shown that problems emerge in the stage of enforcement of arbitral awards. Urgent measures taken will ensure better enforcement of awards. The arbitration council’s operation terminates after it announces its award. During trial, parties rarely request the application of temporary urgent measures. Moreover, the application of these measures in the trial process may easily harm the conciliatory intentions of disputing parties.
Another obstacle lies in the court’s consideration of parties’ requests to cancel an arbitration council decision on the jurisdiction to settle a dispute according to procedures and conditions established in the Ordinance. Under Articles 50 thru 54 of the Ordinance, the court may cancel an arbitration decision if the council has issued a decision to settle the dispute ultra vires. Such a procedure is unnecessary and makes the dispute settlement by arbitration more complicated.
The enforcement of arbitral awards through judgment enforcement bodies is also an important issue. Current law contains adequate mechanisms applicable to foreign arbitral awards. For domestic arbitral awards, however, Article 57 of the Ordinance only makes general provisions. Should the judgment enforcement body’s enforcement of arbitral awards be accompanied by any other conditions? Is an arbitral award itself enough for the judgment enforcement body to accept and enforce? Does the person requesting the enforcement of the award have to pay any charges and is the court involved in this matter? The judgment enforcement body normally enforces only court rulings or judgments. Even foreign arbitral awards are enforced under court decisions. The future law on commercial arbitration should contain provisions governing the judgment enforcement body’s handling of requests for organization of the enforcement of arbitral awards.
That the judgment enforcement body’s jurisdiction covers requests for enforcement of arbitral awards should be identified on the Lex domicilis principle, i.e., the judgment enforcement body in the locality where the party against which an award is enforced is headquartered or has a branch. A dossier of request for enforcement of an arbitral award should be simple, with only the arbitral award and a written request of the party in favor of which the award is enforced, and the arbitral award should be enforced like the enforcement of court rulings under current law. Expenses for the enforcement of the arbitral award should be borne by the party against which the award is enforced. This would help raise the responsibility of the losing party.
A new commercial arbitration law should specify appropriate criteria limiting state employees holding administrative posts from acting as arbitrators.
Lawmakers must re-consider restrictions on the setting up of new arbitration centers. Businesses and businesspeople do not wish to bring their disputes to arbitration centers because they do not yet believe that arbitral awards will be enforced. The setting up of new arbitration centers does not place a burden on the state budget or social costs, but existing arbitration centers cannot operate because they have no chance to handle disputes.
The Ordinance and Decree No. 25/2004/ND-CP define arbitration centers as legal persons. Under the Civil Code, a legal person must have a head office. A head office is important for defining dispute settlement jurisdiction when parties do not choose applicable law, and should be considered as a compulsory condition for opening an arbitration center.-