Abstract: According to the Department of Judicial Support, Ministry of Justice, currently, there have been 48 arbitration institutions established in our country, with over 600 arbitrators participating in resolving thousands of commercial disputes each year [1]. An arbitration service has been developed. Along with the growth, the trait of this service became more apparent, including the relevance of third-party interests. Unlike court litigation, in principle, arbitration is a private dispute resolution method, therefore, the involvement of third parties is exceptional. The discourse discusses how the arbitral tribunal considers and guarantees the third party's interest in the arbitral proceedings by providing some situations in which disputing parties or the arbitral tribunal may need to consider the interests of third parties. The goal of arbitration is to make contributions to resolving disputes fairly, thereby encouraging parties to fulfill their obligations voluntarily in order to avoid further dispute escalation of disputes. Based on the analysis, the author suggests policy improvements pertaining to third parties that may be considered in the upcoming revision of the Law on Commercial Arbitration.  

Definition of “Third Parties”

Besides Claimant, Respondent, Secretariat, Arbitral Tribunal, Fact Witnesses, Expert Witnesses, Legal Experts, Interpreters, Stenographers, in the arbitral proceedings, there may be several other parties involved, commonly including commercial intermediaries, subcontractors, banks, parent/subsidiary companies within a corporate group, and other parties with interests related to the contents of the Arbitral Award or the enforcement process. These parties are referred to as “Third Parties” and they are not signatories to the arbitration agreements. An arbitral award, in which third parties’ interests are not considered, can result in a bias, only resolve some legal relations and may not be totally fair. It also leads to other disputes that will create certain barriers to the enforcement process. These are reasons why the aspect of “Third Parties” needs to be considered, even though arbitral proceedings are, in principle, private and reserved exclusively for the parties to the arbitration agreements. 

Potential risks in designing arbitral procedures

Arbitration is a private procedure, where legal events are assumed to be framed within the bilateral transaction between the Claimant and Respondent. However, in practice, business activities occur in an entirely different manner. A transaction often represents just a single piece in complex ecosystems involving multilateral, and multi-variable relationships. What appears to be a straightforward commercial transaction between two parties is, in practice, just one chain-link in a supply chain encompassing material sourcing, processing, manufacturing, packaging, transportation, services, and ultimately, consumers. A construction project, for example, involves countless services, design, construction, main-contracting and subcontracting, material supply, project supervision, not to mention the underground financial networks of credit sponsors and guarantors. The economic stage is always filled with numerous actors, where arbitral proceedings resemble a fleeting moment of performance between two characters: the Claimant and the Respondent. From this, there arises an inherent conflict in the design of arbitration: the arbitration imposes limitations on resolving interest bilateral conflicts by itself when only considering one chain-link in a complex ecosystem of interdependent parties. The challenge lies in how the Arbitral Tribunal should settle the disputes equitably and fairly in the scope of arbitration agreement, while also taking into account the reasonable interests of third parties. At the same time, the tribunal has to render a fair award that enables to be complied with and avoids activating ceaseless disputes. This constitutes an underlying challenge in arbitral proceedings. 

International research review

Considering the interests of third parties in arbitration is not a new topic in international research. A cursory review shows that since 2009, there have been numerous comprehensive studies on this topic (refer to the cited references below) [2]. Related to third parties, and even more in-depth, there have been many publications on third-party funding [3] in arbitration (referred to as “TPF”) or multi-party disputes. From academic research, case law, legal regulations to practice, many theories regarding the involvement of third parties in arbitration have been summarized. Third parties may participate in arbitral proceedings based on theories such as:

(i) Agency - the theory of representation where disputing parties serve as the representative of the third party,

(ii) Alter ego and veil piercing - the theory of corporate abuse, breaking the limited liability of legal entities,

(iii) Group of companies - the doctrine of corporate groups where parent companies own and control subsidiary companies or share control with each other,

(iv) Succession - especially in the context of inheriting obligations in business transactions, mergers & acquisitions, and inheritances,

(v) Assignment or Subrogation - the theory of substitute obligations (sometimes, the substitute obligations are mandatory),

(vi) Estoppel - the theory of assumption that the third party agrees to the arbitration agreement, and

(vii) Implied Consent - the theory that the third party implicitly agrees to the arbitration agreement. The rationale behind each of these theories should be considered as arbitration services develop in our country. 

Vietnamese research review

In our country, it seems that people who are concerned about arbitration have only recently begun to discuss third parties in arbitration. The Faculty of International Law, University of Law - Ho Chi Minh City (2022), organized a workshop on Third Parties in Arbitration [4]. In addition, with a deeper focus on Third-Party Funding (TPF), VIAC (2022) has published some initial studies [5]. Conversely, in court practice, the mechanism of third-party litigation funding may have been occurring more frequently “behind the scenes”. It can be observed that there appears a phenomenon of lawyers seeking to arrange funding for their clients in litigation. Many disputes have arisen, such as cases where lawyers sue their clients because the clients withdraw their lawsuits6; lawyers sue their clients for not paying 150 gold bars, considered as lawyer fees because the lawyers had paid in advanced [7]; lawyers sue their clients for demanding a promised reward of 145 billion VND [8]. The common point of these lawsuits is: A sues B, but the litigation costs are sponsored by C (C may be the lawyers themselves). Since third-party funding can significantly impact the litigation conduct of A and B, the law needs to pay attention to and regulate the litigation funding of third parties. This applies to both court litigation and arbitration. 

Third-parties’ interest in arbitration practice

In arbitration practice, there have been numerous instances where disputing parties and/or the arbitral tribunal express concerns regarding the interests of third parties. Sometimes, for guaranteeing the parties’ interests or issuing a fair award, the arbitral tribunal may find it necessary to consider the interests of third parties, even if they are not directly involved in the arbitral proceedings. 

Example 1: Filing an arbitration claim against Manager

The Claimant, a shareholder holding a negligible amount of share capital in Company A (hereinafter referred to as "A."), filed a request for arbitration concerning a corporate spin-off. Company A established a subsidiary named A1. The Claimant, a shareholder of Company A, alleged that subsidiary A1 has caused damage to the parent company and initiates arbitration against the Manager of Company A. The Claimant supposed that the manager’s mismanagement, lack of diligence, and disloyalty caused damage to the company's interests. The basis for the claim is a provision on arbitration in the company charter of Company A. In this scenario, A1 is accused of causing harm to A, and the harm to A could translate into financial losses for shareholders, who exercise their right to file a claim. If this case is accepted, the arbitral tribunal must cautiously consider the relationship between the parent-subsidiary group (A and A1), as the interests and damages within a group of companies have many specificities. If the arbitral tribunal only isolates the relationship between a shareholder and the manager to resolve the disputes, the arbitral award may not be fair in this case. 

Example 2: Subcontractor in Asset Management

The Claimant (A) claimed the Respondent (B) for paying amounts that the Claimant has already paid or is expected to pay to subcontractors when the Respondent was entrusted with the management and operation of a block of assets. Among the subcontractors, some have completed payment profiles and request the Claimant for payment, some of which have been approved by the Claimant, while many other subcontractors, although they have requested payment, have not completed the documents. Since the request for arbitration related to numerous third parties who are subcontractors, the arbitral tribunal may find it difficult to fully resolve the case without a comprehensive consideration of the interests of these third parties. A one-sided arbitral award often paves the way for many subsequent disputes. Fairness and justice are difficult to enforce. 

Example 3: Company in consortium file a claim

A and A1 formed a consortium and participated in, won bidding a project from Owner B. Disputes arose between the bidding consortium and the Owner. A initiated the arbitration in his own name, while A1 did not participate in the dispute. The arbitral tribunal faced difficulties because A and A1 acted as a consortium, a form of partnership (do not form a legal entity), where the rights and obligations of each party could be separate; however, it is difficult to distinguish their separate rights and obligations due to the joint liability of consortium members. Respondent B wants the participation of A1 to ensure a comprehensive and fair arbitral award. 

Example 4: Bank guarantee

B sold goods to A, provided that B provided with a bank guarantee by Bank C, subject to certain terms and conditions in a limited duration. Alleging that B delivered substandard goods, A claimed B and Bank C who had a direct interest and was directly affected by the arbitral award. Both A, B, and C have interests and concerns in the arbitral proceedings, but only A and B are the signatories of the arbitration agreement; the rights and obligations of C would be significantly impacted by the arbitral award, yet C is not a disputing party in arbitration. 

Example 5: Design Contractor – Construction Contractor - Owner

A, who is the Owner, claimed B - the Contractor, due to a technical incident occurring during construction. During the construction process, B discovered technical flaws in the design provided by C. Upon discovering the design flaws, B rectified the errors on its own and continued with the construction, but the project still encountered incidents. The claim pertains to the responsibility of C as the designer. If the errors, rights, and interests of C in the construction incident are not considered, the arbitral award may cause the lack of comprehensiveness and lead to subsequent disputes. 

Example 6: Parent Company – Subsidiary Company

A, who is the Contractor, claim B - the Owner, who is a Foreign Direct Investment (FDI) enterprise. B is fully owned by a foreign parent company. The construction project in Vietnam is sponsored by the parent company, which handles design, approval, supervision, assessment, payment; however, only the Vietnamese subsidiary of the FDI enterprise is involved in signing contracts. This Vietnamese subsidiary is the sole respondent. Many documents are held by the parent company. If the arbitral tribunal reply solely on the documents presented by the Vietnamese subsidiary of the FDI enterprise, it may result in an inadequate arbitral award, leading to subsequent disputes. 

Dealing with Third Parties: The Challenge for Parties

The examples above illustrate that disputing parties claim for their own interests, but in many situations, they must also consider the interests of third parties. During negotiations, lawyers of the parties have more freedom to assess. However, if negotiations fail and the parties go further by resolving through arbitration, this freedom is significantly curtailed. If unable to reach an agreement with the opposing party, the consideration of the interests of the third party under arbitration legislation is likely to be narrowed. Depending on the skill and ingenuity of lawyers, the space for third parties in arbitral proceedings may hopefully be gradually expanded. This challenge is one that lawyers are compelled to solve. 

Dealing with Third Parties: The Challenge for Arbitral Tribunals

An arbitral tribunal should carefully consider its jurisdiction to ensure that the arbitral award is not set aside. Ideally, the tribunal should strive to achieve fairness, equity, and render the award with a realistic chance of enforcement. If there are too many third parties involved, especially if the interests of third parties dominate or are prioritized over the disputing parties' interests, then the tribunal must meticulously review its jurisdiction. In corporate disputes, such as shareholders claim managers or shareholders claim other co-shareholders and the company to seek to retain their shares instead of being divided or repurchased during shareholder’s divorces and disputes between parties when the respondent shows signals of insolvency, violating administrative/ criminal regulations, these complex multi-party situations often lead to jurisdiction of the court rather than arbitration. Due to the involvement of numerous third parties, in such situations, even with an arbitration agreement, the arbitral tribunal should exercise extreme caution in disregarding or not considering the interests of the remaining third parties. How to consider and assess the interests of third parties in such complex multi-party situations is yet another challenge for the arbitral tribunal. 

Can a third party request the annulment of an arbitral award?

The legal loopholes mentioned above lead to the uncertain of the participation of third parties in arbitral proceedings in Vietnam under current law. Furthermore, in the future, when the Law on Commercial Arbitration 2010 is under review for amendment, additional issues may arise, such as whether a third party has the right to request the annulment of an arbitral award if the award seriously violates the interests of that third party [11]. During the enforcement of an arbitration award, if interests are infringed upon, can the third party challenge the enforcement of the award? 

Can a third party claim the Arbitral Tribunal for damages?

In practice, there have been cases where a disputing party claimed the arbitrators on the grounds that the Arbitral Tribunal violated its obligations and caused the parties damages. This could occur during the proceedings, for example, when the Arbitral Tribunal issues decisions on apply interim urgent measures. Third parties may also have similar rights if they believe that decisions issued by the Arbitral Tribunal or the arbitral awards may have caused them harm. 

Conclusion

Arbitration is a private dispute resolution method. Arbitration services have rapidly developed in Vietnam. Along with this development, the traits of arbitration services have gradually become apparent, including how parties and Arbitral Tribunal need to deal with third parties. If the Arbitral Tribunal is excessively cautious and only considers events within the arbitration agreement between the Claimant and Respondent, it may pose risks. Considering the interests of third parties, without the consent of the disputing parties, could be risky, as the arbitral award may be set aside for violating the fundamental principles of arbitration law. On the other hand, disputes can only be satisfactorily resolved if the decisions issued by Arbitral Tribunal are fair, economically reasonable, and enforceable. In order to achieve this goal, Vietnamese law needs to be adjusted to providing legal framework for Arbitral Tribunal, if necessary, to have the grounds to consider the interests of third parties in arbitral proceedings. 

Footnote:

***This article only represents the opinions and views of independent experts and has no affiliation or intention to represent the opinions or views of the Vietnam International Arbitration Center (VIAC) or any other agency or organization. 

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The Closing Symposium: “Completing the third parties’ mechanisms for facilitating the arbitral proceedings” is the prominent event in the 2024 Arbitration - Mediation Symposium 2024: Third parties and influences on arbitral proceedings (AMS 2024), organized by VIAC in collaboration with law universities in Ho Chi Minh City. The series will run from March 22, 2024, to April 11, 2024. For detailed information about AMS 2024, please see HERE.