The Vietnam International Arbitration Centre has handled its first ad hoc international commercial arbitration under the UNCITRAL rules – a case over architecture design services that raised issues regarding the appointment of a sole arbitrator and the interplay between the rules and the law of the seat. This incident has been published in the Global Arbitration Review under the name of two authors, Mr. Chau Viet Bac and Mr. Nguyen The Duc Tam.

Chau Viet Bac, who is vice secretary general of the centre and Nguyen The Đuc Tam, a Vietnamese LLM at the University of Paris II, tell GAR the DP v VD case “sheds light on Vietnamese law concerning ad hoc arbitration by demonstrating how it operates in practice. Details of this first experience may be helpful for other Vietnamese arbitral institutions and for parties intending to use the UNCITRAL arbitration rules in Vietnam”.

The case arose from a 2014 agreement for architecture design services. The letter of appointment said the parties agreed that in the event of a dispute they would use their best efforts to settle their differences by negotiating with each other in good faith. If no solution was reached within 30 days, then either could refer the matter to arbitration in Vietnam.

The Vietnamese version of the agreement explicitly made reference to the Vietnam International Arbitration Centre, which was founded in Ha Noi in 1993 and, like the Vienna International Arbitration Centre, goes by the acronym VIAC.

The agreement continued that the parties would mutually appoint an arbitrator. In the event that they failed to reach an agreement on the appointment, an arbitrator could be “court-appointed according to the relevant regulations”. 

It was agreed that all arbitration proceedings would be conducted in Vietnam and the UNCITRAL rules would be applied. The decision of the arbitrator would be final and costs and expenses would be apportioned as directed by the arbitrator or divided equally by the parties.

A dispute arose and the parties could not agree on the selection of the sole arbitrator. In September 2015, the People’s Court of Ho Chi Minh City appointed a sole arbitrator who is a well-known VIAC arbitrator and professor of arbitration law.

In May 2016, he rendered an award holding the respondent liable to pay 742 million Vietnamese Dong (around US$33,125) in damages and 59 million Vietnamese Dong (around US$2,630) in costs.

The respondent filed a petition with a Vietnamese court challenging the award under Article 68 of the country’s 2010 Law on Commercial Arbitration. The respondent did so on the grounds that the court had no authority to appoint the sole arbitrator as, under the UNCITRAL rules, the appointing authority was to be designated by the secretary general of the Permanent Court of Arbitration in The Hague.  

The respondent also alleged that the sole arbitrator had failed to comply with a number of rules concerning notice and communication of the claim and had wrongfully applied the Vietnamese law on damages, making the award contrary to fundamental principles of Vietnamese law.

In September last year, the court dismissed the petition and upheld the award and, in February this year, the claimant successfully registered the award for enforcement.

The challenge to the award

Challenging the appointing authority of the Vietnamese court, the respondent argued that since the parties could not agree on the selection of the sole arbitrator, they had to refer to the arbitration agreement. This stated the parties would mutually appoint an arbitrator or, failing agreement within 14 days of a request to agree, an arbitrator could be “court-appointed according to the relevant regulations”.

The claimant interpreted this as meaning the Vietnamese court could appoint, while the respondent relied on Article 6 of the UNCITRAL rules to argue that the appointing authority had to be designated by the secretary general of the PCA. The court invoked Articles 7(3) and 41 of the Vietnamese Law on Commercial Arbitration to declare that the provincial court where the respondent had its headquarters, the People’s Court of Ho Chi Minh City, should appoint. Even if there had been no such agreement, Article 41 of the law would have prevailed over Article 6 of the UNCITRAL rules, it said – meaning the court would still be the appointing authority.

In relation to the sole arbitrator’s alleged non-compliance with the UNCITRAL rules, the court cited Article 13 of the Law on Commercial Arbitration (guided by a subsequent resolution), which reads “Where a party discovers any non-compliance with [the law] or the arbitration agreement but continues to conduct the arbitration proceedings and does not object to such non-compliance within the time-limit set by [the law], such party loses its right to object to such non-compliance.”

Where the law sets no time limit, it will be determined on the basis of the arbitration agreement or the arbitration rules, the court said. Where these, too, do not set a time limit, the party simply needs to raise its objection before the award is issued.

In this case, the respondent did not do this, even when the sole arbitrator requested its opinions regarding his authority and the arbitral procedure. Consequently, the court held that the respondent lost its right to object to any non-compliance.

The court did not mention the UNCITRAL rules, but a similar application on the basis of those rules would bring the same outcome, say Châu Việt Bắc and Nguyễn Thế Đức Tâm.

As they explain, Article 32 of the UNCITRAL rules states that a failure by any party to object promptly to any non-compliance with the rules or with any requirement of the arbitration agreement shall be deemed to be a waiver of the right of the party’s right to make such an objection, unless the party can show that, under the circumstances, its failure to object was justified.

Even though the meaning of “promptly” is not defined in the rules, they say it should be understood as meaning as soon as reasonably possible after a party becomes aware of the non-compliance and before it takes an inconsistent step in the arbitration proceedings.

With regard to the sole arbitrator’s alleged wrongful application of the Vietnamese law on damages, the court did not make clear whether a mistake had been made and whether it would make the award contrary to fundamental principles of Vietnamese law. Rather, the court avoided re-examining the merits of the dispute and simply stated that the award was final and binding.

Lessons to be drawn

If the parties to a dispute in Vietnam agree to resolve it at one arbitral institution but to apply the rules of another institution, the agreement may be deemed incapable of being performed under Article 6 of the Vietnamese Law on Commercial Arbitration, say Châu Việt Bắc and Nguyễn Thế Đức Tâm.

However, as in this case, an agreement to resolve their dispute at an institution applying the UNCITRAL rules will be construed as a choice of ad hoc arbitration under UNCITRAL rules with the institution as the administrative body.

The pair warn that parties should take into account the interplay between Vietnam’s Law on Commercial Arbitration as the lex arbitri and the UNCITRAL rules. Article 3(7) of the law provides that ad hoc arbitration is a form of dispute resolution conducted under its own provisions using a procedure agreed by the parties. Meanwhile, Article 1(3) of the rules makes clear that they will govern the arbitration except where they are in conflict with an applicable provision of law (normally the law of the seat of arbitration) from which the parties cannot derogate.

Consequently, a distinction needs to be made between derogable and non-derogable (mandatory) provisions of the law, they say. While the former will fill any gaps in the rules, the latter will take precedence over them. Parties should be aware of how the law and the UNCITRAL rules will be applied.

They predict that ad hoc arbitration under UNCITRAL rules at VIAC will become more popular, providing parties with both the flexibility afforded by the rules and the benefits of administered arbitration. With this in mind, VIAC is to issue a practice note including further guidance for parties, they say, following the example of leading arbitral institutions in Asia such as SIAC and HKIAC.

According to VIAC’s website, the centre, which has its headquarters in Ha Noi and branches in Ho Chi Minh City, Da Nang and Can Tho, administered 155 new cases in 2016, over 40% of which had a foreign element. The centre handles disputes in diverse fields of commerce and between parties with diverse nationalities, mostly from Asia.

Chau Viet Bac & Nguyen The Duc Tam

Published on Global Arbitration Review on July 20 2017