High time to amend the Law on commercial arbitration

The Law on Commercial Arbitration ("LCA") was passed in 2010. This is a leap forward for arbitration in Vietnam.

Compared to its previous version and consistent with global standards, the LCA has made many improvements including recognizing enterprises’ freedom of choice, supplementing disputes resolved by arbitration, extending arbitral tribunal’s jurisdiction, upholding Court’s assistance (especially in the application of interim measures), allowing flexible use of language in arbitration proceedings, respect party autonomy but at the same time enforcing limits.  

The Law on Commercial Arbitration has revealed many shortcomings

However, as the LCA entered into force 10 years ago, it is inconsistent with recently amended regulations. For example, the Civil Code 2015 has included more civil matters that can be resolved by arbitration, but the LCA has not amended its provisions in compliance with the Civil Code. Similarly, the CPC allows appeal against court decisions on foreign arbitral awards, while the LCA does not contain similar procedures.

In its 10 years of existence, the LCA’s inappropriate regulations have hindered arbitration development. In addition, the LCA is also ambiguous and controversial, which adversely affects arbitration activities. For example, the Law stipulates that arbitral award shall be annulled if the arbitral award “is contrary to the fundamental principles of the law of Vietnam". However, such ambiguity has caused controversy and is often invoked in an abusive manner to annul arbitral awards.

Unlike developed arbitration systems, the LCA has not clearly requested support for arbitration from the Court. Such vagueness has resulted in the Court's annulment of an arbitral award and prolonged resolution of arbitration issues. There are direct consequences of this ambiguity. 92% of FDI enterprises refuse to settle disputes in Court, but fewer FDI enterprises choose domestic arbitration than foreign arbitration even though Vietnamese arbitration is directly enforced and does not require recognition and enforcement application. Furthermore, there are more than 20 arbitration centres, most notably VIAC, which has settled international disputes with millions of dollars value in dispute.

How can the Law on Commercial Arbitration be amended?

Amid Vietnam's strong international economic integration, it is essential to amend the LCA to develop arbitration and reduce the Court’s workload (thereby lowering state budget for adjudication). In Resolution No. 99 / NQ-CP, the Government request to “Formulate a scheme to complete the laws on contracts and dispute resolution through arbitration, mediation and ADR towards unification, synchronization, enforcement guarantee and protection of ownership ”. Therefore, in the coming time, it is essential to prepare a direction to amend the LCA. The following are some revised directions.

The United Nations has a Model Law on arbitration. This Law has assisted many arbitration systems to reform and modernize domestic arbitration laws, including those having developed arbitration systems such as France, Hong Kong, and Singapore. Model Law’s clarity reinforces businesses’ confidence and thereby developing arbitration. When drafting the LCA in 2010, we also referred to the Model Law, but the reference was not pronounced, therefore, the business community believes international standards were not incorporated. In this revision, it is imperative to uphold the Model Law and, if necessary, include a preamble stating a Model Law basis (as seen in other arbitration systems).

Regarding the amendment process, the LCA must conform with other laws to ensure "direction of unity, synchronization, and enforcement " as stated in government’s Resolution 99. Here, consistency with the Civil Code 2015, CPC 2015, Law on Enforcement of Civil Judgments 2014, etc. should be ensured. Thus, arbitration-related documents should also be reviewed and give directions on the LCA’s amendment to maintain consistency. We also need to remove inappropriate regulations hindering arbitration’s development. Besides, the aforementioned obstructive provisions should be reviewed continuously and in line with common practice for appropriate adjustments.

The Supreme People's Court has issued a Resolution containing progressive provisions on arbitration, for example, a provision on resolving a conflict between litigation and arbitration agreement. The People's Court of Hanoi or Ho Chi Minh City has convincingly resolved several financial issues. When revising the LCA, we should incorporate these progressive regulations and resolutions. This incorporation will facilitate enterprises, especially foreign ones, to gain access to the Vietnamese arbitration system because they usually regard the Law rather than a sub-law document or a court judgment.

Since the country becomes more open, Vietnamese arbitrators must compete with foreign arbitrators, especially those from Hong Kong and Singapore. Many disputes involving Vietnamese enterprises are resolved in Hong Kong or Singapore because their legal systems are very supportive of arbitration, however, this is not beneficial to Vietnamese enterprises. Settling disputes abroad is very time-consuming, financially costly, and relying on foreign human resources (i.e. using foreign arbitration services instead of Vietnam’s) is also a loss for Vietnam’s economy. Therefore, to develop arbitration in Vietnam, the LCA’s regulations themselves must be transparent enough to indicate support for arbitration, which is a practice in countries such as Russia in its most recent amendment.

The Court always supervise and assist in arbitration activities. The Court plays an important role in the development of arbitration and, in countries with developed arbitration, judges’ expertise is highly regarded. The LCA has not provided for the expertise of judges resolving arbitration issues, which has resulted in unconvincing Court's decisions. These decisions, especially those by judges not on Economic Court’s payroll, are obstructive to arbitration. Therefore, when amending the LCA, we should pay attention and consider judges’ expertise in solving arbitration issues.

Arbitration in Vietnam has become more professional thanks to a leading institution and a model development, VIAC (which gathers many of the most prestigious experts and a professional support system). Today, the business community has grown accustomed to arbitration to integrate with international transactions. In other words, there is already a solid basis, but whether it operates effectively also depends on the normative documents’ mechanism, especially the LCA’s. Ending on a positive note, we should learn from past advantages and mankind's achievements to formulate a legal framework in the above directions.  Such legislation is expected to transform operating arbitration centers as VIAC into regional household names for international dispute resolution like SIAC, HKIAC, or KCAB.

Credit: https://enternews.vn/da-den-luc-phai-sua-luat-trong-tai-thuong-mai-176134.html