Innovation of the Law on Commercial Arbitration of 2010

Basically, the Ordinance on Arbitration complies with provisions of laws as well as international custom and practice with respect to major factors such as effectiveness of arbitration agreement, conditions for arbitrators, relation between arbitration and court proceedings, setting up of an arbitrator panel, etc. However, the Ordinance on Arbitration also showed its insufficient and outstanding matters.

Therefore, the National Assembly has passed Law on Commercial Arbitration No. 54/2010/QH12 (the “Law on Arbitration”), which inherits as well as improves provisions on commercial arbitrations provided by the Ordinance on Arbitration. The Law on Arbitration took effect from January 1, 2010, and superseded the Ordinance on Arbitration. This article records a number of positive changes of the Law on Arbitration against the ordinance, which are deemed as a hitch to arbitration activities in Vietnam.

Extension of jurisdiction of arbitration

According to the Ordinance on Arbitration, disputes under the jurisdiction of arbitration shall be limited in “commercial activities” which are interpreted as one or more commercial activities of individuals, organizations, including sale and purchase of goods, providing services, distribution, representation, acting as agents, rent, leasing, leasing-purchase, consultancy, construction, engineering, licensing, investment, banking and finance, insurance, exploration and exploitation, transport of goods, passengers by airway, by sea, by railway, by road and other commercial activities in accordance with laws. However, during implementation of the ordinance, the term of “commerce” in the Ordinance on Arbitration has been interpreted in several ways and concluded that jurisdiction of arbitration limited in commercial activities as above mentioned. This caused arguments in verifying the scope of jurisdiction of arbitration.

In order to remedy the mentioned issues, the Law on Arbitration does not list commercial activities in detail, accordingly, jurisdiction of arbitration shall include: disputes arising from commercial activities, disputes in which at least one party has commercial activities. Besides, arbitration shall be entitled to settle disputes not arising from commercial activities provided that other current legal documents provide for concerned parties to choose arbitration as a mode of dispute settlement, for example, Article 208 of the Maritime Code of Vietnam providing the principles for default determination and compensation for damages in accidents, Article 12 of the Law on Investment of 2005 providing for dispute settlement relating to investment activities, and Article 131 of the Law on Securities providing for dispute settlement.

Abolition of listing method according to the Ordinance on Arbitration is to avoid misunderstanding that arbitration only has its jurisdiction with respect to listed commercial activities and to extend legal framework for activities of arbitration in Vietnam.

Amendment and supplement of provisions on effectiveness of arbitration agreement

According to the Ordinance on Arbitration, a commercial dispute shall be settled by arbitration proceedings if parties agree on such a method prior to or after the dispute. The Law on Arbitration provides that, in addition to those, arbitration proceedings, it shall be applied for dispute settlement in following cases:

(i) if an individual dies or loses his capacity of civil act, his arbitration agreement shall be effective to his inheritor or legal representative; and

(ii) if an organization terminates its operation, goes bankrupt, dissolves, merges or demerges, converts its form, its arbitration agreement shall be effective to the organization which inherits its rights and obligations.

Regarding null and void arbitration agreement, the Law on Arbitration provides some significant changes. Accordingly, an arbitration agreement shall be null and void if (i) a dispute does not fall into the sphere of commercial activities; (ii) arbitration agreement is executed by incompetent person; (iii) a party to arbitration agreement is incapable of civil act; (iv) arbitration agreement is not in compliance with conditions on formality provided by laws; (v) a party to arbitration agreement is cheated, threatened and requests for announcement of a null and void arbitration agreement; and (vi) arbitration agreement violates prohibition by laws.

However, in case of a template contract where arbitration clause is structured by service provider or good supplier, consumers reserve their right to choose arbitration or court as a mode of dispute settlement. This provision protects consumers when consuming goods and services contracts of which they cannot negotiate terms and conditions.

Clarification of support and reaction between arbitration and court

The Law on Arbitration provides in a separate article for power and competence of court with respect to arbitration activities, in particular:

(i) Provincial court where defendant or one of the defendants resides is competent to appoint the arbitrator; (ii) Provincial court where the arbitration panel settled dispute is competent to change the arbitrator;

(iii) Provincial court where arbitration panel settled dispute is competent to settle claim on invalid arbitration agreement, inexecutable arbitration agreement, power of arbitration panel;

(iv) Provincial court where there are proofs to be competent to collect those;

(v) Provincial court where temporary urgent remedy to be applied; (vi) Provincial court where witness resides is competent to convene the witness; and (vii) Provincial court where the arbitration panel is competent to abrogate an arbitration award, register ad-hoc arbitration award.

This clarification gives a wider legal framework for arbitration during its operation with support of the court.

Amendment of provisions on applicable law for dispute settlement

According to the Ordinance on Arbitration, Vietnamese law shall be applied to settle a dispute if such dispute is concerned between Vietnamese parties. Foreign law(s) shall be applied in settlement if such dispute has foreign factor(s) and is selected by concerned parties as long as such foreign law(s) do not conflict with principles of Vietnamese laws. In case where parties do not choose the applicable law, the arbitration panel shall decide to choose one.

The Law on Arbitration has amended and supplemented so that the principle to select law (Vietnamese or foreign law) applicable for a dispute based on the criteria of nationality of concerned parties and supplementing the criteria of foreign factor(s) in the dispute are abolished. With respect to choosing foreign law applicable to a dispute which is not selected by concerned parties, the arbitration panel shall consider criteria of selecting foreign law as proper as possible. In addition, international custom shall be applicable if Vietnamese law or foreign law selected by concerned parties does not provide clearly as long as application of such international custom and its consequence do not conflict to principles of Vietnamese law.

Supplement and clarification of some matters relating to arbitration proceedings

Some matters relating to arbitration proceedings are clarified and supplemented by the Law on Arbitration. With respect to language of arbitration proceedings, the Ordinance on Arbitration granted parties the right to choose language to be used. In case of absence of such an agreement on language, Vietnamese language will be used. The new law provides in detail principles on use of language for dispute settlement as follows: (i) Vietnamese language shall be used for disputes without foreign involvement and language chosen by parties or by arbitration panel shall be used for such disputes.

Similarly, place of arbitration is clarified under the Law on Arbitration. While it is subject to agreement by parties in accordance with the Ordinance on Arbitration, the law clarifies that the place may be overseas and the arbitration panel may hold its meeting in any location which deems suitable for consultancy, witnesses’ questioning or examination of property, unless otherwise agreed by parties.

Besides, during settlement of dispute by arbitration, if a party continues arbitration proceedings in spite of his acknowledgement of a breach to the laws or agreement on arbitration, this party is deemed to waive its right to object at arbitration or court. This new provision is a positive step of Vietnamese laws toward international custom and practice.

Significant changes relating to arbitrator and arbitration organization

The Ordinance on Arbitration provides for criteria of arbitrators as follows: (i) being Vietnamese citizen, (ii) having full civil capacity, (iii) having good morality, honesty, no prejudice, (iii) being bachelor and experienced in conformity with education for at least five years.

The Law on Arbitration abolished the criterion of arbitrators that arbitrators must be Vietnamese citizens and supplemented a condition that in a special circumstance, specialists having high professional qualification and practical experience shall be arbitrators even if they are not bachelors. Arbitration Center shall be entitled to provide higher conditions than provisions on conditions of arbitrators regulated in the Law on Arbitration, for example, an arbitrator must gain certificate of arbitration profession training.

Another significant change is the provision on organization and operation of foreign arbitration organization in Vietnam. While the Ordinance on Arbitration is completely silent on this, the new law contains a chapter on this matter where provides that foreign arbitration organization is entitled to set up its establishment in Vietnam in the form of a branch or representative office. Moreover, appointment of arbitrators to set up arbitration panel as authorized by foreign arbitration organization is also provided in detail.

Foregoing is significant innovation of the Law on Arbitration of 2010 against the Ordinance on Arbitration of 2003. In addition to aforementioned changes, the law also provides many other changes such as registration of ad-hoc arbitration award, clarification of formality of arbitration agreement, replacement of the term “arbitration decision” provided by the ordinance with the term “arbitration award.” In this article, we would like to introduce some most significant innovations which play an important role in providing a widened legal framework for arbitration activities in Vietnam by the Law on Arbitration which deems to be one of the most modern and internationally oriented laws at present.