Author: Hoang Thi Khanh Hien (Ms.)
An arbitral award is the decision of the Arbitration Council that resolves the entire content of the dispute and terminates the arbitration proceedings, according to Clause 10, Article 3 of the 2010 Law on Commercial Arbitration (“LCA 2010“). After the Arbitration Council issues an award, it cannot be enforced immediately as it depends on whether one of the disputing parties submits an application to cancel the award within 30 days and whether the court considers and accepts the application to cancel the award. The decision to cancel an arbitral award renders the previous arbitration proceedings between the parties meaningless, requiring the dispute to be resolved again by another Arbitration Council or the court. Therefore, the cancellation of arbitral awards is a topic worth discussing. This article will focus on several important legal aspects of cancellation of arbitral awards, including: i) grounds for cancellation; ii) cancellation procedures; and iii) consequences of cancellation.
- Grounds of cancellation arbitral award
According to Article 68 of the Law on Commercial Arbitration, when there is an application for cancellation from one of the disputing parties, the court’s review panel may cancel the arbitral award if one of the following five grounds is found:
Basis 1: There is no arbitration agreement or the arbitration agreement is invalid
An arbitration agreement is an agreement between the parties on resolving disputes that may arise or have arisen, according to Clause 2, Article 3 of the Law on Commercial Arbitration. The condition for a dispute to be resolved by arbitration is that the parties must establish an arbitration agreement either before or after the dispute arises. If the parties do not have an arbitration agreement before entering into the contract and do not agree to select arbitration as the method of dispute resolution, the arbitration panel does not have the authority to resolve the dispute. Consequently, any arbitration award issued will not be legally effective and will be canceled by the Court upon review.
In cases where there is an arbitration agreement, the parties must also pay attention to the validity of the arbitration agreement. According to Article 18 of the Law on Commercial Arbitration and Article 3 of Resolution No. 01/2014/NQ-HĐTP of the Judicial Council of the Supreme People’s Court dated March 20, 2014, guiding the implementation of certain provisions of the Law on Commercial Arbitration (‘Resolution 01/2014‘). This agreement can be invalid if it falls under one of the following six cases:
First, the dispute that arises is related to the fields beyond the competence of arbitral tribunals” prescribed in Clause 1 Article 18 LCA means the case in which an arbitration agreement is negotiated to resolve the disputes related to the fields other than those mentioned in Article 2 of LCA.
Second, the arbitration agreement is negotiated by incompetent persons as prescribed by law in Clause 2 Article 18 means the arbitration agreement is negotiated by persons other than legal representatives or authorized persons, or authorized persons that act beyond his/her authorized entitlements.
Third, the arbitration agreement is negotiated by persons in capable of civil acts as prescribed by law means the minors or the persons incapable of civil acts
Fourth, the arbitration agreement is not established in written form, such as in the form of an arbitration clause within the contract or in the form of a separate agreement
Fifth, one of the parties was deceived, threatened, or coerced during the process of establishing the arbitration agreement and has requested that the arbitration agreement be declared invalid.
Sixth, the arbitration agreement violates a prohibition under the law.
Resolution No. 01/2014 has applied the provisions on civil transactions in the Civil Code to explain the invalidity of arbitration agreements in the fifth and sixth cases. Therefore, there is a basis for applying the statute of limitations for declaring civil transactions invalid in the aforementioned two cases. The statute of limitations for declaring the arbitration agreement invalid in the fifth case mentioned above will be 2 years from the date the deceitful, threatening, or coercive act ceases. Meanwhile, there is no limitation period for the sixth case. For the remaining cases, there are no provisions on the application of the statute of limitations.
Basis 2: The arbitration council composition or procedures of arbitral proceedings is/arc noncompliant with the parties’ agreement or this Law:
In the case of cancellation of an arbitration award due to procedural violations compared to the provisions of the Law on Commercial Arbitration, such violations are considered ‘serious violations’ that cannot be remedied and infringe upon the rights and interests of the disputing parties. The adjudicating panel must specify which provisions of the Law on Commercial Arbitration have been violated.[1] A disputing party may lose the right to object at arbitration or in court if it identifies violations of the Law on Commercial Arbitration or the arbitration agreement and continues to proceed with arbitration without raising objections within the prescribed time limit.
Upon the request of a party and if deemed appropriate, the court’s review panel will temporarily suspend the consideration of the application for a period not exceeding 60 days to allow the Arbitration Council to rectify procedural errors according to the Council’s perspective, thereby eliminating the grounds for cancelation of the arbitral award. The Arbitration Council must notify the court of the rectification of procedural errors. The panel will continue to consider the application for canceling of the arbitral award if the Arbitration Council does not proceed with rectifying the procedural errors.
In practice, there have been several court decisions on canceling arbitral awards based on this ground, specifically, the VIAC Arbitration Center did not send the registered mail including the Statement of Claim and accompanying documents of the Claimant to the Respondent on March 1, 2021[2], did not conduct damage assessment, or the Arbitration Council unilaterally selected the venue for arbitration without relying on the valid arbitration agreement between the parties, etc.
[3]Basis 3: The dispute falls beyond the arbitration council’s jurisdiction: when an arbitral award contains the details falling beyond the arbitration council’s jurisdiction, such details shall be canceled:
This case is similar to the first case of invalid arbitration agreements. Additionally, it includes instances where the arbitration panel resolves a dispute without the parties’ agreement to request arbitration or resolves issues beyond the scope of the arbitration agreement.
Basis 4: The evidence provided by the parties on which the arbitration council bases to issue the award is counterfeit: an arbitrator receives money, assets or other material benefits from one disputing party, thus affecting the objectivity and impartiality of the award;
The court will only consider the determination of falsified evidence if there is proof supporting the request, and such evidence must be relevant to the issuance of the decision, affecting the objectivity and fairness of the decision.
Basis 5: The award contravenes the fundamental principles of Vietnamese law
According to Point đ, Clause 2, Article 14 of Decree No. 01/2014, the fundamental principles of Vietnamese law that are violated refer to ‘the basic behavioral principles that have overarching effects on the creation and implementation of Vietnamese law.’ Some examples of fundamental principles cited for considering the cancellation of an arbitration award include the principle of freedom and voluntary commitment in commerce as stipulated in Article 11 of the Commercial Law and Article 4 of the Civil Code, and the principle that ‘arbitrators must be independent, objective, and impartial’ as provided in Clause 2, Article 4 of the Law on Commercial Arbitration.
The party requesting the cancellation is not obliged to prove that the arbitration panel issued an award under this circumstance; rather, the court is responsible for proactively verifying and collecting evidence. According to Point đ, Clause 2, Article 14 of Decree No. 01/2014, the court shall cancel an arbitration award only under two conditions:
First, the court identifies that the content of the arbitration award is contrary to one or more fundamental principles of Vietnamese law, which the arbitration panel did not comply with when issuing the arbitration award
Second, as a result of the non-compliance, the issued arbitration award seriously infringes upon the interests of the State, the rights and legitimate interests of one or more parties, or third parties.
Arbitration is an independent method of dispute resolution separate from the courts, although the courts may intervene in certain matters to ensure fair and objective adjudication. Arbitration procedures are governed by the Law on Commercial Arbitration and its guiding sub-law documents, rather than the Civil Procedure Code applicable to the courts.
In Decision No. 12/2023[4] To cancel the arbitration award, the court canceled the arbitration award on the grounds that the arbitration panel violated fundamental principles of Vietnamese law, specifically the legalization requirement for the Power of Attorney and the Legal Representation Document of the Claimant as stipulated in Article 478 of the Civil Procedure Code. This cancellation decision has sparked controversy within the legal profession regarding its persuasiveness, thereby diminishing the independence of arbitration compared to the courts.The arbitration panel had accepted the two documents without legalization based on the following reasons: Decree No. 111 of the Government dated December 5, 2011, on consular legalization certification stipulates that documents may not need legalization if the receiving agency (here, the arbitration panel) does not require it, and the arbitrators did not request it in this case. Secondly, arbitration law does not stipulate legalization, and the corresponding provisions of the Civil Procedure Code related to court trials cannot be applied. Additionally, the claimant had subsequently provided two legalized documents at a later stage.This cancellation decision of the court is also inconsistent with the views expressed in the 2017 Handbook on Arbitration and Mediation Law. According to the authors, who are experts in the field: “One point to note is the issue of notarization and consular legalization. Arbitration law does not require documents submitted to arbitration to be notarized and legalized, and the absence of notarization or legalization is not considered contrary to the fundamental principles of Vietnamese law and should not be grounds for cancellation of an arbitration award”.[5] However, also related to the requirement for consular legalization, in Decision No. 16/2023[6], the court did not cancel the arbitration award because arbitration is the receiving body with the authority not to require consular legalization. In the same year, there were two contradictory judicial views on the same issue.
2. Procedure of canceling arbitral award
3. Consequences of canceling arbitral award
After reviewing the application for canceling the arbitral award, the review panel will make one of two decisions: to cancel or not to cancel the arbitral award. In the case where the award is not canceled, the parties are obliged to comply with the award. Conversely, if the award is canceled, the parties can renegotiate to bring the dispute to arbitration again or one party has the right to initiate legal action in court, based on Clause 8, Article 71 of the Law on Commercial Arbitration. In any case, the time taken to resolve the dispute through arbitration and the time taken for the court to process the cancellation procedure is not counted towards the statute of limitations for initiating a lawsuit to readdress the dispute in court.
The decision of the review panel regarding the application for cancellation is final and takes effect from the date of signing. The parties or the Arbitration Council do not have the right to appeal; the Procuracy does not have the right to protest. Therefore, the decision of the review panel must be issued properly and must be based on one of the grounds for cancellation specified in Clause 2, Article 68 of the Law on Commercial Arbitration. If a decision to cancel an arbitral award is issued without convincing grounds, the prolonged arbitration proceedings causing significant efforts and costs for one party would become meaningless, and the procedure for initiating a lawsuit would need to start from the beginning.
Conclusion:
The cancellation of an arbitration award is a mechanism that allows the court to intervene upon the request of a disputing party to prevent an arbitration award deemed illegal from being enforced, ensuring objectivity and fairness in adjudication. The cancellation must be based on a closed list of cancellation grounds predefined by law. Most of the grounds fall under the burden of proof of the requesting party, except for the ground that the award is contrary to the fundamental principles of Vietnamese law, which the court itself must prove. The court’s decision to cancel or not cancel the arbitration award is final, has legal effect, and cannot be appealed or challenged.
[1] Đỗ Văn Đại, Vietnamese Commercial Arbitration Law – Case Law and Commentary (Second Edition), page 194, Hong Duc Publishing
[2] Decision No. 786/2022/QĐ-PQTT on the cancellation of the arbitration award by the Ho Chi Minh City People’s Court dated June 7, 2022
[3] Decision No. 11/2019/QĐ-PQTT on the cancellation of the arbitration award by the Hanoi People’s Court dated November 14, 2019
[4] Decision No. 12/2023/QĐ-PQTT on the cancellation of the arbitration award by the Hanoi People’s Court dated July 4, 2023.
[5] 2017 Handbook on Arbitration and Mediation Law authored by the Supreme People’s Court and the International Finance Corporation (IFC).
[6] Decision No. 16/2023/QĐ-PQTT on the cancellation of the arbitration award by the Hanoi People’s Court dated November 27, 2023.
