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In the context of an increasingly globalized international trade and investment activities, the use of international arbitration as a method for resolving international disputes between parties from different countries has become a popular and effective approach. However, the recognition and enforcement of foreign arbitral awards are not always straightforward and seamless. In this article, ASL LAW will analyze a case study to explore the instances of foreign arbitral awards being denied recognition in Vietnam.
Enforcement of foreign arbitral awards requires respect for and compliance with international legal rules, while also ensuring compliance with the regulations of Vietnamese law. In recent times, there have been complex and controversial cases related to the recognition and enforcement of foreign arbitral awards in Vietnam.
One of the main reasons for non-recognition of such awards is the difference between the legal systems and regulations of the countries involved in the arbitration. This can lead to a situation where a country refuses to recognize a foreign arbitral award.
However, non-recognition can also arise due to concerns from the parties involved, both the party seeking enforcement and the party against whom enforcement is sought, about irregularities in the arbitration proceedings. As a result, they may request the authorized court to review and deny the recognition and enforcement of the arbitral award within the territory of Vietnam.
In this article, ASL LAW will delve into specific cases that led to the Hanoi People’s Court denying recognition and enforcement of the SIAC arbitral award in a civil dispute between the enforcing party, VMG, headquartered in Vietnam, and the party against whom enforcement was sought, GPS and UTC, both headquartered in South Korea.
Case Background
The application for recognition and enforcement of foreign arbitral awards submitted by GLOBAL PAYMENT SERVICE (GPS) and UTC INVESTMENT CO., LTD (UTC) in Vietnam involves the following details:
GPS is an investment fund, and UTC Invesment Co., Ltd is an investment management company, both of which are legally established and operate under South Korean law.
VMG is a digital content service company in Vietnam. Before the share purchase transaction, VMG was a major shareholder of VNPT Electronic Payment Joint Stock Company (EPAY), holding 62.25% of the total issued shares of EPAY.
In 2016, UTC and VMG signed a share purchase agreement. According to the agreement, VMG agreed to sell to UTC (or to a fund to be established and managed by UTC), and UTC agreed to purchase 7,470,000 shares, equivalent to 62.25% of the total issued capital of EPAY. The contract was later amended in 2017 with the participation of GPS, with VMG providing assurances and commitments regarding the business operations and management of EPAY.
However, in 2018, a scandal related to illegal gambling activities in Vietnam involving some senior personnel of EPAY led to the unsuccessful completion of the purchase contract.
Subsequently, GPS and UTC informed VMG that the company based in Vietnam did not fulfill the commitments regarding the business operations and management of EPAY due to the occurrence of the mentioned scandal. After unsuccessful attempts at reconciliation, mediation, in 2019, UTC and GPS initiated arbitration proceedings at the Singapore International Arbitration Centre (SIAC) under the arbitration agreement in the amended contract to recover losses and damages caused by VMG’s breach of commitments.
The final arbitral award required VMG to pay damages of VND 455,304,286,858 to the claimants, along with other amounts, including 5.33% interest per annum compounded annually until full payment. After receiving the SIAC arbitral award, UTC and GPS submitted the request for recognition and enforcement of the arbitral award to the authorized court, which is the Hanoi People’s Court, based on clause 1, Article 425, 452, and 453 of the Civil Procedure Code 2015.
During the trial at first instance, based on the evaluation of the proceedings of the dispute between the Defendant, VMG, and the Claimants, Global Payment Service and UTC Investment, at the Singapore International Arbitration Centre (SIAC) and in accordance with the provisions of the Civil Procedure Code 2015, VMG argued that the SIAC arbitral award No. 186 of 2019 issued by the Singapore International Arbitration Centre on October 21, 2021, falls under the case of non-recognition and non-enforcement in Vietnam due to eight reasons.
The argument of the party seeking enforcement (VMG Company)
Considering the Decision of the Hanoi People’s Court at first instance No. 07/2022/QDST-TTTM, dated June 30, 2023, which refused to recognize and enforce the SIAC arbitral award No. 186 of 2019 (ABB/186/PLN) issued on January 17, 2023, and the Hanoi People’s High Court’s ruling to uphold the decision of the first-instance court that rejected the request for recognition and enforcement of the foreign arbitral award requested by GPS and UTC, we can rely on the arguments from VMG to present some cases of foreign arbitral awards being denied recognition in Vietnam, including:
First: The arbitral proceedings involved violations in timely and legitimate notification to the defendant
During the proceedings, an expert proposed by the Defendant was acknowledged by the arbitral tribunal as an expert witness did not receive email notification of the account and password to participate in the hearing.
The failure to receive timely and legitimate information and notification of the dispute resolution procedures for the expert witness has affected their right to fair treatment and a full opportunity to present their case as stipulated in Article 18 of the Singapore Model Law.
Second: During the arbitral proceedings, the arbitral tribunal proceeded with the arbitration and issued the arbitral award when the Claimant violated the Arbitration Rules
According to the Defendant, on the first day of the hearing, the Claimant used backdrops, curtains to partially obscure the room where the representative of the Claimant and witnesses used for participation in the proceedings.
As per the provisions of Article 7.6 of the Hearing Rules issued by the arbitral tribunal, participants are not allowed to use “Virtual Backgrounds,” and the room they are using must be clearly visible.
The deliberate use of physical backdrops in the hearing room where the hearing took place by the Claimant violated the Hearing Rules issued by the arbitral tribunal and breached the agreement between the parties during the arbitral proceedings.
Despite being aware of the Claimant’s violation, the arbitral tribunal continued the proceedings and issued the arbitral award based on the results of the proceedings that had such violations.
Therefore, the Defendant requested the competent court in Vietnam to rely on Article 459(1) of the Civil Procedure Code 2015 to refuse the recognition of the arbitral award.
Third: There is a justifiable reason for one party’s inability to exercise its procedural rights during the arbitral proceedings
Upon receiving information from the arbitral tribunal about the plan to conduct the arbitration proceedings online, realizing the adverse impact on the right to participate in the proceedings due to the poor internet infrastructure in Vietnam (especially during the Covid-19 pandemic), the Defendant proposed to the arbitral tribunal to postpone the hearing until the parties could meet in person to avoid affecting their participation in the proceedings.
However, the arbitral tribunal did not accept the Defendant’s proposal. This led to the Defendant’s lawyer not being able to fully participate due to poor connection during the Pre-Hearing Session.
Thus, even though the arbitral tribunal was aware of the Defendant’s objections, they still proceeded with the Pre-Hearing Session, which made it impossible for the Defendant to fully exercise their procedural rights during the arbitral proceedings, and this objective reason is one of the grounds for the Court to refuse to recognize the arbitral award.
Fourth: The arbitral tribunal continued the arbitration and issued the arbitral award when the Claimant violated confidentiality principles
During the arbitral proceedings, when the Claimant submitted the Consolidated Statement of Legal Costs to the arbitral tribunal, it included information about the filing fee for a counterclaim at the Supreme People’s Court of Vietnam.
This cost document contained confidential information related to the case documents. The disclosure of this information allowed another party to become aware of this information and subsequently undertake corresponding legal procedures.
The act of disclosing the Claimant’s confidential information violated Rule 39 of the SIAC Arbitration Rules 2016 on confidentiality and also breached the fundamental principles of Vietnamese law stipulated in the Law on Commercial Arbitration 2010 (Article 4 on Dispute Resolution by Arbitration).
Fifth: The arbitral tribunal violated the application of the law and jurisdiction when adjudicating the claim for non-contractual damages by the Claimant
The Defendant objected in the documents sent to the arbitral tribunal that the arbitral tribunal’s application of Singapore law to resolve the claim for non-contractual damages was incorrect, and the arbitral tribunal did not have the jurisdiction to adjudicate non-contractual damages disputes.
As the parties did not agree on the applicable law for non-contractual damages issues, the dispute resolution body must apply the law of the country where the consequences of the damaging event occurred, which is Vietnamese law, to resolve the dispute.
Moreover, even if the parties had agreed to use arbitration proceedings to resolve all non-contractual damages disputes, such an agreement would still be contrary to Vietnamese law, which means the part of the agreement to resolve non-contractual damages disputes by arbitration is null and void.
The arbitral tribunal’s view that there was no objection to its jurisdiction in the case is completely contrary to the facts and developments of the dispute.
Sixth: The arbitral tribunal violated procedural rules by not excluding the new arguments presented by the Claimant during the Hearing
On the third day of the Hearing, the Claimant raised new arguments in the written submissions and presented them during the proceedings.
The act of introducing new documents and arguments during the trial, which were not part of the case file and were not given to the other party for review and preparation, seriously affected the due process, thus violating the arbitral procedural rules.
However, the arbitral tribunal did not exclude this new evidence and continued to use the Claimant’s arguments in the arbitral award. Therefore, VMG requests the Court to apply the provisions under Article 459.1(d) of the Civil Procedure Code 2015 to refuse to recognize the arbitral award.
Seventh: The arbitral tribunal violated the principle of fair treatment towards the Defendant
During the arbitration proceedings, the Defendant requested the arbitral tribunal to extend the time for the hearing for three reasons, one of which was “Waiting for the result of the retrial petition.” However, the arbitral tribunal did not agree to extend the time for the hearing to wait for the result of the Defendant’s retrial petition, while still using as evidence the Judgment of the Phu Tho Court, which was still under consideration for the director’s reconsideration request.
The arbitral tribunal’s refusal to accept the proposal to wait for the result of the Defendant’s retrial petition and its continued application of the erroneous findings of the Phu Tho Court and the erroneous evaluations of the Claimant’s expert witness during the trial and in the arbitral award are “unfair treatment” and deprived the Defendant of the “opportunity to fully present their case,” thereby violating the provisions under Article 459.1(d) of the Civil Procedure Code 2015.
Eighth: The arbitral tribunal violated the proceedings by using an expert opinion that did not ensure the independence of the Claimant
During the arbitral proceedings, a legal expert in Vietnam was hired by the Claimant to provide legal opinions on three issues, but the expert exceeded the scope of his expertise and provided legal opinions on other issues.
The arbitral procedural rules clearly stipulate the independence of the Expert and the Expert Report. Based on their status and position, the arbitral tribunal should have applied the procedural rules to assess and exclude opinions in the Expert Report that violated the rules. However, the arbitral tribunal used the opinions in the Expert Report to issue the arbitral award, which is a violation of the arbitral procedural rules and the provisions under Article 459.1(d) of the Civil Procedure Code 2015.
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