Pandora’s Box in Commercial Arbitration?

From mythology to law, the phrase “Pandora’s box” evokes the unleashing of complications and unforeseen consequences. In this context, it stands as an allegory for a recent and highly debated legal development.

I. The Stirring Verdict

The legal communities in Vietnam has been stirred into a hive of discussion recently, due to a startling decision to nullify a commercial arbitration award. The judges at the helm of this case have put forward a rationale that’s raising more than just a few eyebrows.

Their argument revolves around the notion that, in the absence of explicit stipulations in the Commercial Arbitration Law, the procedural standards of the Civil Procedure Code should be enforced in commercial arbitration processes.

The judges further argued that, due to Article 478 of the Civil Procedure Code stipulating that Courts only recognize foreign documents if they have been consularly legalized, therefore, the Arbitration’s acceptance of foreign documents not properly legalized was against the law.

This interpretation by the judges has sparked a wealth of discussion, as a plain reading of Article 478 reveals that it pertains strictly to recognition of documents and materials by Vietnamese Courts when these are submitted by foreign entities. Article 478 is subtitled, “Recognition of documents and materials sent to Vietnamese Courts by foreign agencies, organizations, individuals”, suggesting that it applies specifically to court proceedings.

The case verdict and the judges’ interpretations have resulted in a flurry of analyses and debates among lawyers, experts, and arbitrators alike.

II. The Ripple Effect

Should the judges’ interpretation be uniformly adopted – potentially setting a legal precedent – it could lead to a seismic shift in the way commercial arbitration operates. Essentially, all commercial arbitration protocols would have to align with court proceedings unless specifically contradicted by the Commercial Arbitration Law. For example, in situations where the Commercial Arbitration Law is silent about procedures and conditions for document evidence, we would default to Article 95 of the Civil Procedure Code; consequently, arbitration would necessitate parties to supply original, notarized, or legally authenticated copies of all document evidence.

This poses a crucial question: Could this approach undermine the very essence of commercial arbitration? Arbitration has been preferred for its streamlined, efficient nature, devoid of the rigidities often associated with Court proceedings. By aligning it with Court procedures, are we losing sight of what makes arbitration attractive in the first place?

III. A Call to the Legal Community

For the immediate future, this situation presents lawyers with an added strategy, or some might argue, a ‘trick’. This tactic could be particularly effective when representing respondents in commercial arbitration disputes, demanding adherence to court-like processes and procedures according to the Civil Procedure Code. If an arbitration fails to observe these procedures fully, this could be exploited to petition for the arbitration award’s nullification.

But this tactical advantage must be weighed against the broader implications. The legal community must contemplate whether this direction serves the long-term interests of clients and the Vietnamese legal system as a whole. Should the legal minds speak up? Should there be a collective stand against a precedent that might fundamentally alter the arbitration landscape?

These questions echo through courtrooms and law offices, igniting debates that extend beyond the immediate case, underscoring the critical need for reflection and possibly, action.

IV. A Tale of Two Cities: Current Landscape and Provisional Measures

The commercial arbitration landscape appears to be bifurcated between two of Vietnam’s major cities. A perception seems to be growing among lawyers and arbitrators that judges in Hanoi are more prone to annulling arbitration awards than their counterparts in Ho Chi Minh City. This discrepancy invites an intriguing question: Is this because Hanoi’s arbitrators are more “careless” in their procedures, or do Hanoi’s judges harbor more conservative viewpoints?

Real-world experiences affirm the unpredictable nature of some judicial decisions. For instance, the author has personally encountered a decision to annul an arbitration award in which the judges in Hanoi stated that ‘the delivery result reported by Viettel Post (the postal service) showed the recipient was the respondent, but there was no basis to determine if the document recipient was indeed the respondent’???

For now, the legal community is sidestepping this dilemma by steering clear of commercial arbitration in Hanoi. Some lawyers have started to expressly stipulate in contracts that disputes will be resolved via commercial arbitration in Ho Chi Minh City—even if the parties are based in Hanoi. The logic here is transparent: The jurisdiction would then rest with Ho Chi Minh City’s judges, who are perceived to have a more balanced approach toward annulling arbitration awards.

This workaround, while practical, is clearly a makeshift arrangement. It speaks to a deeper issue within the legal framework and raises concerns about the consistency and uniformity of legal interpretations across different jurisdictions. Until this issue is addressed head-on, these temporary solutions will likely persist, underscoring the need for broader reflection and reform in the arbitration field.

VI. The Peril of Unintended Consequences

An increasing trend of annulment of commercial arbitration awards, encompassing both domestic and international matters, carries repercussions far beyond the courtroom. The implications stretch out into the investment realm, notably impacting foreign investors in three critical ways.

1. Erosion of Trust: The readiness of some judges to overturn arbitration awards may chip away at the confidence in the Vietnamese legal system. Questions regarding the transparency, fairness, and predictability of dispute resolutions might begin to surface, casting shadows over the judiciary’s integrity.

2. Investment Hesitation: The uncertainty surrounding the respect and enforcement of arbitration awards translates to caution in investment decisions. Foreign investors may become hesitant, fearing a lack of fair protection should disputes arise. This trepidation may stifle the very investment that fuels growth and innovation.

3. Image at Stake: Perhaps the most far-reaching consequence is the potential damage to Vietnam’s reputation as an attractive investment destination. Repeated instances of annulling arbitration awards could taint the perception of the country as a safe and investor-friendly locale. This is surely not the trajectory that the government envisions, particularly at a time when Vietnam is actively inviting foreign investment.

The annulment of commercial arbitration awards is not merely a legal technicality. It echoes through the corridors of commerce and investment, possibly reverberating as a siren call for caution. As Vietnam positions itself as a burgeoning market, maintaining the sanctity of arbitration might be more than a legal imperative; it might be a strategic necessity. The implications invite a broader discussion on legal reforms that balance the need for judicial scrutiny with the assurance of legal certainty and predictability.

V. A Call to the Legal Community

The title reprises that of Section III, but the emphasis here shifts towards the broader, long-term health of Vietnam’s legal environment. The situation demands more than short-term tactics or piecemeal solutions; it requires a concerted effort from the entire legal community.

1. Collaboration and Advocacy: Lawyers, arbitrators, associations, and even specialized state agencies must join forces. Together, they should urge the Vietnamese court system to reassess the current trend of easily annulling arbitration awards. The goal is not mere criticism but fostering decisions that resonate with legal theories and principles.

2. Implementing Mechanisms for Review: One of the striking gaps in Vietnamese law is the absence of a mechanism allowing higher courts to review or supervise lower courts’ annulment decisions. This void can lead to erratic and, in some cases, opaque judgments. Drawing inspiration from international practices, Vietnam might consider adopting a system where annulled arbitration awards automatically proceed to a higher court for scrutiny.

3. Ensuring Integrity and Precision: The call for a review is not a challenge to the integrity of judges but rather a plea for precision and caution. Annulling an arbitration award should never be a casual decision; it has profound implications on the legal and investment climate in Vietnam.

In Conclusion: This issue transcends mere legal discourse; it affects the national image and investment attractiveness. The author stresses the need for scrupulous care in these matters to bolster Vietnam’s standing as a thriving legal and business hub. This is a moment for the legal community to reflect, unite, and work toward reforms that align with the nation’s broader aspirations. Such efforts could reshape the arbitration landscape in Vietnam, fostering a more predictable and transparent legal environment.

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