Vietnam Case Update: Setting Aside Domestic Arbitral Awards (SK E&C v. Vinalines)

I.  INTRODUCTION

This decision concerns a dispute between a Vietnam State-owned corporation and a foreign contractor on the construction of an international transshipment port in Vietnam. Following an arbitral award in favor of the foreign contractor, the State-owned corporation then requested the Vietnamese competent court to set aside this arbitral award, but the court refuses this request and upheld the arbitral award.

The Parties

The Claimant (“SK E&C”) is a South Korean engineering, procurement, construction and maintenance services company. The Respondent (“Vinalines”) is the Vietnam’s largest shipping corporation and a national, wholly State-owned corporation.

Factual background

In October 2009, Vinalines and a consortium consisting of SK E&C and Vinawaco signed the contract n^o 03/VP/2009/HD-HHVN (“Contract”) on conducting package 6B1 on wharf construction at Van Phong international transshipment port. The Contract was valued at VND 1 trillion (USD 47.6 million) and it was expected to be completed within 20 months.

SK E&C imported 544 SPP steel pipes to Vietnam pursuant to the Contract, which was approved by the supervision consultant.

In September 2012, the Vietnamese Government Office issued the Official Letter n^o 6881/VPCP-KTN, in which the Deputy Prime Minister agreed to suspend the implementation of the Van Phong port project based on proposals from the Ministry of Transport and the Ministry of Planning and Investment.

Vinalines then unilaterally terminated the Contract with SK E&C. In response, SK E&C claimed heavy losses due to Vinalines’ breach of the Contract and brought the matter to the Vietnam International Arbitration Center (“VIAC”).

In 4 January 2014, the award n^o 28/12 (“VIAC Award”) was issued, holding Vinalines liable to pay VND 48 billion (USD 2.3 million) for its violation of the Contract and VND 573 million (USD 27,280) for arbitration cost. Over a month later, in 26 February 2014, VIAC enacted the decision n^o 65/VIAC (“VIAC Decision”) explaining the VIAC Award and raising the compensation to VND 65 billion (USD 3.1 million) and the arbitration cost to VND 781 million (USD 37,190).

Procedural History

In 7 March 2014, Vinalines filed a petition to the People Court of Hanoi (“Court”) challenging the VIAC Award under Article 68 of the Vietnam’s Law on Commercial Arbitration 2010 (“LCA”). Vinalines requested the Court to set aside the VIAC Award on the following grounds:

(i) The payment documents, the check and acceptance, and the volume of construction conducted by SK E&C were not in conformity with the Vietnamese law and the Contract. For the volume of construction that SK E&C had carried out, Vinalines had given an advance payment of over VND 87 billion, which surpassed the value of the completed work. On accepting the SK E&C’s claims, the VIAC Award violated the “fundamental principles of Vietnamese law”, namely “principle of impartiality”. The VIAC Award did not truly reflect the essence of the case.

(ii) VIAC admitted forged evidence by accepting an unoriginal (photocopied) letter as an Interim Payment Certificate which was not approved by Vinalines without verifying its authenticity;

(iii) The Contract had been under close supervision from Meihardt and Van Phong Economic Zone Authority. VIAC did not summon these “related parties” to participate in the hearings and thus, violated the arbitral procedure under the LCA;

(iv) The issuance of the VIAC Decision raising the compensation and the arbitration cost violated the LCA.

Notably, Vinalines also sent a petition to the Vietnamese National Assembly’s Justice Committee, the Vietnamese Government, the Ministry of Transport, and relevant agencies to seek their intervention.

II.  KEY ISSUES AND THE COURT’S DECISION

 Key issues

The Court considered four key issues, namely:

(i) whether the VIAC Award violates the “fundamental principles of Vietnamese law”;

(ii) whether the VIAC Award was made on the basis of forged evidence;

(iii) whether the non-participation of the “related parties” violated the arbitral procedure under the LCA;

(iv) whether the issuance of another arbitral decision after the arbitral award violates the LCA.

The Court’s Decision

In October 2014, the Court issued decision n^o 09/2014/QĐ-PQTT (“Court Decision”) refusing the petition, thus upholding the VIAC Award. The Court Decision is not subject to appeal.

(i) Contrary to fundamental principles of Vietnamese law

The Court rejected this argument on the ground that Vinalines did not provide supporting evidence to prove that the VIAC Award violates the “fundamental principles of Vietnamese law”.

(ii) Forged evidence

The Court held that “unoriginal”, “photocopied” or even “unapproved” does not necessarily mean “forged”, especially when the contested letter is mentioned in an uncontested meeting minute between the parties.

(iii) Non-participation of the “related parties”

The Court rejected this argument, stating that under Article 47 of the LCA, the Arbitral Tribunal has the right (as opposed to an obligation), to summon witnesses. Moreover, Vinalines failed to prove that it has requested the Arbitral Tribunal to summon any witness.

(iv) Issuance of another arbitral decision after the arbitral award

The Court rejected this argument on the ground that the Arbitral Tribunal has the right to rectify obvious errors in spelling or figures caused by a mistake or incorrect computation and to explain specific points or items in the arbitral award under Article 63 of the LCA.

III.  COMMENTARY

The Court Decision is warmly welcomed as it demonstrates a trend in which Vietnamese courts are realizing the need to respect domestic arbitral awards and thus avoid nullifying arbitral awards for undue reasons. Among other issues, the Court Decision raises an interesting question concerning the burden of proof to set aside an arbitral award.

Article 68(2) of the LCA provides five grounds to set aside an arbitral award:

(i) There is no arbitration agreement or the arbitration agreement is void;

(ii) The composition of the arbitral tribunal is [or] the arbitral proceedings are inconsistent with the agreement of the parties or contrary to the provisions of the LCA;

(iii) The dispute is not within the jurisdiction of the arbitral tribunal; where an award contains an issue which falls outside the jurisdiction of the arbitral tribunal, such issue shall be set aside (non ultra petita);

(iv) The evidence submitted by the parties on which the arbitral tribunal relies to issue the award is forged; [or] an arbitrator receives money, assets or other material benefits from one of the parties which affects the objectivity and impartiality of the arbitral award;

(v) The arbitral award is contrary to the fundamental principles of Vietnamese law.

Concerning the burden of proof, Article 68(3) and Article 69(1) of the LCA can be taken into account. Article 68(3) of the LCA specifies that for the first four grounds, the party seeking to set aside the arbitral award shall bear the burden of proof; however, for the last ground, the courts “shall have the responsibility to themselves collect and verify evidence for a decision to set aside or not”.

The literal interpretation of this provision leads to the result that the courts shall bear the burden of proof in situations where claims relating to arbitral awards being “contrary to the fundamental principles of Vietnamese law” are made. Nevertheless, Article 69(1) of the LCA requires the party seeking to set aside the arbitral award possesses “sufficient evidence proving that the arbitral tribunal issuing the arbitral award in any of the cases provided in Article 68(2) of the LCA” to have the “right to petition to set aside the arbitral award”. This provision suggests that the party seeking to set aside the arbitral award shall bear the burden of proving that it has the “right to petition”.

Read together, Article 68(3) and Article 69(1) of the LCA are consistent with each other for the first four grounds to set aside the arbitral award, but not seemingly so for the last ground. Should a party rely on claims that the arbitral award is “contrary to the fundamental principles of Vietnamese law”, arguably, it shall bear the burden of proof to show that it has the “right to petition”. At the same time however, the court would then bear the burden of proving that the arbitral award is contrary to the fundamental principles of Vietnamese law. The abovementioned allocation of burden of proof reflects a confusing state of the law.

The case at hand may offer some practical perspective to the matter. The Court rejected the “contrary to fundamental principles of Vietnamese law” argument by saying that the petitioner failed to provide supporting evidence. By doing so, the Court appears to be asserting that it is for the party who challenges the arbitral award to prove that the award is contrary to fundamental principles of Vietnamese law.

Further commentary may be necessary to clarify this issue. On the one hand, the courts should know the fundamental norms of justice in their own legal system (iura novit curia) and thus be given the authority to set aside an arbitral award which violates them, even by an ex officio review. On the other hand, the party who challenges an arbitral award should present supporting evidence to justify its request (onus probandi incumbit actori). The power to set aside an arbitral award should be a mere facility to the courts and certainly not an obligation. Irrespective of whether a Court has the authority to review an arbitral award for breaching the fundamental principles of law ex officio or solely at the request of the party challenging the award, the burden of proof should rests on the latter party. This allocation of the burden of proof reflects an international consensus to the pro-enforcement bias and the conservative manner in which the “contrary to fundamental principles of law” claims should be relied on in ordering the setting aside of awards.

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This article may be cited as follows: Nguyen The Duc Tam, “Vietnam Case Update: Grounds for Setting Aside (SK E&C v Vinalines) International Arbitration Asia (17 Decemeber 2015) <http://www.internationalarbitrationasia.com/Vietnam-setting-aside-domestic-arbitral-award>.