Vietnam Case Update: Recognition and Enforcement of Foreign Arbitral Awards (Realogy Group LLC v. Minh Viet Investment JSC)

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I.  INTRODUCTION

The Parties

The Claimant (“Realogy”) is a US company in the business of residential real estate and owns several international trademarks, including “Coldwell Banker”. The Respondent (“Minh Viet”) is an investment company headquartered in Hanoi, Vietnam.

Background

On 1 November 2012, Minh Viet and Realogy concluded an agreement concerning the exclusive rights to use the “Coldwell Banker” trademark in Vietnam for a period up to 13 June 2013. Pursuant to that agreement, Minh Viet had to pay certain fees to Realogy in exchange for its right to use the trademark. However, it was alleged that Minh Viet had failed to make the required payments.

On 27 February 2013, Realogy commenced an action against Minh Viet in JAMS International (a London-based arbitration institution). Seven months later, an award was issued, holding Minh Viet liable to pay to Realogy US $559,829 in outstanding fees, interest, and legal and other costs.

Procedural History

On 25 February 2014, Realogy filed a request to the People’s Court of Hanoi for recognition and enforcement of the award in Vietnam.

In its request, Realogy specifically asked Minh Viet and its legal representative to carry out its obligation of payment. Realogy also requested a permanent injunction forbidding Minh Viet and its partners from using the “Coldwell Banker” trademark in any form, including for marketing, promotion, or internet trading purposes.

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II.  THE COURT’S DECISION

The key issue considered by the People’s Court of Hanoi was whether the foreign arbitral award met the requirements for recognition and enforcement in Vietnam.

In December 2015, the court accepted the request for recognition and enforcement of the award in Vietnam. As Minh Viet has exhausted its right to appeal, the court’s decision was no longer subject to appeal.

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III.   COMMENTARY

The court’s decision represents a positive indication that Vietnamese courts are adopting a more pro-arbitration approach towards the recognition and enforcement of foreign arbitral awards.

In September 1995, Vietnam became a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (“New York Convention”). Since then, many legal instruments have been issued to incorporate provisions of the New York Convention into Vietnamese law. Currently, the major regulatory framework on the recognition and enforcement of foreign arbitral awards is the Vietnam Civil Procedure Code 2004 (modified in 2011) (“CPC 2004”).

Several aspects of the issue are regulated in Part VI of the CPC 2004 (from Article 342 to Article 374). All these provisions are in general compliance with the New York Convention’s rules and regulations. However, it should be noted that Vietnam has made two reservations commonly referred to as the reciprocity reservation and the commercial reservation.[1] These reservations mean a narrower scope of application of the New York Convention in Vietnam.

In principle, foreign arbitral awards made in, or by arbitrators of, a country which is a party to a relevant international treaty of which Vietnam is a party or signatory shall be considered for recognition and enforcement in Vietnam. In the absence of such treaty, consideration can be made on a reciprocal basis. However, to be finally recognized and enforced, those awards should not fall into circumstances set out in Article 370 of the CPC 2004, which is an adaptation of Article V of the New York Convention with some local modifications.

These legislations show Vietnam’s attempts to build a legal framework for recognition and enforcement of foreign arbitral awards in the country. However, there still exist a number of shortcomings in current Vietnamese regulations on this matter. Some of the most challenging legal issues that a party may face in order to have a foreign arbitral award recognized and enforced in Vietnam are the uncertain time limits for submitting an application, the unclear burden of proof, and the limited enforcement of “interim measures” awarded by foreign arbitrators.

For example, as provided in the New York Convention, it is the party seeking non-recognition of a foreign arbitral award that bears the responsibility to provide evidence. However, as the CPC 2004 is silent on this matter, many Vietnamese courts place this burden of proof on the shoulders of the party requesting for recognition and enforcement, especially in the event that a request for refusal is filed. As a result, the losing party is likely to challenge the recognition and enforcement of the arbitral award by invoking many grounds for refusal, which would further stall the procedure for obtaining the court’s decision.

Of all these legal challenges, the ground for refusal based on “fundamental principles of Vietnamese law” proves to be the biggest hindrance for recognition and enforcement of foreign arbitral awards in Vietnam. This rule was meant to reflect Article V.2(b) of the New York Convention, which allows refusal when the recognition or enforcement of an award would be contrary to the public policy of the country. The problem is that there is no clear definition of “fundamental principles of Vietnamese law”.

Due to its ambiguous and abstract meaning, the term has been interpreted and applied arbitrarily by many Vietnamese courts. Even minor inconsistencies with regulatory provisions can be held as violations of the fundamental principles of Vietnamese law, leading to refusal of recognition and enforcement of foreign arbitral awards. For example, in Tyco v. Leighton (2003), the request for recognition and enforcement of the award was refused due to the failure of the Singaporean party to register as a “foreign contractor” in Vietnam, which was required by a Vietnamese ministerial circular. Such failure was held to constitute a violation of the fundamental principles of Vietnamese law and the benefits of the State.[2] In a more recent case Tisco v. Agc (2014), the People’s Court of Hanoi refused to recognize and enforce a foreign arbitral award because the compensation awarded by the arbitration tribunal was “inadequate”, stating neither further explanation nor reference.[3]

In practice, even when all legal requirements are complied with, the recognition and enforcement of foreign arbitral awards can still be fraught with difficulties. Over the years, the number of foreign arbitral awards submitted to the Ministry of Justice and local courts to be recognized and enforced in Vietnam has gradually increased. However, only a limited number of those requests are successful, maybe partly due to the courts’ reluctance.

According to statistics reported by the People’s Supreme Court, from 2005 to 2014, there were 52 requests for recognition and enforcement of foreign arbitral awards that were filed to competent courts in Vietnam. Almost half of them (24 out of 52) were refused.[4] One reason behind this may be the judges’ misunderstanding and inexperience in dealing with issues relating to foreign arbitral awards. There were instances where the courts even conducted an analysis of the merits of the case which had already been decided by foreign arbitrators and ruled for dismissal. All of those misapplications of the law, together with the lengthy procedures applied by the courts, greatly contribute to the high unpredictability and uncertainty of the recognition and enforcement of foreign arbitral awards in Vietnam. Thus, this may discourage foreign companies from investing and trading with Vietnamese partners.

Being aware of this problem, strong efforts are being made in order to improve the consistency and efficiency of Vietnamese courts in handling requests for recognition and enforcement of foreign arbitral awards. A positive trend in the practice of Vietnamese courts can be seen in recent years. An increasing number of requests for recognition and enforcement have been granted, such as the case at hand. While the award was only recognized and enforced after nearly two years, this is still an acceptable speed for procedure in Vietnam. In principle, the award will have the same legal effect as any other judgment made by the Vietnamese courts as a result of being recognized. It should be enforceable with immediate effect in accordance with the procedure for enforcing civil judgments in Vietnam.

In a bid to create a more transparent and efficient legal framework for recognition and enforcement of foreign arbitral awards in Vietnam, new regulations are being incorporated by way of recently promulgated legal instruments. Notably, the current CPC 2004 will be replaced by the Vietnam Civil Procedural Code 2015 (“CPC 2015”), which will come into force on 1 July 2016. During the drafting process of the CPC 2015, many changes on the recognition and enforcement of foreign arbitral awards were called for; and a large proportion of those advices and recommendations came from foreign lawyers and investors who have experienced difficulties in having foreign arbitral awards recognized and enforced in Vietnam.

In the new CPC 2015, the procedure for recognition and enforcement of foreign arbitral awards is separated from the procedure concerning foreign judgments. The statutory time limit for application of such a request is now clearly provided in the CPC 2015 to be three years. The procedure for consideration is reasonably adjusted with the aim of shortening lengthy and ineffective procedures. One more alteration made, in accordance with the regulations of the New York Convention, is to shift the burden of proof onto the party challenging the recognition and enforcement.

Even though the “fundamental principles of Vietnamese law” is still stipulated as a ground for refusal in the CPC 2015, the People’s Supreme Court has taken a more restrictive approach. Article 14(2)(dd) of the Resolution n^o 01/2014/NQ-HDTP on interpretation of some provisions of the Vietnam Law on Arbitration 2010 (“LCA”) defines “fundamental principles of Vietnamese law” as the “basic and prevailing principles for the development and implementation of Vietnamese law” and violations of such principles have to “seriously jeopardize the interests of the State, legitimate rights and interests of the party(ies) or third party(ies)”. This definition is arguably applies to the CPC 2015, as the terms used in the LCA and the CPC 2015 are entirely the same. The efforts to clarify and limit the scope of “fundamental principles of Vietnamese law” should be appreciated. Nevertheless, the definition is far from perfect as it is still too abstract. Further attempts shall be made to improve the certainty and efficiency of the recognition and enforcement of foreign arbitral awards in Vietnam.

This article may be cited as follows: Nguyen The Duc Tam and Nguyen Thi Thuy Linh, “Vietnam Case Update: Recognition and Enforcement of Foreign Arbitral Awards (Realogy Group LLC v. Minh Viet Investment JSC)” International Arbitration Asia (1 April 2016) <http://www.internationalarbitrationasia.com/vietnam_recognition_and_enforcement_of_foreign_arbitral_awards.