This decision concerns a dispute arising between a Vietnamese company and a foreign company over breach of a sales contract between two parties. After the issuance of an arbitral award in favor of the foreign company, the Vietnamese company requested the Vietnamese court to set aside the arbitral award, but the court refused such request on the ground that the Vietnamese company had lost its right to object and subsequently upheld the arbitral award.
The Claimant, Blue Steel Industries, (“Blue Steel Industries”) is a foreign company. The Respondent, Dai Thien Loc, (“Dai Thien Loc”) is one of the largest steel products manufacturers and traders in Vietnam (collectively known as the “Parties”).
In March 2013, Blue Steel Industries entered into a contract (“the Contract”) to purchase 6,400 tons of steel sheet and aluminum – zinc alloy – coasted rolls from Dai Thien Loc at the price of US $5,689,750 (the “Goods”). Under and pursuant to the Contract, the deposit was for the amount of US $568,975 and Dai Thien Loc was to send the final shipment no later than the end of May 2013 (the “Deadline”).
On 23 May 2013, Dai Thien Loc delivered goods equivalent to one-third of the Contract’s total value, and subsequently failed to deliver the remaining amount of the Goods by the Deadline.
In response to Dai Thien Loc’s breach of the essential terms of the Contract, Blue Steel Industries then brought the matter before the Vietnam International Arbitration Centre (“VIAC”).
The VIAC issued an award in favor of Blue Steel Industries and held that Dai Thien Loc was liable for part of the deposit, the interest and a part of the arbitration fee which amounted to US $340,844 in total (the “Arbitral Award”).
In late 2015, Dai Thien Loc then filed a petition to the People’s Court of Ho Chi Minh City (“Court”) for the setting aside of the Arbitral Award on the ground that the arbitral proceedings were inconsistent with the agreement of the Parties.
II. THE COURT’S DECISION
The key issue considered by the People’s Court of Ho Chi Minh City was whether Dai Thien Loc could rely on such inconsistency (if any) to set aside the Arbitral Award.
In December 2015, the Court issued the Decision no 1128/2015/QD-PQTT (the “Decision”) striking down Dai Thien Loc’s petition on the ground that Dai Thien Loc had waived its right to object. In doing so, the Court considered the proceedings of a meeting dated 21 March 2015 in which the parties had signed an agreement to fully consent to all procedural matters relating to the arbitral proceedings (the “Agreement”).
This Decision embodies a recent trend in which the Vietnamese courts take a strong stance against setting aside application. Among other issues, the Decision is notable regarding the issue of “waiver of right to object” under Vietnamese law.
The Vietnam Ordinance on Commercial Arbitration 2003 (“OCA”) does not set out any rules on the principle of “waiver of right to object”. This shortcoming of the OCA stemmed from the fledgling legislators in Vietnam at that time when commercial arbitration was still a new concept. This inadequacy of the OCA gave the losing party chances to abuse its right to object an unfavorable arbitral award.
The Vietnam Law on Commercial Arbitration 2010 (“LCA”) marks the very first time the concept of a “waiver of the right to object” was recognized in Vietnamese legislation. Article 13 of the LCA provides that if a party continues to conduct arbitral proceedings despite having knowledge of a violation of the LCA or of the arbitration agreement between the parties, this party is deemed to have waived its right to object to such a violation before the tribunal or the courts.
Whilst an arbitral award cannot be appealed per se, the LCA entitles the parties to challenge an unfavorable award by lodging a petition to the competent court if one of the grounds set out under Article 68(2) of the LCA is met. Notwithstanding Article 68(2) of the LCA, Article 13 of the LCA states that the challenging party cannot rely on a violation of the LCA or of the arbitration agreement between the parties as a ground to set aside the arbitral award if it did not object to such a violation within the prescribed time limit:-
“Article 13: Loss of right [to] object
If a party discovers a breach of the provision of this Law or of the arbitration agreement but continues to conduct the arbitration proceedings and does not object to such breach within the time-limit stipulated in this Law, [such party] shall lose the right to object at the arbitration or before the court.“
However, this provision does not clarify either the time limit or the legal consequences flowing from when a party loses its “right to object”. These matters are ultimately provided in Article 6 of the Resolution no 01/2014/NQ-HDTP (“the Resolution”) issued by the Council of Judges of the Supreme People’s Court. Accordingly, the time limit to object is determined in accordance with the LCA; and in cases where the LCA does not specify such time limit, it is determined by parties’ agreement or the applicable arbitration rule. In the absence of such agreement and rule, the time limit shall be deemed as before the issuance of the arbitral award. Nevertheless, the above-mentioned time limit does not apply if the arbitral award violates fundamental principles of Vietnamese law.
Regarding the burden of proof, according to this Article 6 of the Resolution, the courts shall hold the responsibility for collecting and investigating relevant documents, evidence and arbitration rules to determine whether the challenging party has lost its right to object or not. Nonetheless, in the light of Article 68(3) and Article 69(1) the LCA, the challenging party actually bears the burden to prove the grounds for setting aside the arbitral award as well as its right to object. There seems to be an inconsistency in regulating the burden of proof between the LCA and the Resolution; hence, further commentary and guidance from competent authorities are necessary to overcome this confusion when implementing such regulations.
The case at hand may offer a practical perspective to the matter. Dai Thien Loc, during the arbitral proceedings, did not have any objections to the arbitration procedures. It even signed an agreement to fully consent to all procedural matters relating to the arbitral proceedings. Only after the VIAC issued the Arbitral Award against it, did it commence proceedings to set aside the said Arbitral Award. Based on these facts, the Court eventually rejected Dai Thien Loc’s petition. By doing so, the Court seems to affirm the principle that an arbitral award will not be set aside if the requesting party has continued the arbitral proceedings without any objection being made before the time limit. The Court Decision is made in accordance with regulations promulgated under Article 13 of the LCA and Article 6 of the Resolution, showing the recent willingness of the Vietnamese courts to avoid arbitrarily setting aside domestic arbitral awards.
In conclusion, the concept of “waiver of right to object” has been incorporated into Vietnamese law under Article 13 of the LCA, which this Court Decision serves as a fine example. Parties should take careful notice of Article 13 of the LCA and the Resolution, so as to ensure that any rights they have in this regard are not inadvertently waived. This regulation and practice are now in line with Article 4 of the UNCITRAL Model Law on International Commercial Arbitration and show a positive step of Vietnamese law toward international standards.
This article may be cited as follows: Nguyen The Duc Tam and Tran Huong Giang, “Vietnam Case Update: Waiver of Right to Raise Jurisdiction Objections (Blue Steel Industries v Dai Thien Loc (2016))”International Arbitration Asia (4 July 2016) <www.internationlarbitrationasia.com/vietnam_waiver_of_right_to_raise_objections>.