ISSUES ON COMMERCIAL ARBITRATION REFLECTED IN DECISION NO. 1062/2022/QĐ-PQTT DATED 14 JULY 2022 OF THE HO CHI MINH CITY PEOPLE'S COURT

An Arbitral Tribunal of Arbitration Center Y resolved a dispute arising from Investment Cooperation Contract No. 06/06/2019 dated 6 June 2019 between the Claimant, T Trading, Service, Tourism, Advertising and Hotel Co., Ltd. (“Company T”), and the Respondent, P Real Estate Joint Stock Company (“Company P”).

Subsequently, Company T filed an application with the competent court seeking the annulment of the arbitral award on the grounds that the Arbitral Tribunal violated arbitral procedure by adjudicating the Claimant’s claims despite the Claimant’s absence from the hearing and that the arbitral award was contrary to the fundamental principles of Vietnamese law, specifically as follows.

First, the Claimant argued that the Arbitral Tribunal violated arbitral procedure by continuing to examine and decide the Claimant’s claims despite the Claimant’s absence at the hearing. According to the Claimant, pursuant to Clause 1 Article 56 of the 2010 Law on Commercial Arbitration (“LCA 2010”), Clause 1 Article 32, and Point c Clause 1 Article 29 of the Arbitration Rules of Arbitration Center Y, the Claimant should have been deemed to have withdrawn its statement of claim, and the Arbitral Tribunal should therefore have terminated the proceedings.

Second, the Claimant contended that Investment Cooperation Contract No. 06/06/2019 dated 6 June 2019 was void because it violated mandatory provisions of law. Specifically, the land use rights contributed as capital still belonged to Mr. Lê TT and the corresponding financial obligations had not been fulfilled at the time the contract was executed, contrary to Clause 1 Article 168 of the 2013 Land Law (as amended in 2018). Pursuant to Article 123 of the 2015 Civil Code, a civil transaction that violates a statutory prohibition is void. Accordingly, the Claimant asserted that the Arbitral Tribunal’s recognition of the validity of the investment cooperation contract and its order requiring the Claimant to make payment to the Respondent contravened the fundamental principles of Vietnamese law.

The Panel reviewing the application of the Ho Chi Minh City People’s Court (the “Reviewing Panel”) found as follows.

 First, with respect to the request to annul the arbitral award on the ground that the Arbitral Tribunal improperly adjudicated the Claimant’s claims despite the Claimant’s absence from the hearing, the Reviewing Panel noted that Clause 1 Article 56 of the 2010 Law on Commercial Arbitration and Clause 1 Article 32 of the Arbitration Rules of Arbitration Center Y provide:

“Where the claimant, having been duly summoned to attend the hearing, is absent without legitimate reason or leaves the hearing without the consent of the Arbitral Tribunal, the claimant shall be deemed to have withdrawn its statement of claim. In such case, the Arbitral Tribunal shall continue the proceedings only if the respondent has submitted a request or a counterclaim.”

Furthermore, Point c Clause 1 Article 29 of the Arbitration Rules of Arbitration Center Y stipulates that where: “The claimant withdraws its statement of claim or is deemed to have withdrawn its statement of claim pursuant to Clause 1 Article 32 of these Rules...” the Arbitral Tribunal must terminate the arbitral proceedings.

Accordingly, under the above provisions, the Arbitral Tribunal should have terminated the proceedings with respect to the Claimant’s claims. However, the arbitral award rendered by the Arbitral Tribunal of Arbitration Center Y nevertheless ruled that: (i) the request to declare Investment Cooperation Contract No. 06/06/2019 wholly invalid was dismissed; and (ii) the request for Company P to refund VND 40,000,000,000 was rejected. The Reviewing Panel held that these determinations were inconsistent with the 2010 Law on Commercial Arbitration and the Arbitration Rules of Arbitration Center Y.

Second, regarding the Claimant’s argument that the arbitral award was contrary to the fundamental principles of Vietnamese law, the Reviewing Panel found that at the time the contract was executed on 6 June 2019, the land use rights contributed by Company T as capital in fact still belonged to Mr. Lê TT, who had not yet fulfilled the required financial obligations. Under Clause 1 Article 168 of the 2013 Land Law (as amended in 2018), a land user may only exercise the right to contribute land use rights as capital after fully satisfying all financial obligations. Consequently, the capital contribution in this case violated a mandatory legal prohibition.

Pursuant to Article 123 of the 2015 Civil Code, a civil transaction whose purpose or content violates a statutory prohibition is void. Therefore, Investment Cooperation Contract No. 06/06/2019 had no legal effect. On this basis, the Reviewing Panel concluded that there were sufficient grounds to grant the application for annulment of the arbitral award.

Based on the foregoing considerations, the Reviewing Panel held that the arbitral award rendered by the Arbitral Tribunal of Arbitration Center Y violated arbitral procedural rules and was contrary to the fundamental principles of Vietnamese law, thereby falling within the grounds for annulment prescribed in Point đ Clause 2 Article 68 of the 2010 Law on Commercial Arbitration.

Accordingly, in light of the applicable legal provisions and the factual circumstances of the dispute, the Reviewing Panel concluded that the request to annul the arbitral award was well-founded and should be granted.

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