Draft law to boost native dispute resolution

While the reality is that, in Viet Nam, the court system remains a more practical choice than arbitration for a number of reasons, including a lack of awareness and understanding of the arbitration process and uncertain enforceability of arbitration awards, Viet Nam’s WTO accession – and attendant economic liberalisation and legal reforms – will cause arbitration to be increasingly viewed as a more business-friendly and efficient option for dispute resolution. Foreign investors already look to arbitration to avoid difficulties with the local court system.

Currently, arbitration in Viet Nam covers only commercial disputes and is governed by the Ordinance on Commercial Arbitration ("the ordinance"). To foster the further development of arbitration, the Government has proposed a draft Law on Arbitration. Recently, the second draft ("the draft law") has been published for comment from experts, relevant organisations and State entities.

The Law on Arbitration is slated for consideration and passage by the National Assembly at the end of 2009. If passed, it would take effect in early 2011.

The draft law would allow arbitration to be used as a dispute resolution mechanism for all civil and labour disputes, contractual and non-contractual, and not merely commercial disputes (Exemptions would be disputes over administrative matters and individual rights).

For foreign investors, the right to resolve disputes by arbitration would also extend to contractual disputes between foreign investors and Vietnamese State agencies relating to investment activities, in accordance with the 2005 Law on Investment.

Regarding the qualifications required of arbitrators, the draft law would make a major change over the ordinance. While the ordinance required that arbitrators be Vietnamese citizens, the draft law would, for the first time, allow foreigners to act as arbitrators. This allows the disputing parties to select capable, reliable and neutral arbitrators and increase foreign investor confidence in the process.

Regarding the establishment of organisations qualified to conduct arbitration proceedings, the draft law would eliminate the requirement that such an organisation be founded by at least five professionally qualified arbitrators. Instead, it requires recommendation by a professional association. While some argue that the process be regulated simply as a business registration process, the ordinance’s rather needless requirement of a letter of introduction from the Vietnam Lawyers Association would remain in the draft law.

Consumer protection

An important new point in the draft law is a provision to protect consumers from being forced to accept binding arbitration in a pre-printed form contract provided by sellers or service providers. The draft law would give consumers the right to refuse arbitration if the consumer did not enter the contract to seek profit, although this right to refuse arbitration would only extend to domestic consumers in dispute with domestic enterprises.

A domestic consumer could only be bound to accept arbitration in the case of a dispute if the consumer has acknowledged in a separate written agreement that he/she has read and understood the arbitration agreement and agrees to be bound by that agreement.

Under the draft law, once arbitration commences, the arbitration board would be constituted with powers to issue injunctive orders during the course of dispute resolution.

This is a notable expansion of the power of the arbitrator from what was set forth in the ordinance, which required parties in arbitration proceedings to request a court to issue injunctive orders.

There is likely to be further debate over this provision before the draft law is passed, however, as there are concerns that an arbitration board might abuse this power without proper control.

Nevertheless, in addition to what is currently provided in the ordinance, the draft law would impose more responsibilities on courts to support arbitration proceedings in such processes as collecting and preserving evidence or ensuring that witnesses are present at arbitration hearings. It is not clear whether courts would be willing to accept these additional responsibilities.

In another provision likely to spur further discussion, the draft law would also abolish the role of the People’s Procuracy in arbitration proceedings, including its right to protest court decisions refuting or confirming arbitration awards.

Overall, however, the draft law represents Government efforts to promote and facilitate arbitration as an alternative dispute resolution method.