THE EFFECT OF ARBITRATION AGREEMENTS UNDER VIETNAMESE AND SWEDISH LAW

Transcription

1 Joint Swedish-Vietnamese Master s Programme MASTER S THESIS by Phan Hoai Nam THE EFFECT OF ARBITRATION AGREEMENTS UNDER VIETNAMESE AND SWEDISH LAW Supervisors: Professor Michael Bogdan Professor Mai Hong Quy Field of study: Comparative and International Law Spring 2008

2 CONTENTS ABBREVIATIONS 1 EXECUTIVE SUMMARY 2 1 INTRODUCTION 3 2 OVERVIEW ON ARBITRATION AGREEMENTS Definition of an arbitration agreement Construction of arbitration agreement Relationship between the arbitration clause and contracts Relationship between arbitration and courts based on the arbitration agreement 12 3 REQUIREMENTS FOR VALIDITY OF ARBITRATION AGREEMENTS Requirements concerning to the parties Kinds of subjects Capacity and authority of the parties Requirements as to form of agreement in order to establish consent Material requirements 24 4 CONCLUSION 30 TABLE OF STATUTES AND OTHER LEGAL INSTRUMENTS 32 International Treaties and Conventions 32 National Legislations 32 Sweden 32 Vietnam 32 Others 32 TABLE OF CASES 33 BIBLIOGRAPHY 34 Monographs 34 Articles in Journals, Anthologies, and others 35 In English 35 In Vietnamese 35

3 Abbreviations AA(Swe): The Swedish Arbitration Act (1999:116) OCA(Vie): The Ordinance on Commercial Arbitration in Viet Nam (2003:08) CC(Vie): The Vietnamese Civil Code 2005 SCC Rules: VIAC: The Model Law The Arbitration Rules of the Arbitration Institution of the Stockholm Chamber of Commerce The Vietnam International Arbitration Center at the Vietnam Chamber of Commerce and Industry 1985 Uncitral Model law on International Commercial Arbitration, with amendments as adopted in

4 Executive Summary Resolving disputes by arbitration is becoming more and more popular because of its advantages compared to other measures such as mediation or the courts 1. However, a valid arbitration agreement is needed, if arbitration is to be the basis for resolving disputes. An arbitration agreement has the effect of excluding the jurisdiction of the court and it is also needed if a court is later to recognize and enforce arbitral awards, especially if they are decided in foreign countries. A valid arbitration agreement is an agreement which complies with the provisions of the relevant law. Its effect is based on many factors such as the parties who signed it and its form and content... According to the Vietnamese legal system, only individuals and business organizations have the right to enter into an arbitration agreement. The Swedish legal system does not impose any restrictions on this point. Similarly, the form of arbitration agreements and their contents are also treated differently by the two legal systems. Vietnamese Law by way of the Ordinance on Commercial Arbitration 2003 (hereinafter referred to as the OA(Vie)) specifies the permitted forms of agreement by way of a list in paragraph 1 of Article 9 of the OA(Vie). This method has limitations as it may not list all written forms of arbitration agreements. For example, the contracting parties could have a bill of lading, a ship leasing contract lease or a company charter as the document which contains an arbitration agreement. In this regard, the Swedish law does not make specific requirements about the form. When disputes arise, the parties must simply prove that an agreement on arbitration between the parties did exist 2. The scope of an agreement is also linked to the validity of an arbitration agreement. Swedish law allows wide scope to such agreements though it does exclude some agreements such as consumer contracts or agreements regarding the carriage of passengers or goods by sea or aviation. Meanwhile, Vietnamese law only accepts arbitration in commercial activities where the parties have so agreed. Clearly, this limits the contracting parties capacity to choose suitable measures for resolving non - commercial disputes. 1 On the advantages and disadvantages of arbitration see: Finn Madsen, Commercial Arbitration in Sweden, 3 rd edition, Oxford University Press, Oxford, 2007, pp The Swedish Arbitration Act of 1999, Five Years On: A Critical Review of Strengths and Weaknesses, p10, Editors: Jernej Sekolec and Nils Eliasson, The UNCITRAL Model Law on Arbitration and the Swedish arbitration Act: a Comparison 2

5 1 Introduction Along with the development of the market economy, the number of disputes in commercial activities is increasing. With its flexibility, resolving disputes by arbitration is being more and more relied on by enterprises. The practice in Viet Nam shows that the number of cases resolved by arbitration has increased. This demonstrates that the position of arbitration compared with other methods such as courts and ADRs (Alternative Dispute Resolution) has changed. However, in comparison with other countries, the figures are still modest 3. There are many reasons to explain this, which include imperfections in the arbitration law of Viet Nam. In general, the authority of arbitrators depends on the arbitration agreement which the parties consented to. No arbitration if no valid arbitration agreement. Unlike courts, which have jurisdiction over any disputes based on the procedural law of their country, arbitrators only have authority when the contracting parties have agreed to choose arbitrators to resolve their disputes. The law on arbitration in Viet Nam appeared later than in other countries 4. The Arbitration Ordinance of 1990 is the first document to cover arbitration. It was then replaced by the Ordinance on Commercial Arbitration 2003 (OCA(Vie)). Along with the documents guiding its implementation in legal practice, the OCA(Vie) now cover issues relating to arbitration in general and arbitration agreements in particular. However, regarding arbitration agreements, the ordinances and guiding documents still have many problems which makes the resolution of disputes in Viet Nam by arbitration present many difficulties. Because of the importance of the arbitration agreement, as well as the differences between Vietnamese arbitration law and the law of other countries, I has chosen the topic: "The Effect of arbitration agreements under Vietnamese and Swedish law for my master s thesis. The thesis is divided into four parts as follows: Part 1: Introduction- generally introduces the thesis and its purpose, method and delimitation; Part 2: Overview on arbitration agreements comparing and analyzing Vietnamese and Swedish law on the definition and structure 3 According to VIAC resolved 22 cases in 2005, 23 cases in

6 of arbitration agreements, the relationship between an arbitration agreement and the contract and between arbitration and courts, Part 3: Requirements for the validity of arbitration agreements comparing and analyzing the requirements regarding parties, form and content of arbitration agreements in Vietnam and Sweden. Part 4: Conclusion - some conclusions and proposals are made by way of a summary. Methods The methods used in this thesis combine law and economics with the descriptive method, the comparative legal method and the analytical method. In addition, to strengthen the argument on the effectiveness, as well as the restrictions in the law on arbitration agreements in both Viet Nam and Sweden, I have also used case law analysis. Delimitation My thesis focuses on studying and analyzing legal issues relating to the validity of arbitration agreements in the Vietnamese legal system. In addition, I also compared this legal framework with the Swedish one for the purpose of suggesting improvements to the Vietnamese law on the issue. 4

7 2 Overview on arbitration agreements 2.1 Definition of an arbitration agreement According to Article 2 (2) of the Ordinance on Commercial Arbitration the Republic of Socialist Viet Nam in 2003 provided: Arbitration agreement means an agreement between the parties to commit to use arbitration to resolve disputes which may arise or which have arisen from commercial activities. Specifically, the arbitration agreement is the basis for granting authority to arbitrators regarding a specific dispute relating to commercial activities. These activities are carried out by business individuals or organizations. Commercial activities means the performance of one or many trading acts by business people or organizations, including goods purchase and sale, service provision; distribution; trade representation and agency; consignment; renting and lease; hire purchase; construction; consultancy; technology; licensing; investment; financing; banking; insurance; exploration and exploitation; transport of goods and passengers by air, sea, rail, land, and other commercial acts as prescribed by law 5 Not all business individuals or organizations have the right to decide that their disputes will be solved by arbitration. However, even when they have the right to chose arbitration, if the disputes are not regarding commercial activities, such arbitration agreements will not be recognized. This is an important matter for enterprises (including enterprises established under the Enterprise Law, the Law on Foreign Investment, the Law on State enterprises and the Law on Cooperatives ) as they need to know when to sign arbitration agreements. The AA(Swe) does not contain any actual definition of an arbitration agreement. However, a definition is implied in section 1 of the Arbitration Act, which deals with arbitrability: Disputes concerning matters in respect of which the parties may reach a settlement may, by agreement, be referred to one or several arbitrators for resolution. Such an agreement may relate to future disputes pertaining to a legal relationship specified in the agreement. Unlike the position in Vietnamese law, the AA(Swe) does not apply to commercial disputes only. Consumer disputes also come under the Act, but 5 Article 2(3) of OCA(Vie) 5

8 Section 6 states that an arbitration agreement referring to future consumer disputes is not valid 6. And it also does not expressly state that non-contractual disputes can be the subject of an arbitration agreement. However, it is clear that such disputes can be arbitrated under the AA(Swe). (See conditions for the effect of arbitration agreements relating to the content of disputes in the section 3.3). In both Vietnam and Sweden, an arbitration agreement can be established in advance (for future disputes) or after a dispute occurs (to settle the dispute has) and their conditions of validity are similar. In the process of negotiations leading up to a contract, the contracting parties may agree to take disputes to arbitration if those disputes arise during the implementation of the contract or relate to it. In this case, the arbitration agreement can be included in the contract as an arbitration clause or can be made as an independent document. Although the contracting parties did not have an arbitration agreement in the past, after a dispute between them occurs, they may also reach an agreement to arbitrate at any time. Such agreements may be established at any time that the parties choose. In reality, once disputes have arisen, especially disputes involving foreign elements, each party would like to choose his own authorities to solve them. So, if the parties lack the goodwill needed to resolve their disputes, it will be equally difficult for them to establish an arbitration agreement then. Establishing an arbitration agreement before disputes occur is the better way and should be done if the parties intend to use arbitration to resolve disputes. In brief, although between Viet Nam and Sweden have different ways of defining the concept of arbitration agreement: a specific concept in Vietnamese Law, but one only implied in Swedish Law, the connotation of the two is similar. There is only a difference concerning the types of disputes which can be subject to arbitration. 2.2 Construction of arbitration agreement The authority of arbitrators to resolve disputes arises through an arbitration agreement which is negotiated and signed by the contracting parties and is in essence independent of the underlying contract. To be workable and effective, a long and detailed arbitration agreement is not needed. The two basic principles that any arbitration agreement needs are simple. Note that an 6 Section 6 of the AA(Swe) 6

9 arbitration agreement which is unclear or incomplete may well be contrary to the expectations of the contracting parties, who want to use arbitration to resolve their disputes. Arbitration agreements are often required to have two basic elements, namely, the identity of the arbitration organization and the arbitration proceedings rules. In addition, its scope and the types of disputes covered are also necessary terms. When establishing an arbitration agreement, the contracting parties should aim to cover all dispute types which can arise from or relating to the contract between the parties. They should avoid listing specific disputes as this could limit the authority of the arbitrators who would not have standing in disputes that were not mentioned. The agreement should refer to the number of arbitrators. If the parties want the case to be decided by any number of arbitrators other than three that should be stated in the clause. The other additions suggested by the SCC Institute refer to the place of arbitration and to the language(s) to be used in the proceedings. If not agreed upon by the parties the place of arbitration is decided by the SCC Institute and the language is decided by the arbitrators 7. The SCC Institute recommends the following wording: The Arbitral tribunal shall be composed of... arbitrators (a sole arbitrator). The place of arbitration shall be... The language to be used in the arbitral proceedings shall be... There are two types of commercial arbitration; institutional or ad hoc arbitration. Institutional arbitration is conducted under arbitration rules offered by an arbitral institution. Ad hoc arbitration is based on the applicable arbitration law in the country where the arbitration is. To avoid the uncertainty of knowing whether the parties have opted for institutional or ad hoc arbitration, the clause should be very clear by stating the national law or the given set of institutional rules, according to which the arbitral proceedings shall be conducted. Giving the name of the specific arbitration organization chosen in the arbitration agreement is also extremely important. In practice, there are many cases where the arbitration agreement has clearly stated that the contracting parties will refer their disputes to arbitration 8. However, the name of the 7 Ulf Franke, Introduction to Arbitration, speech at the Introduction to Arbitration seminar held in Stockholm on June,

10 arbitration organization is not specifically recorded which could result in arbitration being refused. Because, according to item 4, article 10 of the OCA(Vie), the arbitration agreement would be invalid: Arbitration agreements shall be invalid in the following cases, where the arbitration agreement fails to specify or specifies unclearly the disputed objects, or the arbitration institution competent to settle the dispute, and later the involved parties have no additional agreement. In such cases, Resolution 05 had specifically provided as follows: if the court bases itself on an arbitration agreement that did not record the name of any arbitration council or center in Vietnam, the court should have the authority to settle disputes, unless the parties have agreed on a new specific arbitration council in Vietnam to resolve their disputes. For example: an arbitration agreement only contains the following: In case disputes can not be solved by negotiation, the contracting parties shall refer their disputes to arbitration according to Vietnamese law. In the above example, the arbitration agreement is null and void because the parties did not agree clearly that their disputes should be resolved either by an arbitration council named by the parties or by ad hoc arbitration, or by the arbitration council of a specific arbitration center in Vietnam alone, unless the parties agree or have agreed to add the specific name of an arbitration council in Vietnam to resolve their disputes. However, Resolution 05 and even item 4, article of the OCA(Vie) are inappropriate in practice. Clearly, through the arbitration agreement, the parties intended to refer their disputes to arbitration without any court or conciliation or mediation organizations. The arbitration laws of Sweden (and of other countries) do not make any such concrete requirements about stating the name of the arbitration organization. Stating the full name of the arbitration rules is equally important. There are many cases leading to problems; VIAC has had to ask parties to determine a specific proceedings rule to use in resolving their disputes because the arbitration agreement was too unspecific: "choose rules of international arbitration". In reality, the parties may only be able to agree on this if they still retain enough goodwill to each other. If not, the arbitration agreement will be considered as invalid. 8

11 In the legal practice of Sweden, in the case No. 038/ of the SCC, the parties agreed on an arbitration agreement whose content was obscure. In the contract, the parties agreed that: All arguments and/or disagreements which arise through the Contract or because of it should be settled by negotiations between both sides. If the parties cannot come to an agreement the argument shall be settled in the Arbitration Court of the Chamber of Commerce, Stockholm, Sweden under the rules of conciliation and arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with those rules in the Contract languages. Where their disputes arise, the defendant objected to the jurisdiction of the Arbitration Institute of the Stockholm Chamber of Commerce. The Arbitration Institute considered that the parties intended to use arbitration for resolving their disputes and there was an operative arbitration agreement in existence. Pursuant to the arbitration agreement, they could determine the will of the parties as empowering arbitration to settle their disputes under the auspices of the Stockholm Chamber of Commerce. In this case, the arbitral tribunal and the parties spent close to ten months on the issue of jurisdiction, before attention could be turned to the substantive issue of the dispute. If the parties had used a model clause recommended by either one of the institutions mentioned in their contract (ICC or SCC), this could easily have been avoided. Five minutes on the internet in conjunction with the negotiation of the contract is probably all it would have taken for the parties to find out the exact wording of a relevant model clause. This would have been time well spent. We shall look at some arbitration clauses of the VIAC and the SCC Institution: The VIAC recommends that all parties wishing to make reference to VIAC arbitration in their contracts use the following model clause 10 : All disputes arising out of or in relation to this contract shall be finally settled by the Vietnam International Arbitration Centre at the Vietnam Chamber of Commerce and Industry in accordance with its Rules of Arbitration

12 Additionally, the parties may add the following provisions to the arbitration clause: The number of arbitrators shall be... (One or three); The place of the arbitration shall be As to disputes involving a foreign element, the parties may also make additions: The applicable law shall be...; The language of the arbitration shall be.... The model clause of the Arbitration Institute of the Stockholm Chamber of Commerce 11 is: Any dispute, controversy or claim arising out of or in connection with this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce. The parties are advised to make the following additions to the arbitration clause, as required: The arbitral tribunal shall be composed of... arbitrators (a sole arbitrator). The seat of arbitration shall be The language to be used in the arbitral proceedings shall be The two above model arbitration clauses content are relatively full. Through this, we can clearly determine the parties intention to use arbitration for resolving their disputes. Further, we can also identify the specific arbitration organization which has authority over disputes. However, there are cases where, after the main contract with an arbitration clause was signed, the parties entered into supplemental contracts. So, are disputes relating to the supplement contract also given to the arbitration authority to settle? It may therefore reasonable to add the following provision: " Any dispute, controversy or claim arising out of or in connection with this contract, as well as any other agreement, or the breach, termination or invalidity thereof 2.3 Relationship between the arbitration clause and contracts Article 11 of the OCA(Vie) provided: 11 lm_chamber_of_commerce_english/ 10

13 The arbitration clause exists independently from contracts. The modification, extension, cancellation or invalidity of contracts shall not affect the effect of the arbitration clause. According to the above provision, the changes of contracts shall not affect the effect of the arbitration clause in that contract, even in case that the contract is invalid. Now in Vietnam, there are some opinions that invalidity of contracts shall affect the effect of the arbitration clause and therefore the case shall be referred to the competent court. This opinion is not convincible. Because in legal practice, the Vietnamese Courts have stated that the invalidity of main contracts shall not affect the effect the arbitration clause 12. On the other hand, the arbitration also has authority to decide invalidity of contracts. Because in Vietnam, although the Civil Code 2005 provides that the court shall have authority to state that the contract is not valid but this provision does not stipulate that this power is only given to the court. For example, in a case between Dai Hung Corporation and Zest Corporation, both contracting parties have chosen VIAC to resolve their disputes. Where their disputes have arisen, Dai Hung Co. said that VIAC does not have authority to resolve their disputes because the representative of Zest Corporation did not have authority to sign the contract and so the arbitration clause is also invalid, which is similar to the contract. But the Supreme People s Court of Vietnam stated that the effect of the contract and the effect of the arbitration clause are independent 13. As to the separability of the arbitration clause from the rest of the contract in which such clause is contained, the section 3 of AA(Swe) is drafted more broadly than the Model Law (Article 16(1) of the Model Law provided that: the arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause ) and does not distinguish between the determination of the jurisdiction of the arbitral tribunal by the tribunal itself or 12 Do Van Dai, Giải quyết tranh chấp bằng phương thức trọng tài ở Việt Nam, Legal Science Journal, No. 06/ Decision 112/2006/TTPT dated June 02 nd 2006 of the Appeal Court of the Supreme People s Court of Vietnam in Hanoi. 11

14 by the courts 14. Where the jurisdiction of the arbitral tribunal is subject to determination in court, objections as to the validity of the contract in which the arbitration clause is contained have been found to be irrelevant, since the effect of a valid arbitration agreement is that the validity of the contract in which the arbitration clause is contained is to be determined by the arbitral tribunal. A court concluded that the arbitrators have jurisdiction to determine whether the contract is void ab initio, by reason of fraud, even if it is this contract which purports to confer jurisdiction on the arbitrators Relationship between arbitration and courts based on the arbitration agreement Can a valid arbitration agreement be replaced by another agreement to choose the courts and vice versa, or not? In principle, the law on arbitration of most countries allows for the replacing of an old agreement by a new one. However, there is difference between Vietnamese and Swedish law on this issue. The Swedish law clearly covers this issue in Section 5 of the AA(Swe). A party shall forfeit his right to invoke the arbitration agreement as a bar to court proceedings where the party has opposed a request for arbitration; or he failed to appoint an arbitrator in due time; or he fails, within due time, to provide his share of the requested security for compensation to the arbitrators. In such cases, the courts will have authority to resolve their dispute. Sections 4 and 49 of the AA(Swe) also provide that when disputes based on an agreement containing a valid arbitration agreement are brought into court, the court must transfer the parties to arbitration if the parties request it. The Court does not consider arbitration on its own but only on the request of the parties. Accordingly, the parties must refer to an agreement or in arbitration with version of the first on the issues of the dispute. The Vietnamese law also acknowledges this principle in Article 5 of the OCA(Vie). Accordingly, if a party petitions a court and claims that the parties had a valid arbitration agreement, the court must refuse jurisdiction. But may the parties waive the arbitration agreement by choosing to go to court? The OCA(Vie) does not specifically say. 14 Section 3 provides that: where the validity of an arbitration agreement which constitute part of another agreement must be determined in conjuntion with a determination of the jurisdiction of the arbitrators, the arbitration agreement shall be deemed to constitute a separate agreement. 15 The Swedish Arbitration Act of 1999, Five Years On: A Critical Review of Strengths and Weaknesses, p10, Editors: Jernej Sekolec and Nils Eliasson, The UNCITRAL Model Law on Arbitration and the Swedish arbitration Act: a Comparison, p

15 Article 8 of the Model Law of UNCITRAL provides that: A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. Resolution 05 of the Judges Council of the Supreme People's Court was adopted in 31 July 2003 to give guidance on a number of provisions of the OCA(Vie), which contains a way to solve this point. Accordingly, in principle, when the plaintiff sues in a court, that Court must request him to determine whether there is an arbitration agreement made before or after their disputes happened. The Court must then check and consider the documents enclosed in the petition to determine the validity of the arbitration agreement. If there are grounds for determining that the dispute was controlled by a valid arbitration agreement then, pursuant to the provisions of the procedural law, the court will return the applications of the plaintiff. In the case, the court has determined that there is a specific arbitration agreement after accepting the case, it will suspend it and return the applications, even the documents enclosed in the application for litigants. This provision is different from international practice and from some countries law, including that of Sweden. But the Resolution also provided that if, after the plaintiff sent the defendant a written notice regarding filing a requirement to request the Court to resolve their disputes or after the defendant received the Court s notice of the plaintiff s requirement, if he does not object within seven days from the date of receiving the text of the plaintiff or the notification of the Court, the Court should have authority to settle the case, even though there is a valid arbitration agreement between the parties. In this situation, it is argued that the parties have just agreed a new choice - the choice of the Court for resolving disputes and amended the old agreement, 16 that is, the arbitration agreement. Clearly, this would make article 5 of the OCA(Vie) and its section 1.1, ineffective. These terms have clearly stated that the jurisdiction of the court can not arise when there is a valid arbitration agreement. In Vietnamese 16 See point b, section 1.2 of the OCA(Vie) 13

16 legal practice, there have been many cases relating to the jurisdictional overlap of the court and arbitration based on this guidance regarding Resolution However, the guidance is not unreasonable. It has been established for the purpose of making dispute resolution quicker and restrains parties from delaying the resolution of a dispute by using the arbitration agreement in this way. For example, consider the case between Truong Sanh Co.Ltd and Mr. Kuo Chi Seng, relating to the Nha Quan Joint Venture 18. The two parties signed a joint venture contract on 01/7/2002 in which at the article 10, the two parties agreed that: Disputes between the parties involving, or arising from the contract must first be solved through negotiations and mediation. In the case where the parties can not agree with each other; those disputes will be referred to The Vietnam International Arbitration Center at the Chamber of Commerce and Industry. Its arbitral award should be the final decision that the parties have to execute ". When their disputes occurred, the plaintiff, Truong Sanh Co.Ltd, gave notice to Mr Kuo that the plaintiff would be suing him for his violations by way of a petition in the Binh Duong People s Court on August 1 st, Truong Sanh Company officially sent a petition to the above Court on August 20, However, on September 25, 2007 the defendant sent a document to the Court to request that the authority of the Court be reviewed. After the failure of further conciliation attempts, the defendant been changed his approach by requesting the Court to refer the parties to Arbitration because there was a valid arbitration agreement between the parties. Court officially answered the defendant regarding his request on November 26, The Court based its answer the point b, section 1.2 of the Resolution and refused the defendant s request. Because he did not use the right to object to the Court within 7 working days of receiving the written notice of the plaintiff, he had lost his rights to use their arbitration agreement instead of the Court. Further problems arose when the defendant in the court proceedings sent his petition to VIAC, and it was accepted. It determined that the parties disputes should be referred to arbitration based on article 5 of the OAC(Vie) and Section 1.1 of the Resolution. Meanwhile, the Binh Duong People s Court said that VIAC 17 See one of case in website of the HCMC Legal Newspaper (Vietnamese version) 18 See this case at the website 14

17 must refuse the acceptance based on point b, Section 1.2 of the Resolution as above. The establishment of provisions like Article 5 of the OAC(Vie) and section 1.1 of the Resolution will exclude circumstances, as in the above case, where the parties had had a valid arbitration agreement, but it was superseded by a new agreement (may be an agreement to choose arbitration or other agreements to select a competent court which can be expressed explicitly or implied). According to Swedish law, where the defendant, at the beginning of court proceedings, invokes the existence of an arbitration agreement and requests that the case be referred to arbitration, while the plaintiff affirms that their arbitration agreement is not valid, inoperative of incapable of being performed, the Court will consider the validity of the arbitration agreement and conclude whether it is indeed null and void, inoperative of incapable of being performed. If so, the Court will not refer the parties to arbitration and it shall settle these disputes itself. In the contrary case, the case should be referred to arbitration by the Court. The request can be made at any time from when the claimant sent his petition to the Court, to the time when the parties deliver their first document to the court to explain the content of disputes 19 (the request may be attached or in the explaining document). Because of the principle of competence competence, arbitrators also have the power to consider whether they have authority to solve the dispute, if they receive a request to determine whether they lack jurisdiction over the dispute. This decision is called a prima facie consideration 20. Thus, according to the OAC(Vie), there is a difference between Vietnamese arbitration law and international practice. Although the parties now have a new agreement, they may still be bound by the old agreement. This is contrary to the important principle that private relations are governed by freedom of choice. However, the provisions of the Resolution on this matter are not wholly reasonable. Within 7 working days of the defendant being informed that the claimant will submit his petition to the Court, he must show his rejection of the court because of the arbitration agreement. This is not appropriate. Once a dispute has arisen, the parties focus on the dispute s content and on how to negotiate without approaching the authorities. If their negotiation fails, they may then request that a specific authority solve their 19 Section 4 and Section 49 of the AA(Swe) 20 See Article 7 of the Rules of the SCC Institution 15

18 conflicts. Moreover, in practice, much will have been done through the mail, telex, and other means In such a case, seven working - days is clearly not enough. When a dispute is submitted to the court, the contracting parties must demonstrate either that recommendations have been submitted to the defendant (for the claimant) or that he has replied the recommendations to the plaintiff within 7 working days (for the defendant). This makes cases even more complex. After the above analysis, we will not stipulate all the contents of the Arbitration Draft Law. The Courts should indeed be empowered. On the other hand, we consider this period should only be applied to the defendant when he has received a notice from the court. However, is the period to answer appropriate? The Model Law (article 8) as well as the AA(Swe) (section 4 and 49) merely provide that if a dispute covered by an arbitration clause is brought before a court, the court shall refer the parties to arbitration if the arbitration agreement is invoked by the party relying on the arbitration agreement 21. The court will not consider the arbitration clause on its own motion, but only if so requested by the party. Both the Model Law and the Arbitration Act place a reasonable limit time the party s request that the matter be referred to arbitration. Although worded differently, both the Model Law and the Arbitration Act provide that the party must invoke the arbitration agreement in or with the first statement on the substance of the dispute. Under both the Model Law and the Arbitration Act, the question may arise as to what the court should do when the respondent at the beginning of court proceedings invokes the existence of an arbitration agreement and requests the case be referred to arbitration, while the claimant alleges that the arbitration agreement is null and void, inoperative or incapable of being performed (article 8 of the Model Law, and essentially the same rule in section 4 and 49 of the Arbitration Act). According to one opinion, if, in such a situation, the court engages in a full consideration of the validity of the arbitration agreement and comes to a conclusion that the agreement is indeed invalid, inoperative or incapable of being performed and as a result does not refer the parties to arbitration, the operation of the principle of competence-competence will be thwarted, since the arbitral tribunal may never have the opportunity to consider its own contested jurisdiction. It has therefore been suggested that in such a situation the court should engage only in a prima facie consideration of the controversy as to the validity of the arbitration agreement and should refer 21 page 11 (48) 16

19 the parties to arbitration, if the agreement is prima facie valid, operative and capable of being performed. The court would in any case have the ultimate opportunity to decide on the validity of the arbitration agreement either in the context of the proceedings for the setting aside or the any later enforcement of the award, or, under the Model Law, if the arbitral tribunal decides the issue of the validity of the arbitration agreement as a preliminary question, as any party may request (within thirty days of that ruling) the competent court to decide the matter, which decision is not subject to appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award (article 16(3) of the Model Law). In terms of the extent of the court s examination of the issue of validity under article 8 of the Model Law, some court decisions have indicated that the court is only to be concerned with determining whether there is prima facie evidence that the arbitration agreement existed and whether there is a dispute between the parties in the ordinary sense of the word, without investigating the merits of the claim. If the scope of the arbitration agreement is at issue, this is a matter to be determined by the arbitral tribunal, as is the question of whether a party to the legal proceedings is a party to the arbitration agreement. Only where it is clear that the dispute is outside the terms of the arbitration agreement or that a party is not a party to the arbitration agreement, should reach the court any final determination in respect of such matters on an application for a stay of proceedings; where those matters are arguable, the stay should be granted and the matters left for determination by the arbitrator. 17

20 3 Requirements for validity of arbitration agreements 3.1 Requirements concerning to the parties Kinds of subjects A country s law of arbitration expands the ability of parties to sign arbitration agreements regarding all subjects if they satisfy certain requirements, even state agencies or States. However, Vietnamese law only allows business individuals and business organizations 22 to sign such agreements. The Vietnamese Draft law on Arbitration would expand this to cover all civil subjects 23. The Thailand Arbitration Act 2002 allows a government agency to sign an agreement to refer disputes, which may arise or have arisen in a contract between them and a private party, to arbitration. The contracting parties shall be bound by such arbitration agreement. The United Kingdoms Arbitration Act and the German Arbitration Act 25 also do not contain any provisions to restrict state agencies in arbitration proceedings. This issue is also covered in the laws of the Republic of France. According to Article 2060 of the Civil Code, States or state agencies are not allowed to sign any arbitration agreement. However, according to guidance of the French Cour de Cassation, state agencies have authority to sign arbitration agreements with a domestic element 26. This regulation has been recorded clearly in Article 9 of Act No dated August 19, 1986: If the state and its entities contract with foreign companies for the purpose of projects that are of national interest to France, they may under certain conditions enter into an arbitration clause 27 Meanwhile, the Swedish law on arbitration allows all subjects, including national and state agencies to participate in arbitration proceedings. However in NJA p.821, the Swedish Supreme Court held that the principle that a sovereign state enjoys immunity, i.e., can not be called as a party before another state s courts, is recognized in Swedish law. But it is assumed that 22 The definitions of business individuals and organizations in Vietnam are determined under the Decree 88/2006/NĐ-CP of the Government to stipulate on business registration dated August 29, See article 17 of the Draft Law Do Van Dai and Mai Hong Quy, p ICCA, International Handbook on Commercial Arbitration, Kluwer, 2000, France p Cases from the Swedish Supreme Court are published in the journal Nytt Juridiskt Arkiv, Avdelning I and the abbreviation of the name of the journal is NJA. 18

21 there is a more or less far reaching exception to this. The Supreme Court further stated that in accordance with what is generally deemed applicable in comparable legal systems, there should be an assumption that immunity can be invoked only in disputes which involve acts of state in the true sense of the term, but not when a dispute concerns measures taken by a state of a commercial or otherwise private law nature. It is further generally assumed that a foreign state may be deemed to waive immunity by, e.g., entering into an arbitration agreement. It appears to be appropriate, upon entering into an arbitration agreement with an independent state, to expressly govern the issue of immunity in connection with arbitration, the enforcement of an arbitral award, as well as the relationship with associated judicial procedures, such as the appointment of an arbitrator as well as challenges and action for invalidity Capacity and authority of the parties If one of the parties who signed an arbitration agreement is incapable, that agreement is null and void. Only one party needs to be incapable However, the way of understanding this matter in Vietnam is not quite the same. According to point a, item 1 of Article 370 of the CPC(Vie) 2004, a foreign arbitral award will not be recognized and enforced in the territory of Viet Nam where: The parties to the arbitration agreement did not have the capacity to sign the agreement in accordance with the applicable law of each party. In other countries, only one party lacking capacity to sign the arbitration agreement is enough to make it invalid. In addition, we need to distinguish between cases where there is no capacity at all and no authority to sign a arbitration agreement. In Vietnam, there is an overlap between the Vietnamese Civil Code 2005, the OCA(Vie) and the Vietnamese Civil Procedure Code The Civil Code and the OCA(Vie) clearly distinguish two cases: not having capacity to sign an agreement and not having authority to sign an agreement 29. But the Civil Procedure Code only covers the case where the parties are incapable of signing an arbitration agreement. It does not mention the case where the parties do not have authority. For legal persons, the authority to sign contracts, including arbitration agreements is very important. The arbitrators or the court must determine whether the parties signing an agreement had authority (authorized or legal representation). If not, they will declare that the arbitration agreement 29 Do Van Dai and Mai Hong Quy, pp

22 is null and void under Article 10(2) of the OCA(Vie). In fact, there have been many disputes where there are arbitration agreements between the parties, but one of the parties did not have authority to sign. The parties must be referred to competent courts and any arbitral awards may also be challenged there. However, where disputes have arisen and one of the parties has requested the Court to solve them, the Court must ask the party who had authority to sign the arbitration agreement. If he or she accepts it (the acceptance must be recorded in writing), their arbitration agreement is not null and void and their case will be referred to arbitration. If not, their case will stay with the competent court 30. However, in practice, this provision is applied in a different way. For an example, see where a VIAC arbitral award was challenged by the People's Court in Hanoi by the Decision 02/2005/XQĐTT - ST dated May 11 th 2005 based on the requirements of Thu Do II Co. Ltd. The Award of the VIAC pronounced on August 31st 2005 was cancelled by the Court because Mr. Phan Ba Hung, who was considered as the person acting on behalf of the foreign company, did not have authority at the time when the contract was signed. The Court said that he was neither a legal nor an authorized representative. The foreign company later agreed to authorize Mr. Hung. The Court did not accept this because it said that this authorization was not in place at the time of signing the contract, including the arbitration agreement. This is all clearly contrary to the guidance of Resolution 05. In the private international law of most countries, a foreign party s capacity and authority are determined under the laws of the countries where he is a citizen or resident. However, the OCA(Vie) does not say this specifically, it only provides a general rule: "The signers of the arbitration agreement are not competent to sign according to the law s provisions". What country s law provisions will be applied if the dispute involves foreign elements? This is a shortcoming. Clearly, the Ordinance has omitted important provisions concerning disputes involving foreign elements, such as determining legal capacity, authority to sign the agreement arbitration, the form and content of the arbitration agreement... Unlike in Vietnam, the situation is clearly covered in Sections of AA(Swe) on international connections. They determine the choice of law to cover the authority of parties, the form and content of the arbitration agreement, applicable law... For example, where an arbitration agreement has 30 Point a of section 1.2 of the Resolution 05 20

23 an international connection, the agreement shall be governed by the law agreed upon by the parties. Where the parties have not reached such an agreement, the arbitration agreement shall be governed by the law of the country in which, by virtue of the agreement, the proceedings have taken place or shall take place 31. The issue of whether a party was authorized to enter into an arbitration agreement or was duly represented falls outside the ambit of the above provisions. Instead, these questions must be determined in accordance with the legal system to which a person has a permanent nexus through citizenship or domicile, as established in accordance with Swedish conflict of law rules. The rule accords with Article V.1(a) of the New York convention on the Recognition and Enforcement of Foreign Arbitral Awards on 10 June Requirements as to form of agreement in order to establish consent An arbitration agreement is a special agreement which is the basis for giving authority to arbitrators to resolve disputes. Although the original contract can be oral, the arbitration agreement normally cannot. Whether the arbitration agreement was established before or after the dispute occurred, the laws of most countries provide that it must be made in writing.. The purpose of this formal requirement is to ensure that the consent of the parties has been fully established. The form of an agreement has an important role and it is also the best evidence for determining that a contract has been established. If any agreement does not comply with a formal condition, it will be invalid. Vietnamese law stipulates that arbitration agreements must be made in writing. Arbitration agreements reached through mails, telegrams, telex, fax, electronic mails or other written forms clearly expressing the wills of the involved parties to settle their disputes through arbitration shall be regarded as written arbitration agreements 32. If the arbitration agreement is not made in writing, it is null and void by Article 10(5) of the OCA(Vie). On the other hand, the AA(Swe) does not make any request concerning the form of arbitration agreement. Although most arbitration agreements in Sweden are in practice made in writing, the lack of a formal requirement makes this Act more flexible in covering arbitration agreement. In practice, there are arbitration agreements which are only implied agreements between 31 Section 48 of the AA(Swe) 32 Article 9(1) of the OCA(Vie) 21

24 the contracting parties or they are expressed by electronic means; binding commercial practices are also accepted. This has increased the opportunity for the arbitrators to perform their duties where the arbitration agreement is informal. Most foreign laws however require that an arbitration agreement be in writing for it to be effective. The reason for this is that an arbitration clause, being such an important term of a contract, has to be clearly expressed. Swedish law does not have any such formal requirement, but there is precedent for saying that an arbitration agreement only comes about if it is clear that the parties have agreed on arbitration and not on any other kind of dispute resolution. This does not mean that an arbitration agreement will come about only if the parties have expressly agreed on arbitration. It should be observed, however, that there are numerous examples of parties having been bound by an arbitration agreement on the basic of the same principles as apply to other contracts, and that, apart form one specific situation, there is no express support in case law or doctrine for stricter requirements applying in order to bind parties to an arbitration agreement. The focus of the account which now follows is on Swedish law. If foreign law is to apply to the arbitration agreement, a stipulation that the agreement be in writing may result in its not becoming binding. The interpretation that formal requirements for the arbitration agreement are governed by the law of the place of arbitration (if there is no other agreement) becomes significant in the case where the award has been made in a country where there is no specific formal requirement for the arbitration agreement, such as Sweden (or a country that would enact the revised article 7 of the Model Law, which will recognize an arbitration agreement entered into orally as long as the agreement refers to a document in writing) and the enforcement of the award is sought in a country that requires an arbitration agreement to be in a document signed by the parties or in an exchange of messages (see e.g. article II of the New York Convention or current article 7 of the Model Law). If the principle that the formal requirement for the arbitration agreement is governed by the law of the place of arbitration were generally recognized, this would mean that, when an award made in Sweden is sought to be enforced in a country that has stricter formal requirements than Sweden, the law of the place of origin of the award would apply and would thereby prevent the refusal of the enforcement of the award on the ground that the arbitration agreement 22