Thuong Kon Tum Hydropower Project is one of the key national projects, invested by Vinh Son - Song Hinh Hydropower Joint Stock Company (“VSH”). This project was started in 2009 and designed to be built on the Dak Nghe River (the main upstream branch of the Se San River) with an expectation of installed capacity of 220 MW and an estimated annual electricity output of 1,094 billion kW. Among the contractors implementing this project, there is a consortium of Chinese contractors, including the PowerChina HuaDong Engineering Corporation and China Railway 18th Bureau Group Company Ltd (“Chinese Contractors Consortium”). In 2010, VSH and the Chinese Contractors Consortium entered into a contractual agreement to undertake activities pertaining to the energy sector of the Upper Kon Tum Hydropower project. However, the Contractor elected to temporarily suspend the project’s execution, citing the investor’s alleged failure to meet its payment obligations. Conversely, VSH contends that the contractor has materially breached the terms of the agreement by causing significant delays in the construction process. On 23rd August 2014, the Chinese contractor consortium submitted a request of arbitration against VSH to the Vietnam International Arbitration Center (“VIAC”) due to the VSH’s contract termination. In the Final Award dated 10th April 2019, VIAC ordered VSH to pay and compensate the Chinese Contractors Consortium an amount of VND 2,163 billion. On 14th November 2019, the People’s Court of Hanoi issued Decision No. 11/2019/QD-PQTT on completely annulling the Arbitration Award dated 10th April 2019 of the Arbitration Case No. 24/14. In 2022, the Chinese Contractors Consortium, as an investor, filed a lawsuit against the Socialist Republic of Vietnam at the International Investment Dispute Resolution Center (“ICSID”) based on the ASEAN-China Investment Agreement 2009 to request compensation due to the Vietnamese Court’s act of expropriation. Currently, the case is still in the process of being resolved.
Below are some comments related to the grounds for setting aside an arbitral award based on the aforementioned case under the Vietnamese Law on Commercial Arbitration 2010 and the assessment of the claims made by the consortium of contractors in the dispute brought to the international investment dispute settlement.
During the hearing on the application to set aside the arbitral award, the Requesting Party argued that “[...] concerning the place of arbitration under the Arbitral Award Case No. 24/14, it did not ensure objectivity, and the Arbitral Tribunal failed to demonstrate the actual legal risks faced by the two arbitrators from Singapore and Japan when conducting their expertise in Vietnam. The change of place for the hearing, not in Hanoi, Vietnam, constitutes a violation of the agreement between the two parties in the dispute as recorded in the Procedural Award dated 15th May 2015; contrary to the fundamental principles of Vietnamese law; and in violation of Article 11 of the Law on Commercial Arbitration 2010.”
Pursuant to Article 11 of the Law on Commercial Arbitration 2010, the place of arbitration is divided into two categories based on the agreement of the disputing parties: (i) In cases where the parties have not agreed on the place of dispute resolution, the Arbitral Tribunal has the authority to determine the place within or outside the territory of Vietnam; (ii) Unless otherwise agreed by the parties, the Arbitral Tribunal may conduct hearings at a location it deems appropriate. The choice of the place of dispute resolution is the right of the parties, however, if the parties waive this right, the decision of the Arbitral Tribunal on the place of arbitration under case (i) is non-contestable. As for case (ii), the issue at hand is whether the decision of the Arbitration Council on the place of dispute resolution deemed “appropriate” applies to cases where the parties have reached a clear agreement on the place of dispute resolution, and whether an explanation for this appropriateness is necessary.
In regard to this issue, it is necessary to overturn the principle of respecting the agreements of the Parties as prescribed in Article 4(1) of the Law on Commercial Arbitration 2010. Accordingly, similar to the principle of Party Autonomy in international commercial arbitration, the Arbitral Tribunal must ensure that the parties’ agreement is given priority (including the agreement on the place of arbitration). More significantly, if the Arbitration Council deems a different place of arbitration as “appropriate”, implicit requirements are set forth in Article 11 of the Law on Commercial Arbitration 2010, which mandate the Arbitral Tribunal to demonstrate the benefits of such appropriateness. Another aspect to consider is whether the parties’ absence of objection to the decision of the Arbitration Council on a different place of arbitration from the initial agreement can be deemed as accepting the new place of dispute resolution and falling under the category of “no other agreement”. Considering that, in the above case, whether during the process of resolving the dispute, the Parties objected or not, the fact that the Arbitral Tribunal has not proven the appropriateness in choosing the place of hearings is not in accordance with laws. From there, it is reasonable for the Court to accept the request to annul the arbitration award.
In practice, the annulment of an arbitral award by a national court based on domestic law is not an uncommon occurrence. Many countries allow for the annulment of an arbitral award if it goes against their public policy (e.g., Singapore, France, Germany, USA, etc.). In the case of Vietnam, it is considered an act “contrary to the fundamental principles of Vietnamese law”. By agreeing to apply Vietnamese law to resolve the dispute, the parties simultaneously accept the risk that the arbitral award may be annulled. The annulment of an arbitral award does not automatically imply the expropriation of the investor’s assets in that country. Expropriation of the assets of foreign investors refers to the state’s seizure of the investor’s property or property rights.
Firstly, considering the nature of the state’s nationalization of an investor’s assets, this activity requires direct or indirect intervention by the competent authority to divest the assets. In essence, the Vietnamese judicial authorities only review the procedural aspects of the arbitration proceedings without interfering with the substance of the dispute, and they do not make any decisions that involve the expropriation of the investor’s property or property rights within the territory of Vietnam. Therefore, it cannot be asserted that the annulment of an arbitral award constitutes a measure of expropriating the investor’s assets.
Secondly, considering the dispute resolution activities of the court, the Vietnamese court has complied with the legal provisions in examining the annulment of the arbitral award. In accordance with the provisions of Article 71(8) of the Law on Commercial Arbitration 2010, after the annulment of the arbitral award, the disputing parties may agree to refer the case to arbitration again or one party may file a lawsuit before the People’s Court for adjudication. Therefore, the parties always have the right for the dispute resolution authority to re-examine the case, and the consortium of contractors has a legitimate chance of winning the case, obtaining restitution of assets and damages in a lawful manner.
In general, during the process of resolving disputes through arbitration, the Arbitral Tribunal needs to exercise caution in examining the parties’ agreement and have sufficient grounds for each decision related to procedural matters. It is also important to emphasize that the court’s activities in examining the annulment of the arbitral award are necessary and should not be considered as a basis for initiating disputes in international investment cases related to the nationalization of an investor’s assets.
For further information on this topic please contact Net Le at LNT & Partners by telephone (+84 28 3821 2357) or email (net.le@lntpartners.com). The LNT & Partners website can be accessed at www.lntpartners.com.
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