Filing a lawsuit against an arbitrator/commercial arbitration center – is it possible?

In this article, our Managing Partner Nguyen Van Phuc and Lawyer Nguyen Nhat Duong will analysis to cases settled by institutional arbitration, i.e. the establishment of an arbitral tribunal through an arbitration center. The article was published in People's Count Journal, published on February 29, 2024. Below is the English version:

At present, commercial arbitration is one of the more popular methods of dispute resolution besides the court. The results of commercial arbitration are expressed in the arbitration award. This award is final and binding, the disputing parties have no right to appeal, but can only apply to the competent court to annul the arbitration award. In fact, there are many cases in which an arbitration award is annulled due to an error made by the arbitral tribunal or the arbitration center during the proceedings, with the result that the dispute must be settled again in arbitration (if the disputing parties have agreed to do so) or can only be settled in court. Obviously, the annulment of an arbitral award may result in one or more of the disputing parties being liable for the costs or damages incurred. The question is, if an arbitral award is annulled due to an error of the arbitral tribunal or the arbitration center, can the disputing parties file a lawsuit to claim damages?

In this article, the author intends to limit the scope of analysis to cases settled by institutional arbitration, i.e. the establishment of an arbitral tribunal through an arbitration center.

1.  Which subjects can be challenged?

Source: People's Count Journal

In order to consider which subjects can be appealed against when an arbitral award is annulled, it is necessary to identify which subject is the fault/violation of the law that led to the annulment.

On June 7, 2022, the Ho Chi Minh City People's Court issued Decision No. 786/2022/QD-PQTT on the annulment of Arbitration Award No. 16/21 HCM of the Arbitration Council of Arbitration Center V dated January 7, 2022. This dispute arose between Company C and Company F. Accordingly, in 2020, Company C and Company F signed consulting and appraisal engagement letters related to Company C's consulting and appraisal of Company F's projects. The parties then had a dispute over the amount of money that Company F had to pay to Company C. The dispute was submitted to Arbitration Center V for resolution, and the Arbitration Council of that center accepted Company C's claim. Company F disagreed with the award and filed a lawsuit with the Ho Chi Minh City People's Court to annul the award. The reasons cited by the court to nullify the above award include: (i) Arbitration Center V violated the provisions of Article 12 of the Law on Commercial Arbitration 2010 by failing to deliver the procedural documents to Company F, which resulted in Company F's inability to exercise its rights and obligations as prescribed in Article 35 of the Law on Commercial Arbitration 2010, which is a case of serious violation of the procedures of arbitration as prescribed in Point b Clause 2 Article 68 of the Law on Commercial Arbitration 2010.

Regarding the first reason, according to the provisions of the Law on Commercial Arbitration 2010, during the arbitration proceedings, the arbitration center will provide administrative services for the settlement of the dispute, and the arbitration fees will include the administrative fee of the arbitration center. At the same time, according to the Law on Commercial Arbitration 2010, the Arbitration Center is the party with the obligation to send the procedural documents to the disputing parties. For this reason, Arbitration Center V was found to have violated the law, and this violation was one of the reasons that led to the annulment of the arbitration award. According to the current regulations, Arbitration Center V, as well as other arbitration centers, is an organization with legal status, therefore, Arbitration Center V can be fully sued by the aggrieved party for its violation, which led to the annulment of the arbitration award.

Regarding the second reason, the court held that the Arbitration Council violated the law, in particular Article 45 of the Law on Commercial Arbitration, by failing to conduct a factual investigation to clarify the issues in dispute. However, it should be noted that in this case, the Arbitration Council consists of three arbitrators, and at the same time, according to the provisions of Article 60 of the Law on Commercial Arbitration 2010, the arbitration award and decisions of the Arbitration Council are made according to the principle of majority, and in the absence of a majority, the arbitration award and decisions of the Arbitration Council are made by the chairman of the Arbitration Council. It can be seen that the arbitration award or decisions of the Arbitration Council are issued according to the personal will of the arbitrators, the Arbitration Council is not an organization with legal status, therefore, violations of law by the Arbitration Council are actually violations of law by the arbitrators personally through the arbitration award or decisions of the Arbitration Council.  However, at present, there is no basis to show that the disputing parties can know the majority and minority opinions given by which arbitrator. Therefore, in order to secure its rights, the aggrieved party may have to file a lawsuit against all arbitrators of the Arbitration Council settling the case. The burden of proving that they are not jointly responsible lies with the arbitrators who vetoed/issued a minority opinion on the annulled award.

2. Conditions to be proved by the disputing parties?

If the disputing parties file a lawsuit against the Arbitration Center and/or the arbitrators personally, the dispute is considered to be a dispute over compensation for non-contractual damages. At that time, the disputing parties must prove the following three factors to meet the conditions for compensation, including: (i) there is an act that violates the legitimate rights and interests of the disputing parties; (ii) the damage caused is physical damage, mental damage; and (iii) there is a causal relationship between the violation and the damage. The damage caused must be the inevitable result of the act of infringement and, conversely, the act of infringement must be the cause of the damage.

Regarding the factors of violating the legitimate rights and interests of the parties involved. As analyzed in the above case, the arbitration center and the arbitrators personally violated the law. From the perspective of each disputing party, we can see that there are different types of violations. For example, from the perspective of Company F, Arbitration Center V's failure to send procedural documents to Company F resulted in Company F's inability to exercise its rights and obligations during the proceedings, which is Company F's legal right, and in this case, it has been violated. Or from Company C's point of view, although the Arbitration Council does not verify Company C's terms and conditions, which may benefit Company C in terms of the arbitration award, it does not mean that the legitimate right and interests of Company C are not violated. The right to a lawful trial may also be a right infringed upon by Company C because it is clear that the award was annulled due to violations of law by the Arbitration Council, which caused the dispute to be prolonged and directly affected Company C's interests.

Regarding the damage factor, the author only mentions physical damage in the context of this article. According to the current regulations, physical damage is the actual physical loss determined by the subject of the infringement, including irreparable loss of property; reasonable expenses for preventing, mitigating or restoring the damage; actual loss or reduction of income due to the infringement of other legitimate rights and interests. It can be seen that if the disputing parties can prove that they have suffered actual damages as mentioned above, they can claim compensation for such damages. However, whether or not the damage is compensable also depends on the causal relationship between the infringement and the damage. Therefore, it may not be possible to award all of the damages claimed by the disputing parties.

A very important factor that the disputing parties must prove is the causal relationship between the infringement and the damage. In the above case, the Arbitration Council accepted all of Company C's claims, so Company F has to pay all of the arbitration fees. This can be considered as the actual damage suffered by Company F, because if there were no violations of law by the Arbitration Center and the arbitrators personally, the arbitration award could have been very different, in which Company F may not have to bear or bear less than the actual arbitration fees it incurred. Meanwhile, from Company C's perspective, given that Company C had planned to use the money collected from the dispute settlement with Company F, however, because the arbitration award was annulled, which leads to the delay in recovering this money, resulting in affecting business plans and objectives that use this money. Company C may seek compensation for actual damages lost in this case. However, this type of damages may be difficult to prove and accept by a court because even after the award is enforced (in case it is not annulled), the recovery of the disputed amount will also depend on the enforcement of the judgment.

Unlike the rules of the Singapore International Arbitration Centre (SIAC)[1] or the arbitration of the International Chamber of Commerce (ICC)[2], where these rules all contain contents exempting the arbitration centre and/or arbitrators involved in the settlement of the dispute from liability. At present, the Vietnamese law and the rules of procedure of the arbitration center in Vietnam do not mention this content. Therefore, in general, the disputing parties can still file a lawsuit against the arbitration center and/or arbitrators personally if the arbitration award is annulled, provided that the above factors must be proven.