What should enterprises do when an arbitration award is annulled?

Commercial arbitration is a widely recognized dispute resolution method, valued for its efficiency, confidentiality, and finality. However, in some cases, the arbitration award may be annulled in accordance with Article 68 of the Law on Commercial Arbitration 2010. When this occurs, enterprises need to clearly understand the subsequent steps to take to protect their legitimate rights. This article will delve into the process and outline the actions that enterprises should take when dealing with the annulment of an arbitration award.

Source: VIAC

Cases of arbitration award being annulled

According to the Law on Commercial Arbitration 2010, an arbitration award is the decision of the Arbitration Council to resolve the entire content of the dispute and terminate the Arbitration proceedings. The arbitration award is final, meaning that it cannot be reviewed through the appeal or review procedure like a Court judgment. However, the arbitration award can be annulled in certain cases, if there is a violation of the content or procedure during the dispute resolution process. Currently, the cases of annulling the arbitration award have been specifically regulated in Article 68 of the Law on Commercial Arbitration 2010, including:

1. There is no Arbitration agreement, or the Arbitration agreement is invalid;
2. The composition of the Arbitration Council or the Arbitration proceedings are inconsistent with the agreement of the parties or contrary to the provisions of this Law;
3. The dispute is not within the jurisdiction of the Arbitration Council; in case the Arbitration Award contains content that is not within the jurisdiction of the Arbitration Council, that content shall be annulled;
4. The evidence provided by the parties on which the Arbitration Council bases its decision is forged; the Arbitrator receives money, property or other material benefits from a disputing party, affecting the objectivity and fairness of the Arbitration;
5. The Arbitration Award is contrary to the fundamental principles of Vietnamese law.

It can be seen that there are many reasons why an arbitration award can be annulled by the Court. In fact, there have been many arbitration awards that have been annulled and left many conflicting opinions, for example, the arbitration award in dispute case No. 79/21 dated December 16, 2022 of the Vietnam International Arbitration Center (VIAC) between AO Water Joint Stock Company, Mr. Do Tat T and WP LTD[1]. This award was annulled by the Hanoi People's Court under Decision No. 12/2023/QD-PQTT dated July 4, 2023, on multiple grounds. One of the reasons cited by the court was that the award violated fundamental principles of Vietnamese law—specifically, the claimant’s submitted documents were not duly legalized, the arbitral tribunal failed to seek expert opinions, and the tribunal did not ensure impartiality in adjudicating the dispute. Notably, the annulment of arbitral awards remains a frequent occurrence and has shown an increasing trend over the years. Recent statistics from the Ho Chi Minh City People's Court indicate that the annulment rate for arbitral awards by this court was 11.6% in 2022 and rose to 20% in 2023[2]. This trend raises significant concerns for businesses considering arbitration as a dispute resolution mechanism.

Practical experience and statistical data demonstrate that an arbitral award, once issued, still faces substantial risks of being annulled by the court. Therefore, businesses should always anticipate potential adverse scenarios and develop appropriate contingency plans accordingly.

What should enterprises do after an arbitration award is annulled?

Identify the reasons for the annulment of an Arbitration Award

One of the first things that an enterprise needs to do immediately after the arbitration award is annulled is to determine the exact reason for the annulment. The enterprise needs to study the Court's Decision on the annulment of the Arbitration Award to know this reason. Although currently, according to the provisions of Clause 10, Article 71 of the Law on Commercial Arbitration 2010, the Court's decision is final and enforceable, however, the enterprise also needs to clearly understand the reason for the annulment of the arbitration award to take note for the next litigation (if any) and for other disputes in which the enterprise is or will be a party.

Exploring reconciliation options

According to current regulations[3], in case the Council considers a request to issue a decision to annul the arbitration award, the parties can agree to bring the dispute to Arbitration or one party has the right to file a lawsuit in Court. However, this is certainly not what enterprises want, especially those enterprises with goodwill who want the dispute to be resolved amicably as soon as possible. Restarting a litigation proceeding may require significant time, resources, and financial investment from enterprises, affecting their business operations.

Furthermore, continuing a new cycle of litigation may make the relationship between the parties almost impossible to salvage. Mediation at this stage, if successfully carried out, can maintain or restore a business relationship, which is very important in the current period of promoting economic cooperation and development.

Another reason why enterprises should consider conducting negotiations and conciliation at this stage is the uncertainty about the outcome of the dispute resolution process if the enterprise continues to bring the dispute to Court or Arbitration. There will be no guarantee for the enterprise of a favorable outcome, even though this process may consume a lot of the enterprise's resources as mentioned above.

Restarting litigation proceedings

Even if the enterprise tries to negotiate a settlement, this may not achieve the desired result if the remaining parties in the dispute do not have the goodwill to do so. Therefore, re-initiating a lawsuit at Arbitration or Court is still a mandatory solution that the enterprise must propose if it wants to resolve the dispute. However, the enterprise should note that, according to the provisions of Clause 8, Article 71 of the Law on Commercial Arbitration 2010, when the Council considers the request to issue a decision to annul the Arbitration Award, the parties can re-agree to bring the dispute to Arbitration. This means that re-initiating a lawsuit at Arbitration depends on the agreement between the parties, the enterprise (a party to the dispute) is not automatically allowed to continue using the previous Arbitration agreement to re-initiate a lawsuit at Arbitration. This will also lead to difficulties for the enterprise if it wants to re-initiate a lawsuit at Arbitration, because re-agreement between the parties at this time is not easy. At that time, the enterprise is forced to file a lawsuit in Court.

When re-initiating a lawsuit, whether it is conducted at Arbitration or Court, enterprises still need to pay attention to the reasons that the Court used to annul the previous arbitration award. This helps enterprises avoid making these mistakes or proactively request the dispute resolution agency to comply with the regulations on procedures/content during the dispute resolution process.

Key considerations for potential future disputes

In addition to the notes when the arbitration award has been annulled, for potential future disputes, enterprises also need to have appropriate and effective litigation strategies and solutions to avoid the unfortunate case of arbitration award being annulled.

Firstly, enterprises need to consider very carefully the choice of Arbitration to resolve disputes. In addition to the obvious advantages such as speed, confidentiality, and transparency, dispute resolution by Arbitration has the limitation that the Arbitration cannot be enforced immediately, but most of them have to go through the procedure of annulling the Arbitration. At this time, if the Arbitration is annulled and according to the process we mentioned above, if the dispute wants to be resolved completely, from a certain perspective, it needs to be resolved in Court. Therefore, choosing Arbitration as the dispute resolution agency is inadvertently not the optimal solution. The assessment and consideration of choosing the dispute resolution agency must be carried out by the enterprise right at the time of signing the contract, because this is the time when the parties will agree on the terms of dispute resolution, including the Arbitration agreement. Enterprises need to carefully consider the history of their partners' operations and transactions, and evaluate their partners' transparency and compliance in their operations and the transactions they participate in, in order to choose an appropriate dispute resolution agency.

Second, in case the Arbitration is still chosen as the dispute resolution agency, the enterprise needs to carefully study the cases where the Arbitration agreement was annulled by the Court, thereby controlling compliance with the provisions on content and form throughout the Arbitration proceedings, avoiding the emergence of grounds for the Court to annul the Arbitration agreement.

Lessons learned from the annulment of an arbitration award are crucial in drafting precise and legally robust Arbitration agreements from the outset. This will also help enterprises be well prepared to protect their rights in all situations, especially when disputes cannot be resolved through Arbitration. Proactively learning about legal regulations and being prepared with preventive measures will help enterprises minimize risks and better protect their rights for disputes that are and may arise for the enterprises.

Read more at: Doanh nghiệp cần làm gì khi phán quyết trọng tài bị hủy?

Lawyer Nguyen Nhat Duong

HM&P Law Firm