HANOI PEOPLE’S COURT REFUSES APPLICATION TO SET ASIDE ARBITRAL AWARD IN A HULL INSURANCE DISPUTE

 BM Training and Crewing Joint Stock Company v BHBĐ Insurance Joint Stock Corporation; BHQD Insurance Joint Stock Corporation [2023] People’s Court of Ha Noi, Decision No. 10/2023/QĐ-PQTT

The dispute arose from a hull insurance policy for vessel MN07 (policy period 07/07/2020 to 06/07/2021, premium payable in four instalments). The vessel encountered a marine peril and dragged anchor, then grounded on 07/10/2020 off Vung Ang in north-easterly monsoon conditions at force 8 with waves of 4 to 5 metres. The insurance purchaser notified the loss on the same day, and the insurer appointed a surveyor in accordance with procedure, after which the insurer declined indemnity. At VIAC, the insurers argued that the policy had automatically terminated due to late payment of the second premium instalment and was no longer in force at the time of the casualty. Following Award No. 12/22 dated 30/11/2022, which dismissed the claim for insurance indemnity, the insurance purchaser filed an application to set aside the award with the court. The Hanoi People’s Court refused the set-aside application and held that the award did not fall within the grounds for setting aside under the Law on Commercial Arbitration (“LCA”).

BACKGROUND

Insurance policy and marine casualty

The insurance purchaser, BM Joint Stock Company (“BM”), entered into a marine hull insurance policy with a consortium of two insurers, BHBD and BHQD (the “Insurance Policy”). The insured subject was the vessel MN07 (IMO/registration: 3WBP-8118217), with an insured value of VND 25,000,000,000, a deductible of VND 100,000,000 per incident (not applicable in case of total loss), and a total premium of VND 200,000,000 (0.8% premium rate, VAT included).

Under the Insurance Policy, the premium was payable in four instalments, each 25% at 30 days, 90 days, 150 days, and 210 days from the contract date. The policy period was 00:00 hours on 07/07/2020 to 24:00 hours on 06/07/2021.

According to the Sea Protest dated 07/10/2020, while en route to load clinker at Cam Pha, the vessel encountered north-easterly monsoon, force 8, with waves of 4-5 metres off Vung Ang at 07:20. The vessel proceeded to the anchorage for shelter, dropped anchor and used the main engine to assist, yet dragged anchor and grounded at 11:35 the same day. Immediately after the casualty, BM notified BHBD of the loss by email at 16:04 on 07/10/2020 and by official letter. BHBD appointed a survey company and collected the file.

Pre-litigation exchanges and parties’ positions

On 04/11/2020, at a meeting on indemnity, BHBD invoked Clause 4.4 of Article 4 of the Insurance Policy, asserting that BM had paid the second premium instalment late, so the Insurance Policy “automatically terminated” before the date of loss (07/10/2020) and there was therefore no cover in force. BM disagreed and requested the insurers to perform their insurance liability for the casualty.

Proceedings at VIAC and Award 12/22

As negotiations failed, BM commenced arbitration at VIAC against both insurers, claiming indemnity for the grounding and related costs (VND 12,240,000,000 provisionally as of 15/03/2022), together with default interest, arbitration costs, and legal fees. On 30/11/2022, the sole arbitrator issued Award No. 12/22 (VIAC), dismissing BM’s claims and ordering the respondents to jointly pay BM the arbitration fee of VND 151,164,000.

Application to set aside the award

Disagreeing with VIAC Award No. 12/22 dated 30/11/2022, on 28 December 2022, BM filed an application with the Hanoi People’s Court to set aside the said arbitral award. The principal grounds advanced by BM included:

• Procedural irregularities in the arbitral proceedings: The arbitral tribunal admitted documents submitted by the second respondent after the deadline with indications of backdating; it relied on a Statement of Defence bearing an incorrect date as a basis for decision; and it failed to comply with the parties’ agreed expedited procedure dated 18/02/2021 in handling timelines and filings.
• Contrary to the fundamental principles of Vietnamese law in the field of insurance: The clause on “automatic termination of cover upon late premium payment” in Clause 3.4 of the Insurance Policy was said to contravene the Law on Insurance Business and Circular 50/2017/TT-BTC (notice requirement and instalment premium periods), yet the arbitral tribunal still upheld the clause as lawful.
• Failure to clarify evidence on the second premium instalment: BM contended that BHQD issued a VAT invoice dated 07/10/2020 for the second premium instalment received, indicating that the premium had been paid and the insurance liability had arisen. The arbitral tribunal did not require the insurers to produce complete documents relating to premium collection, to the detriment of the insured.

COURT’S FINDINGS AND DECISION

On the basis of the file and the submissions at the hearing, the panel hearing the set-aside application made the following findings and conclusions:

• Scope of review: When considering an application to set aside an arbitral award, the Court does not re-examine the merits of the dispute already decided by the arbitral tribunal. Submissions that in substance seek to reassess the evidence and the award fall outside the Court’s remit under Article 71.4 of the LCA 2010.
• Procedure at VIAC and the tribunal’s jurisdiction: The record shows that acceptance of the case, constitution of the tribunal, determination of the place of arbitration, language and applicable law were carried out in accordance with the parties’ agreement and the law. These matters were recorded in the tribunal’s Decision on Jurisdiction. There is no basis to conclude that VIAC or the tribunal committed procedural violations.
• Formal and evidentiary complaints: Allegations that the arbitration file was “invalid”, that documents were filed out of time or bore incorrect dates, or that VIAC mishandled time limits, are not accepted. In essence there is no evidence of backdating, and the claimant/insured BM did not raise objections on these issues during the arbitral proceedings and therefore waived the right to object. The Court finds the VIAC procedure consistent with the parties’ agreement and the applicable rules, and the party provided no proof to the contrary.

Grounds for setting aside: On the materials and evidence on file, Award No. 12/22 dated 30/11/2022 does not fall within any ground for setting aside under Article 68.2 of the LCA 2010 and is not contrary to the fundamental principles prescribed in Article 3 of the Civil Code 2015.

Decision: The application to set aside VIAC Award No. 12/22 dated 30/11/2022 is dismissed. This decision takes effect from the date of issuance and is final.

OUR COMMENT

Decision No. 10/2023/QD-PQTT of the Hanoi People’s Court is another indicator of a pro-arbitration approach. The Court found no ground under Article 68.2 of the LCA 2010 to set aside Award No. 12/22, notwithstanding the insured’s arguments concerning the “automatic termination” clause and the arbitral procedure. Key takeaways from a maritime practice perspective include:

• Limits of review and waiver of the right to object: The panel clarified that, on a set-aside application, the Court does not re-examine the merits decided by the arbitral tribunal. Submissions regarding Clause 4.4 of the Insurance Policy being unlawful or evidence of payment of the second premium instalment were essentially requests to re-evaluate the case and fell outside the scope of review. The applicant also waived the right to object to the second respondent’s Statement of Defence with alleged irregularities because it continued to participate without timely objection in accordance with Article 13 of the LCA.
• The “automatic termination” clause and parties’ lessons: The Insurance Policy provided that late premium payment results in automatic lapse of cover. The insured argued that this contravened the Law on Insurance Business and Circular 50/2017/TT-BTC. The arbitral tribunal upheld the clause and dismissed the claim. The Court did not re-examine the merits and likewise found no breach of the fundamental principles of Vietnamese law. For insurers, if an automatic-termination mechanism is used, the policy should clearly stipulate due dates, instalment schedules and a notice mechanism to pre-empt disputes; although the Court did not mandate a notice requirement, written premium reminders remain advisable to mitigate risk. For insureds, timely payment, retention of proof of premium, and raising any contractual objections during the arbitration are critical; one cannot expect the Court to “re-write” the contract at the set-aside stage.

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