HO CHI MINH CITY HIGH COURT REFUSES RECOGNITION AND ENFORCEMENT OF A SWISS ARBITRAL AWARD IN A LUBRICANT SALES DISPUTE

C PTE Company Limited v. P Manufacturing and Trading Co., Ltd – Decision No. 17/2018/TLPT-KDTM

BACKGROUND

A dispute arose out of Contract No. CE-PTT/190914 dated 19 September 2014, under which C PTE LTD (“C”) agreed to supply various lubricant products to P Manufacturing and Trading Co., Ltd (“P”). During performance, C delivered the goods, but P refused to accept a substantial portion of the shipments. C initiated arbitration before a sole arbitrator of the G Chamber of Commerce and Industry (“Chamber G”), Switzerland, pursuant to the contract’s arbitration clause.

On 08 December 2016, the sole arbitrator, D A. Kuitkowski, rendered an award ordering P to pay C a total amount of USD 203,133.80 and CHF 30,199.65 for damages, contractual penalties, legal fees, and arbitration costs. C filed an application for recognition and enforcement of a foreign arbitral award rendered in Chamber G (“Swiss arbitral award” or “award”) in Vietnam. The People’s Court of Can Tho City denied enforcement at first instance. C filed an appeal against the decision. On 28 June 2018, the High People’s Court in Ho Chi Minh City convened to hear the appeal.

ARGUMENTS OF BOTH PARTIES

C sought recognition and enforcement of the Swiss arbitral award, arguing that the arbitration clause was validly concluded, that the arbitral proceedings were conducted in accordance with the parties’ agreement, and that the award was final and binding under Swiss law. C asserted that the Buyer’s objections lacked evidentiary foundation and were raised solely to avoid compliance with the award.

P opposed enforcement and raised several grounds under Article 459 of the Vietnam Civil Procedure Code 2015 (“CPC 2015”):

• Lack of authority to conclude the arbitration agreement: The arbitration clause was signed by Ms. Truong Hong Thanh Ph, who, according to P, lacked proper authorization from Ms. Nguyen Thi Th, P’s Director and Legal Representative. Thus, the arbitration agreement was invalid under Article 459.1.a CPC 2015.
• Lack of proper notice of arbitral proceedings: P contended that it had not been duly notified of the appointment of the arbitrator, the initiation of arbitral proceedings, the filing of the claim, or the scheduled hearing.
• Wrong arbitral institution: The contract allegedly referred disputes to the Chamber G, rather than to the Swiss Arbitration Centre (formerly known as Swiss Chambers Arbitration Institution). P argued that C brought the case before a different body, constituting a breach of the arbitration clause.
• Award allegedly not final and binding: P contended that the award lacked confirmation from a Swiss court regarding its enforceability, claiming this made the award unenforceable in Vietnam.
• Violation of Vietnamese public policy: P argued that the underlying transactions involved shipments from Iran, an embargoed country, which created documentary discrepancies preventing P from arranging payment. P further maintained that the arbitrator incorrectly recorded the loading ports as being in Russia, Latvia, and the UAE while omitting the actual Iran shipments. Consequently, the arbitrator failed to consider C’s alleged contractual breaches.

Based on these grounds, P requested the Court to refuse recognition and enforcement.

THE COURT OPINIONS

At first-instance on 29 December 2017, the People’s Court of Can Tho City issued its decision refusing recognition and enforcement of the Swiss arbitral award. The Court grounded its decision on Article 6, Articles 458 and 459 of the CPC 2015 setting forth grounds for refusal, and Resolution No. 326/2016/UBTVQH14 of the Standing Committee of the National Assembly. In its ruling, the first-instance court upheld P’s objections concerning lack of proper authority, failure of proper notice, and alleged procedural irregularities in the arbitral proceedings.

At the appellate hearing on 28 June 2018, the High People’s Court in Ho Chi Minh City conducted a comprehensive review of C’s appeal and P’s objections. The Court’s analysis centered on three fundamental issues that frequently arise in foreign arbitral award enforcement proceedings in Vietnam:

• The validity of the arbitration agreement;
• Whether P received proper notice and was afforded an adequate opportunity to present its case; and
• Whether the arbitral proceedings complied with both the parties’ agreement and the fundamental principles of Vietnamese law.

Validity of the Arbitration Agreement

The Court conducted a thorough examination of whether Ms. Truong Hong Thanh Ph possessed the requisite authority to bind P to the arbitration agreement. P presented corporate records demonstrating Ms. Ph was not the Director on behalf of P and had not been granted any authorization to enter into arbitration on behalf of the company.

Critically, C failed to produce any credible evidence establishing internal authorization, subsequent ratification by P’s competent organs, or any course of conduct that could be construed as implied consent to the arbitration agreement. In the absence of such evidence, the Court concluded that C had not discharged its burden of proving the signatory’s representative authority. This fundamental defect constituted a clear violation of Article 459.1(a) of the CPC 2015, which provides that an arbitration agreement is invalid when executed by a person lacking proper authority to bind the party.

C argued that because P had performed under the commercial contract without objecting to the arbitration clause, P should be deemed to have accepted the arbitration agreement. However, the Court rejected this argument on the basis of the principle of separability enshrined in Article 19 of the Commercial Arbitration Law 2010, which provides that “An arbitration agreement is entirely independent from the contract.” The Court further referred to Article 19, which stipulates that “Any modification, extension, cancellation, invalidation or non-performance of the contract will not invalidate the arbitration agreement.” Therefore, P’s performance of its contractual obligations could not cure or ratify the fundamental defect in the arbitration agreement itself.

Notice and Due Process

The Court found that both the case file and the proceedings at first instance and on appeal lack evidences demonstrating that P had been properly notified of the initiation of arbitration proceedings, the appointment of the arbitrator, relevant procedural orders, or scheduled hearing dates.

The Court acknowledged that under Articles 31.3, 31.4, 31.5, and 31.15 of the Law on Commerce 2005, notification via personal email may be acceptable if it can be established as a customary practice in commercial dealings or a recognized trade usage between the parties.

The Court further noted that where notification is allegedly made by facsimile, telegram, or similar means, and the party against whom enforcement is sought denies receipt, the panel reviewing the enforcement request may require P to produce additional evidence of proper receipt. However, in the present case, no such evidence was forthcoming from P to establish valid notification.

Institutional Designation

The Court identified a material discrepancy between the contractually designated arbitral institution and the institution that actually administered the proceedings. The commercial contract dated 19 September 2014 specified that disputes would be resolved by the Chamber G, yet C initiated arbitration before the Swiss Arbitration Centre without explanation or P’s consent. The Court held that this institutional substitution violated Article 459.1(dd) of the CPC 2015.

Other Objections

Additionally, counsel for P contended that the record lacked documentation establishing the validity of the foreign arbitral award or any confirmation from competent Swiss authorities authenticating its enforceability. The Court found this argument acceptable, noting the absence of proper certification or verification of the award’s status under Swiss law.

Appellate Decision

The High Court affirmed the first-instance decision, holding that several mandatory conditions under Article 459 CPC 2015 had not been met. Accordingly, the Court refused to recognize and enforce Swiss Arbitral Award No. 300367-2016 in Vietnam.

OUR COMMENT

This decision illustrates the Vietnamese courts’ generally cautious stance toward the recognition and enforcement of foreign arbitral awards. While the refusal to enforce the award may ultimately be justified due to multiple procedural deficiencies, several aspects of the Court’s reasoning warrant closer examination when measured against the standards of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“New York Convention”).

Deviation from the Agreed Arbitral Procedure

The Court was correct in refusing enforcement on the basis of institutional mis-designation. The arbitration clause expressly referred disputes to a specific arbitral institution, and C’s unilateral commencement of proceedings before a different institution, without any amendment to the arbitration agreement or P’s consent, constituted a breach of the parties’ agreement.

This approach is consistent with Article V(1)(d) of the New York Convention, which permits refusal of enforcement where “the arbitral procedure was not in accordance with the agreement of the parties.” Party autonomy lies at the core of the Convention, and strict adherence to the agreed arbitral institution is a natural extension of that principle.

Denial of the Right to Be Heard Due to Defective Service

The Court’s refusal of enforcement on the ground that P was not properly notified of the arbitral proceedings is likewise compatible with the New York Convention. Under Article V(1)(b), recognition and enforcement may be refused if the party against whom the award is invoked “was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.”

The Court also concurred with P’s argument that, in practice, requiring P to prove the non-receipt of any notice is rarely feasible. In such case, the burden shifted to C to establish that proper service had been effected. In the absence of reliable evidence demonstrating valid notification, the Court was justified in concluding that P’s right to be heard had been infringed. However, P’s argument is inconsistent with the provisions of the Article 459.1(c) of the CPC 2015 and Article V.1(b) of the New York Convention, under which the burden of proof lies with the party against whom the award is invoked, rather than with the party applying for enforcement.

The Court’s reference to Article 31 of the Law on Commerce 2005 in its discussion of notification methods is legally inaccurate, as that provision concerns emergency measures in international sales of goods rather than commercial customs or service of documents.

Requirement of Confirmation by a Foreign Court

Finally, the Court’s acceptance of P’s argument that the arbitral award required confirmation or acceptance by a Swiss court before enforcement in Vietnam is inconsistent with the New York Convention framework. The Convention imposes no such requirement. Under Article V(1)(e), enforcement may be refused only if the award “has not yet become binding on the parties” or “has been set aside or suspended by a competent authority” in the country of origin.

Accordingly, an arbitral award need not be judicially recognized in the seat of arbitration prior to enforcement abroad; it suffices that the award is final and binding and has not been annulled or stayed. Treating judicial confirmation as a prerequisite reflects a misunderstanding of the Convention’s pro-enforcement bias.

Other Ground for Refusing the Foreign Arbitral Award 

In the Decision section, the Court referred to the ground for refusing recognition of a foreign arbitral award on the basis that it is contrary to the fundamental principles of Vietnamese law provided in Article 459.2(b) of the CPC 2015. However, in the Court’s reasoning, none of the arguments directly explain or analyze this ground, nor did the Court clarify why the award would be considered to violate the fundamental principles of Vietnamese law.

CONCLUSION

In sum, although the refusal to recognize and enforce the award can be sustained on grounds expressly permitted by the New York Convention—particularly Articles V(1)(b) and V(1)(d)—the decision exposes persistent doctrinal challenges in the Vietnamese courts’ engagement with international arbitration law. These include an overly mechanical application of separability, inconsistent treatment of representative authority, and an incomplete understanding of the Convention’s enforcement regime.

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