STATUTE OF LIMITATIONS AND ARBITRAL AWARDS SETTING ASIDE – LESSONS FROM A HO CHI MINH CITY COURT DECISION

A -v- B Construction and Materials JSC [2021] HCMC Court Decision Case No. 92/2021/TLST-KDTM

INTRODUCTION

This case concerns a petition to set aside Arbitral Award No. 04/2021/PQ-TT dated 27 May 2021, issued by the Arbitral Tribunal of the Ho Chi Minh City Comercial Arbitration Centre (“TRACENT”), in a dispute between B Construction and Materials JSC (“B”) and A Co., Ltd. (“A”) The requesting party sought to set aside the arbitral award on the grounds that the arbitral procedure being contrary to Article 68.2.b of the 2010 Commercial Arbitration Act.

BACKGROUND

On 05 December 2016, A entered into Construction Contract No. 11/2016/XL2, later supplemented by an appendix dated 18 February 2017. During contract performance, A raised concerns about B’s construction delays and quality, then made a request to suspend construction on 18 July 2017, and unilaterally terminated the contract on 20 September 2017.

B subsequently sued A at the Court of Da Lat City on 22 December 2017, seeking payment for completed work. The Da Lat Court later dismissed the case, holding that it lacked jurisdiction due to an existing arbitration agreement. The appellate decision by the Lam Dong Provincial Court on 23 March 2020 upheld the dismissal.

Following the Courts’ dismissal, B submitted a request for arbitration to on 22 June 2020. A subsequently filed a counterclaim to TRACENT against B.

On 27 May 2021, the Arbitral Tribunal issued Award No. 04/2021/PQ-TT, partially awarding B’s claims and ordering A to pay USD302,870 to B, while also ordering B to pay USD48,000 to A as a penalty. After offsetting, A had to pay B USD254,870.

A filed a petition to set aside the award, citing procedural and substantive violations under the 2010 Law on Commercial Arbitration.

THE COURT’S FINDINGS

Applicable law and statute of limitations

Regarding the statute of limitations, the Court held that the dispute between A and B involved a construction contract between two legal entities, for profit purposes. Therefore, the Arbitral Tribunal correctly identified the substantive governing law as the Law on Construction, and the procedural law as the 2010 Law on Commercial Arbitration and TRACENT’s Arbitration Rules.

Both Article 33 of the 2010 Law on Commercial Arbitration and Article 11 of TRACENT’s Arbitration Rules stipulate:  “Unless otherwise provided by specialized law, the statute of limitations for initiating arbitration proceedings is two years, from the date the legitimate rights and interests are infringed upon.”

Tribunal’s reasonings

The Tribunal reasoned that since the Law on Construction does not specify a limitation period, they could rely on Article 138(1) of the Law on Construction, Article 2(1) of Decree 37/ND-CP, and Article 156(3) of the Law on the Promulgation of Legal Documents to apply Article 429 of the 2015 Civil Code—which provides a three–year statute of limitation.

The Court’s findings

The Court rejected this reasoning, holding that since the parties had agreed to resolve the dispute by arbitration, the parties are bound by the regulation on arbitration proceedings instead of the regulation on Court proceedings; specifically, abiding by Article 33 of the 2010 Law on Commercial Arbitration and Article 11 of TRACENT’s Arbitration Rules.

Furthermore, B unilateral acts to initiated litigation at the Court of Da Lat City was contrary to the arbitration agreement, which were carried out by B’s own accord and could not be deemed a force majeure event or an objective obstacle.

During that period, B remained fully capable of withdrawing its lawsuit at Court and initiating arbitration proceedings but failed to do so. As such, the time spent for Court litigation could not be excluded from the statue of limitation period.

The starting point for the statute of limitations

At the hearing, both parties agreed that the date of infringement was 20 September 2017. However, B only submitted its arbitration request on 22 June 2020—well beyond the two–year limitation period. Accordingly, the arbitral award dated 27 May 2021, violated procedural law and provided grounds for setting aside under Article 68.2(b) of the 2010 Law on Commercial Arbitration.

Thus, the Tribunal’s misapplication of the statute of limitations constituted a valid basis for setting aside the award under Article 68.2(b) of the 2010 Law on Commercial Arbitration.

Conclusion of the Court

The Court of Ho Chi Minh City set aside Arbitral Award No. 04/2021/PQ-TT dated 27 May 2021 issued by the TRACENT Arbitral Tribunal in the dispute.

OUR COMMENT

Court’s scope of review

No basis for suspension of statute of limitation

The Court also found that the time spent litigating the case before the Lam Dong Province’s regional Courts did not constitute a force majeure event or an objective obstacle justifying suspension of the limitation period. This delay was entirely attributable to B’s subjective and intentional procedural choices. B could have withdrawn the court case and commenced arbitration within the prescribed period but failed to do so. As a result, the two-year statute of limitation expired on 20 September 2019—two years after the termination of the contract and the alleged infringement.

Legal nature and importance of statute of limitation

The statute of limitations is a mandatory legal mechanism designed to ensure the stability of legal relations, protect the lawful rights and interests of the parties, and prevent the initiation of dispute resolution proceedings after an excessive lapse of time, which would place the respondent at a disadvantage. Accordingly, an arbitral tribunal’s improper application of the statute of limitations may be deemed to fall within the scope of an arbitral award being “contrary to the fundamental principles of Vietnamese law” under Article 68.2(dd) of the 2010 Law on Commercial Arbitration of Vietnam.

Furthermore, it should be noted that the statute of limitations carries both substantive and procedural characteristics: substantively, it can only be determined by examining the nature and merits of the dispute; procedurally, it constitutes a condition for a competent adjudicatory body to admit and resolve the case. Therefore, the misapplication of the statute of limitations cannot simply be regarded as a misinterpretation of the contract; rather, it must also be viewed as a procedural violation, thereby falling within the scope of judicial review by the Court and providing a legal basis for the court to set aside the arbitral award.

Conclusion

Accordingly, as the arbitral award was rendered after the expiration of the applicable two-year limitation period, and such misapplication breached fundamental legal principles, the Court was justified in setting aside the award.

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