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Arbitration clause: implication of place (seat) of arbitration and a case law recently settled by Vietnam International Arbitration Center (VIAC)

Place of arbitration is the starting point

The arbitration law (lex arbitrii) consists of provisions governing the arbitration particularly the formal validity of the arbitration agreement, the arbitrability of the dispute, the composition of the arbitral tribunal, fundamental procedural guarantees, assistance from the courts and judicial review of the award. The parties can only indirectly choose the lex arbitrii by fixing the seat of the arbitration in the country where this arbitration law applies. From there, the seat of the arbitration plays a dual role. First, it determines the scope of application of the lex arbitrii. Secondly, the seat defines the jurisdiction of national courts to review the award. National courts only have jurisdiction for reviewing awards which were “rendered” in their country. Choosing seat of arbitration not only important in international agreement but also in domestic agreements which entirely performed within the territory of Vietnam. For instance, by choosing a seat of arbitration in Ho Chi Minh City, the people’s court of Ho Chi Minh is consequently vested in reviewing the arbitration award.

The pre-eminence of the seat as connecting factor does not mean that a court confronted with a foreign award will always apply the lex arbitrii of the seat. In certain cases, it will apply its own law instead. The New York Convention expressly provides so with regard to the arbitrability of the dispute and the reservation of public policy (NYC, Art.V(2)).

VIAC follows a conventional approach

In December 2016, the parties to the contract for sale and purchase of rubber materials challenged VIAC’s jurisdiction. The parties referred to the Standard form of International Contract for Preserved Rubber Latex in Drums in which the arbitration clause clearly states that the arbitration centre is determined on the premise of regional port of destination leading to regional arbitration center. For example, if the regional port of destination is within Asia (including Vietnam), the parties are entitled to have recourse to an arbitration center of Singapore, Kuala Lumpur, Jakarta, and Bangkok. In other words, the lex arbitrii must be the arbitration law of Singapore, Malaysia, Indonesia and Thailand. However, the plaintiff wished to refer the dispute to an arbitration center in Vietnam (VIAC) by reference to Article 43.5 of the Arbitration Law of Vietnam. After having reviewed its jurisdiction over the dispute in question, the appointed arbitration tribunal decided to reject its jurisdiction because the seat of arbitration in Vietnam is not intentionally indicated in the contract. It is not certain whether the court of Vietnam will always apply the lex arbitrii in reviewing and recognizing foreign arbitration awards.

Following this case law, it is worth noting that the seat of arbitration is the determinative factor to identifiy which arbitration law shall be referred to in resolving a dispute. Consulting with experienced lawyers in arbitration practice is the smartest thing to do when drafting arbitration clause or argue about validity of arbitration agreement.