Abstract: This article provides a concise overview of the key content of Judgment No. 02/2005/XQDTT–ST dated 11 May 2005, issued by the People’s Court of Hanoi regarding the consideration of a request to annul an arbitral award, concerning the authority to sign arbitration agreement. Since the public disclosure of Court’s decisions and awards on the Court’s website only began since 2018, this is one of the few Court’s decisions/awards that we can access related to the annulment of arbitral award during the effective period of the Commercial Arbitration Ordinance 2003.
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1. Information of the Parties:
a) Requesting Party: Thu Do II Co., Ltd (“Thu Do Company”);
b) Related Party: PT VINDOEXIM Company (Indonesia) (“VINDOEXIM Company“).
2. Summary of the Dispute:
a) On 17 January 2003, Thu Do Company, as the Buyer and VINDOEXIM Company, as the Seller entered into a Contract no 071 (“Contract”) regarding the sale of Urea fertilizer with a total Contract value of USD 4,000,000. VINDOEXIM Company’s representative signing the Contract is Mr. Phan Ba Hung.
b) On 25 November 2003, the Parties signed an amendment to the Contract, with two main provisions:
(i) Thu Do Company would open a Letter of Credit (“L/C“) no later than 27 November 2003;
(ii) an agreement to choose the Vietnam International Arbitration Center – alongside the Vietnam Chamber of Commerce and Industry (“Arbitration Center“) as the competent authority to resolve disputes.
c) On 15 December 2003, Thu Do Company sent a letter to VINDOEXIM Company requesting to supplement the expiry date of Performance Bond to 15 February 2004. VINDOEXIM Company did not accept this requirement and thus, Thu Do Company did not fulfill the Contract.
d) On 24 January 2004, VINDOEXIM Company, represented by Mr. Phan Ba Hung, initiated arbitration proceedings against Thu Do Company at the Arbitration Center, with the following claims against Thu Do Company:
– To pay a penalty of 2.5% of the total Contract value, equivalent to USD 100,000 for not opening the L/C on time;
– To pay for legal service fees, equivalent to of USD 11,000.
e) On 21 July 2004, the Arbitration Center conducted a dispute resolution hearing, and by 31 August 2004, it issued a decision requiring Thu Do Company to pay VINDOEXIM Company USD 100,000.
3. Content and grounds for Thu Do Company‘s request to annul an arbitral award:
a) Thu Do Company opined that Mr. Phan Ba Hung did not have a valid Power of Attorney when signing the Contract, so Mr. Hung lacked the capacity and authority to represent VINDOEXIM Company in entering into the Contract and the arbitration agreement. Therefore, the arbitration agreement was void.
b) VINDOEXIM Company does not exist in Indonesia.
4. Judgment of the People’s Court of Hanoi City (“Court”)
a) Thu Do Company‘s request was not accepted or addressed by the Court: VINDOEXIM Company does not exist in Indonesia.
b) Thu Do Company‘s request was accepted by the Court as a basis for annulling the arbitral award: Mr. Hung was not a legal representative of VINDOEXIM Company, and there was no written authorization from VINDOEXIM Company for Mr. Hung to sign the Contract and the arbitration agreement. The Court annulled the arbitral award under clause 2 Articles 10, clause 2 Article 54 and Article 53 of the Commercial Arbitration Ordinance 2003. Specifically:
(i) According to the Establishment License of VINDOEXIM Company dated 08 September 2003, Mr. LIYANTO was the company’s chairman, and Mr. INWANTO was a company member. The Establishment License and the Charter of VINDOEXIM Company did not record Mr. Hung’s name (although Mr. Hung claimed several times to be the director of VINDOEXIM Company).
(ii) There was no legal written of VINDOEXIM Company authorizing Mr. Hung to validly sign the arbitration agreement at the time of signing the Contract. Therefore, Mr. Hung’s signing of the arbitration agreement was not legally competent, rendering the arbitration agreement void.
(iii) After Thu Do Company submitted to the Court its request to annul the arbitral award, Mr. LIYANTO and Mr. INWANTO confirmed in writing that Mr. Hung was still the director of VINDOEXIM Company. However, this confirmation occurred after Mr. Hung had signed the Contract and the arbitration agreement with Thu Do Company, and even after the arbitral award had been issued. Therefore, it could not be argued that Mr. LIYANTO had authorized Mr. Hung.
(iv) There was no document from VINDOEXIM Company authorizing Mr. Hung to initiate the lawsuit at the Arbitration Center or participate in litigation at the Court.
(v) Clause 2 Article 54 of the Commercial Arbitration Ordinance 2003 states: “The court shall issue decision to annul the arbitral award if the requester is able to prove that the Arbitration Council have issued such arbitral award in one of the following cases:…..2. The arbitration agreement is invalid under the provisions of Article 10 of this Ordinance”.
(vi) Clause 2 Article 10 of the Commercial Arbitration Ordinance provides: “Arbitration agreements shall be invalid in the following cases, where:…..2. The person signing the arbitration agreement lacks the authority under the law.”
Based on the legal grounds above, the Court found no basis to uphold the award of the Arbitration Center and decided to annul this arbitral award under clause 2 Articles 10, clause 2 Article 54, and Article 53 of the Commercial Arbitration Ordinance 2003.
5. Our assessment: As analyzed above, when the signatory of an arbitration agreement lacks the legal authority to sign under the provisions of the law, the arbitration agreement shall be void. This is one of the bases for the Court to have jurisdiction to annul an arbitral award under the Commercial Arbitration Ordinance 2003, and this decision is persuasive. If we compare this legal basis with the current provisions, specifically the Law on Commercial Arbitration 2010, it can be seen that there is not much difference between the Commercial Arbitration Ordinance 2003 and the Law on Commercial Arbitration 2010 regarding the basis for annulling an arbitral award when the arbitration agreement is deemed void. Specifically:
a) Clause 2 Article 68 of the Law on Commercial Arbitration provides: “2. An arbitral award shall be annulled if it falls under one of the following cases: a) There is no arbitration agreement or the arbitration agreement is void.”
b) Clause 2 Article 18 of the Law on Commercial Arbitration 2010 defines one of the cases where the arbitration agreement is void: “2. The person establishing the arbitration agreement lacks authority under the law.”
c) The above provision is detailed in clause 2, Article 3 of Resolution No. 01/2014/NQ-HDTP dated 20 March 2014, of the Supreme People’s Court’s Judicial Council, as follows: “2. “The person establishing the arbitration agreement lacks authority under the law” as stipulated in clause 2 Article 18 of the Law on Commercial Arbitration means that the person establishing the arbitration agreement is not a legal representative according to the law or is not legally authorized or, if legally authorized, exceeds the scope of authorization.”
From the legal bases mentioned above, it can be seen that, fundamentally, both the Commercial Arbitration Ordinance 2003 and the Law on Commercial Arbitration 2010 are consistent in regulating that a person who signs/establishes of the arbitration agreement lacking the legal authority under the law will lead to the arbitration agreement being void. This is one of the bases for the Court to annul the arbitral award.
However, the term “person signing the arbitration agreement” under clause 2 Article 10 of the Commercial Arbitration Ordinance 2003 has been amended to “person establishing the arbitration agreement” under clause 2 Article 18 of the Law on Commercial Arbitration 2010. This amendment expands the scope of application of the provision, concurrently is consistent with the forms of arbitration agreement provided in clause 2 Article 16 of the Law on Commercial Arbitration 2010. Specifically, according to the Law on Commercial Arbitration 2010, an arbitration agreement established through exchanges via telegram, fax, telex, email between the parties is also considered established in written form and recognized as legally valid, not limited to “signing” on paper documents through traditional means.
