In this decision, the People’s Court of Ho Chi Minh City was called to consider the arbitrability of a residential tenancy dispute. The Court rejected arguments that the residential dispute was of a non-commercial or “civil” nature (which would have made such disputes non-arbitrable under Vietnam law), and decided that the dispute was to be arbitrated in accordance with the arbitration agreement contained in the tenancy agreement. IAA Lead Editor for Vietnam Nguyen The Duc Tam reports.
This judgment concerns a residential tenancy dispute between house owners and a tenant. The primary issue before the court related to the arbitrability of the residential tenancy dispute. Following the first instance judgment which was in favor of the house owners, the tenant appealed to the People’s Court of Ho Chi Minh City. The Court decided in favour of arbitrability and the first instance judgment was repealed.
A. Factual Background
In May 2012, Nguyen Van Hung and his wife (“house owners”) and Victoria Healthcare My My JSC (“tenant”) signed a residential tenancy contract (“Contract”). The Contract included an arbitration agreement. The tenant allegedly failed to pay rent as stipulate under the Contract from September 2012.
B. Procedural History
In February 2013, the house owners filed a claim against the tenant to the People’s Court of District 2, asking for payment of the overdue rent and termination of the Contract. In September 2013, the People’s Court of District 2 accepted the claim and awarded the amount of VND 1.5 billion (USD 72,000) to the house owners.
The tenant appealed to the People’s Court of Ho Chi Minh City on the ground that there was a valid arbitration agreement in the Contract. It also argued that the residential tenancy dispute here was a “commercial dispute” rather than a “civil dispute” as deemed by the People’s Court of District 2; therefore, the dispute was arbitrable under Article 2 of the Vietnam Law on Commercial Arbitration 2010 (“LCA”). As such, the tenant argued that the courts did not have jurisdiction to resolve the dispute pursuant to Article 6 of the LCA.
II. THE COURT’S DECISION
The Court considered two key issues, namely:
(i) Does an arbitration agreement exist in accordance with Article 5 and Article 16 of the LCA?
(ii) Is the dispute arbitrable under Article 2 of the LCA?
In April 2014, the People’s Court of Ho Chi Minh City repealed the judgment of the People’s Court of District 2 and dismissed the house owners’ case. The Court held that there was a valid arbitration agreement between the parties and that the dispute was of a suitably commercial nature and therefore arbitrable. For these reasons, it held that the courts did not have jurisdiction to resolve the dispute.
The Vietnam Ordinance on Commercial Arbitration 2003 (“OCA”)1 sets a narrow scope of arbitrable disputes. Article 1 of the OCA provides that only disputes arising out from commercial activities are arbitrable. With the enactment of the LCA in 2010, the scope of arbitrability under Vietnam law has been significantly expanded. Article 2 of the LCA provides that the following three categories of disputes are arbitrable: (i) disputes arising out from commercial activities; (ii) disputes in which at least one of the parties is engaged in commercial activities; (iii) other arbitrable disputes as regulated by laws.
These three categories of disputes are examined below.
(i) Disputes arising out from commercial activities
It is observed that the LCA and the OCA provides for the arbitrability of “disputes arising out of commercial activities”. However, unlike the OCA, the LCA does not define the term “commercial activities”. Therefore, it may be appropriate for reference to be made to the Vietnam Law on Commerce 2005 (“LOC”). Article 3(1) of the LOC characterizes “commercial activities” as “activities for lucrative purposes, comprising trade of goods, trade of services, investment, trade promotion, and other activities for lucrative purposes”. On this basis, it is likely that disputes arising out from these activities are arbitrable.
(ii) Disputes in which at least one of the parties is engaged in commercial activities
For the second category of arbitrable disputes, the LCA focuses on the nature of parties, rather than the nature of the dispute in question. Does this provision mean that every dispute in which a party is engaged in commercial activities is arbitrable, regardless its nature? The answer may be negative. For instance, a divorce dispute between a merchant (which is certainly engaged in commercial activities) and his/her spouse shall not be arbitrable. Statutory interpretation may be useful here. From the title “Law on Commercial Arbitration” and the fact that Vietnam mainly adopts the UNCITRAL Model Law on International Commercial Arbitration, it is traditionally understood that arbitrable disputes under Article 2 of the LCA should be “somehow” relating to commercial activities. Therefore, for the second category of disputes to be arbitrable, they do not have to arise directly from commercial activities, rather, they must, at the very least have a connection with commercial activities. However, it is evident that this definition leaves room for some ambiguity. For example, whether tort claims are arbitrable remains a question which is not explicitly addressed by the legislation and has yet to be decided by the Courts.
(iii) Other arbitrable disputes as regulated by laws
The third category of arbitrable disputes makes reference to other laws. As a trend, there are more and more laws which have provisions on arbitrability. Some examples are as follows:
- Maritime Code 2005: maritime disputes2
- Law on Petroleum 1993 (modified in 2000, 2008): disputes arising out from petroleum contracts3
- Law on Intellectual Property 2005 (modified in 2009): disputes concerning intellectual property4
- Law on Negotiable Instruments 2005: disputes arising out from negotiable instruments5
- Law on Civil Aviation 2006: disputes arising out from air transportation contracts6
- Law on Securities 2006 (modified in 2010): disputes arising out from securities activities and securities markets7
- Law on Information Technology 2006: disputes concerning Vietnamese national domain names8
- Law on Technology Transfer 2006: disputes arising out from technology transfer9
- Law on Chemicals 2007: disputes arising out from chemical activities10
- Law on Protection of Consumers 2010: disputes between merchants and consumers11
- Law on Post 2010: disputes arising out from postal services12
- Law on Science and Technology 2013: disputes arising out from technology contracts13
- Law on Enterprises 2014: disputes concerning resolutions of members’ councils or general meetings of shareholders14
- Law on Investment 2014: disputes arising out from investments or between investors or between investors and State agencies15
- Law on Construction 2014: disputes arising out from construction contracts16
If a particular dispute falls into at least one of these categories as provided by the relevant statute, it would be arbitrable under Vietnam law.
In this particular dispute, the tenant argues that the house owners have many houses for rent, hence they engage in the Contract for lucrative purposes. The house owners countered that they lease the house to pay cost of living and as such the tenancy arrangement does not have lucrative purposes. The People’s Court of District 2 seemed to accept the house owners’ arguments. It deemed the case to be a “civil dispute” (thus, being non-arbitrable under Vietnam law) and proceeded to consider the merits of the case.
However, whether or not the house owners have lucrative purposes in entering the tenancy arrangement is arguably not an important question. In any event, the tenant is a joint-stock company who is certainly engaged in commercial activities.17 Moreover, the tenant rented the house to open a private medical clinic. It can be fairly said that the case, at the very least, would fall into the second category of arbitrable disputes as it satisfies the requirement of “being somehow relating to commercial activities”. In other words, the dispute would be arbitrable.18 A possible explanation for the first instance judgment is that the People’s Court of District 2 may have considered the first category of arbitrable disputes (which was the only type of arbitrable disputes under the OCA) but neglected to consider the second one. The People’s Court of Ho Chi Minh City then correctly found that the dispute was arbitrable, thereby repealing the first instance judgment and dismissing the house owners’ case.
In conclusion, the scope of arbitrable disputes have been enlarged by the LCA and the People’s Court of Ho Chi Minh City’s decision of Nguyen Van Hung and Spouse v. Victoria Healthcare My My JSC is a good example of how that enlargement is implemented in practice. However, the line between arbitrable and non-arbitrable disputes is arguably still unclear, most significantly in relation to tort claims. With the ongoing development of Vietnamese arbitration law, it can be expected that the LCA would be amended or explained to more comprehensively address the issue of arbitrability.
This article may be cited as follows: Nguyen The Duc Tam, “Vietnam Case Update: Arbitrability of Residential Tenancy Disputes (Nguyen Van Hung and Spouse v. Victoria Healthcare My My JSC)”, International Arbitration Asia (11 February 2016) <http://www.internationalarbitrationasia.com/Vietnam-Arbitrability-of-Residential-Tenancy-Disputes>.
- The OCA was the first legislation in Vietnam regulating arbitration as an alternative dispute resolution method. It took effect from 1 July 2003 to 1 January 2011.
- Article 259 of Maritime Code 2005. The Vietnam’s Maritime Code 2015 will replace the current Vietnam’s Maritime Code 2005 and take effect from 1 July 2017. Article 338 of the Vietnam’s Maritime Code 2015 is as the same as Article 259 of the Vietnam’s Maritime Code 2005.
- Article 27 of the Law on Petroleum 1993 (modified in 2000, 2008).
- Article 198 of the Law on Intellectual Property 2005 (modified in 2009).
- Article 79 of the Law on Negotiable Instruments 2005.
- Article 173 of the Law on Civil Aviation 2006.
- Article 131 of the Law on Securities 2006 (modified in 2010).
- Article 76 of the Law on Information Technology 2006.
- Article 55 of the Law on Technology Transfer 2006.
- Article 68 of the Law on Chemicals 2007.
- Article 30 of the Law on Protection of Consumers 2010.
- Article 39 of the Law on Post 2010.
- Article 36 of the Law on Science and Technology 2013.
- Articles 63 and 147 of the Law on Enterprises 2014.
- Article 14 of the Law on Investment 2014.
- Article 146 of the Law on Construction 2014.
- Under Article 4(1) of the Law on Enterprises 2005 (Article 4(7) of the Law on Enterprises 2014), all the Vietnamese companies are engaged in commercial activities with lucrative purposes.
- It should be noted that the Law on Housing 2005 and the Law on Housing 2014 do not contain provisions on the arbitrability of residential tenancy disputes. Therefore, residential tenancy disputes cannot fall into the third category of arbitrable disputes.