Precedent No. 69/2023/AL was adopted by the Council of Judges of the Supreme People’s Court on August 18, 2023, and promulgated under Decision No. 364/QD-CA dated October 1, 2023, by the Chief Justice of the Supreme People’s Court.
1. What is a precedent?
Precedents are arguments and rulings in legally effective judgments and decisions of the Courts regarding specific cases, selected by the Council of Judges of the Supreme People’s Court and promulgated by the Chief Justice of the Supreme People’s Court as precedents for Courts to study and apply in adjudication. (Article 1 of Resolution 04/2019/NQ-HDTP)
A selected precedent must meet the following criteria:
– It has value in clarifying legal provisions with different interpretations; analyzing and explaining legal issues and events; and pointing out principles, handling guidelines, and legal norms to be applied in a specific case or demonstrating equity for issues not yet specifically regulated by law;
– It is of a standard nature;
– It has guidance value for the uniform application of law in adjudication.
2. Precedent No. 69/2023/AL on the jurisdiction of Commercial Arbitration in resolving disputes over non-disclosure and non-compete agreements
2.1. Source of the precedent
Decision No. 755/2018/QD-PQTT dated June 12, 2018, of the People’s Court of Ho Chi Minh City regarding the civil matter “Request for setting aside an arbitral award”; the petitioner is Ms. Do Thi Mai T, and the person with related rights and obligations is R Co., Ltd.
Location of the precedent’s content:
Paragraph 8 of the “Court’s Findings” section.
2.2. Summary of the precedent’s content
– Precedent situation:
An employee and an employer enter into a non-disclosure and non-compete agreement (NDA) stating that after the termination of the employment contract, the employee shall not perform similar work or work that competes with the employer for a certain period; any disputes shall be resolved by Commercial Arbitration.
– Legal solution:
In this case, the Court must determine that the dispute over the non-disclosure and non-compete agreement between the two parties is an agreement independent of the employment contract and falls under the jurisdiction of Commercial Arbitration.
Legal provisions related to the precedent:
– Clause 2 Article 2, Article 13, and Clause 4 Article 35 of the Law on Commercial Arbitration of Vietnam 2010;
– Clause 2 Article 3 of the Civil Code of Vietnam 2015;
– Article 6 of Resolution No. 01/2014/NQ-HDTP dated March 20, 2014, of the Council of Judges of the Supreme People’s Court guiding the implementation of the Law on Commercial Arbitration.
Keywords of the precedent:
“Non-disclosure and non-compete agreement”; “Agreement to resolve disputes by Commercial Arbitration”; “Jurisdiction of Commercial Arbitration”.
FACTS OF THE CASE:
On October 10, 2015, R Co., Ltd. and Ms. Do Thi Mai T signed an employment contract for a term of twelve (12) months (from October 10, 2015, to October 31, 2016). Ms. T worked at Company R as a Recruitment Manager.
On October 21, 2015, Company R and Ms. T signed a Non-Disclosure and Non-Compete Agreement (hereinafter referred to as NDA), in which Clause 1, Article 3 of the NDA stated: “During the process of the individual being recruited or working with Company R and within twelve (12) calendar months after the termination of recruitment or termination of work with Company R, regardless of the cause of termination of recruitment or work, the individual agrees not to, directly or indirectly and throughout the entire territory, perform work similar to the work or essentially similar to the work for any business competing with L.vn (…), which is or will in the future compete with the business of L.vn, Company R, and/or affiliates and partners of Company R”. The parties also agreed that any dispute would be resolved by an arbitral award.
On November 1, 2016, Company R and Ms. T continued to sign a 12-month fixed-term employment contract (from November 1, 2016, to October 31, 2017) for the position of Recruitment Manager.
On November 18, 2016, Ms. T terminated the 2016 Employment Contract with Company R. On October 2, 2017, Company R filed a lawsuit along with evidence at the Vietnam International Arbitration Centre (VIAC), requesting Ms. T to compensate Company R an amount of 205,197,300 VND, equivalent to 03 (three) times the monthly salary immediately preceding the date Ms. T unilaterally terminated the 2016 Employment Contract, because Ms. T violated Clause 1, Article 3 of the NDA.
On February 19, 2018, the Arbitral Tribunal under VIAC established in Ho Chi Minh City issued Arbitral Award No. 75/17 HCM with the following content:
1. Accept the entire claim of the claimant, compelling the respondent to pay the claimant compensation of 205,197,300 VND (Two hundred and five million one hundred ninety-seven thousand three hundred Vietnamese Dong).
2. The respondent shall bear the entire arbitration fee for this dispute, which is 24,600,000 VND. Since the claimant already paid the total arbitration fee, the respondent must reimburse the claimant 24,600,000 VND (Twenty-four million six hundred thousand Vietnamese Dong).
3. The respondent must pay the claimant the total amount mentioned in Section 1 and Section 2, Part IV above within 30 days from the date of this arbitral award. In case of late payment, the respondent must continue to bear late payment interest as prescribed in Article 357 of the Civil Code 2015, at an interest rate of 10%/year, corresponding to the late payment amount and the duration of the delay.
4. This arbitral award was made on February 19, 2018, in Ho Chi Minh City, Vietnam. This arbitral award is final, binding on the parties, and effective from the date of issuance.
Disagreeing with the arbitral award, on March 22, 2018, Ms. T filed a lawsuit at the People’s Court of Ho Chi Minh City requesting to set aside the entire content of Arbitral Award No. 75/17 HCM dated February 19, 2018, of VIAC for the following reasons:
– The arbitration agreement is void due to a violation of legal prohibitions and the arbitral award is contrary to the fundamental principles of Vietnamese law.
– The arbitration procedure is contrary to the provisions of the Law on Commercial Arbitration.
– The dispute does not fall under the jurisdiction of the Arbitral Tribunal.
– The Arbitral Tribunal used forged evidence.
At today’s meeting, the petitioner maintained her request. The person with related rights and obligations maintained their opinion. The lawyer protecting the legal rights and interests of Company R requested the Court to dismiss Ms. T’s request.
The representative of the People’s Procuracy of Ho Chi Minh City stated their opinion:
Through the supervision of the case from the time of acceptance until this point, it is found that the Judge correctly complied with the regulations on jurisdiction; the Court decided to open a meeting and sent the case file to the Procuracy for study within the time limit; issued and served procedural documents to the participants and the Procuracy in accordance with the Civil Procedure Code.
Compliance with the law by the Council during the meeting: At today’s meeting, the proceedings were conducted in accordance with the civil procedure law.
The parties’ compliance with the law has correctly fulfilled the rights and obligations prescribed by the Civil Procedure Code.
On the merits: There is no basis to accept Ms. Do Thi Mai T’s request to set aside the arbitral award.
COURT’S FINDINGS:
[1] After reviewing all documents in the case file examined at the meeting; hearing the arguments of the parties; hearing the opinion of the Representative of the People’s Procuracy of Ho Chi Minh City, the Council for reviewing the request finds:
[2] Regarding procedures:
[3] Regarding the statute of limitations for filing the request: February 19, 2018, was the date of issuance of Arbitral Award No. 75/17 HCM. On February 27, 2018, the respondent received the arbitral award, and on March 22, 2017, Ms. Do Thi Mai T filed the request to the People’s Court of Ho Chi Minh City to set aside the arbitral award, which is within the time limit prescribed in Clause 1, Article 69 of the Law on Commercial Arbitration.
[4] The Council evaluates the reasons provided by Ms. Do Thi Mai T to set aside the arbitral award as follows:
[5] Reasons “The arbitration agreement is void due to violation of legal prohibitions” and “The arbitral award is contrary to fundamental principles of Vietnamese law.” It is noted that, based on Article 13 of the Law on Commercial Arbitration 2010: “In case a party discovers a violation of the provisions of this Law or of the arbitration agreement but still continues the arbitration proceedings and does not object to the violations within the time limit prescribed by this Law, it shall lose the right to object at Arbitration or in Court.” Article 6 of Resolution No. 01/2014/NQ-HDTP dated March 20, 2014, guiding the Law on Commercial Arbitration by the Council of Judges of the Supreme People’s Court, stipulates: “Where a party discovers a violation of the provisions or the arbitration agreement but still continues the arbitration proceedings and does not object to the Arbitral Tribunal or Arbitration Center regarding those violations within the time limit prescribed by the Law on Commercial Arbitration, it shall lose the right to object at Arbitration or in Court regarding those known violations. Where the Law on Commercial Arbitration does not prescribe a time limit, the time limit shall be determined by the agreement of the parties or the arbitration rules of procedure” and “In case the Court determines that the right to object has been lost under Article 13 of the Law on Commercial Arbitration and the guidance in Clause 1 of this Article, the party who lost the right to object shall not have the right to complain about the Arbitral Tribunal’s decision or request the setting aside of the arbitral award regarding those violations. The Court shall not base on the violations for which one or more parties have lost the right to object to decide to accept the request of one or more parties.” Article 9 of the VIAC Arbitration Rules effective from March 1, 2017, stipulates: “In case the respondent believes that the arbitration agreement does not exist, is void, or cannot be implemented, the respondent must state clearly in the Statement of Defense. If the respondent fails to do so in the Statement of Defense, the respondent loses the right to object.” In the Statement of Defense dated December 4, 2017, as well as throughout the arbitration proceedings, Ms. T did not raise any objection to the arbitration agreement. Thus, Ms. T lost her right to object to the arbitration agreement according to the aforementioned regulations.
[6] Additionally, Ms. T argued that the NDA violated regulations on employees’ right to work and violated prohibited acts under the Law on Employment 2013, yet the Arbitral Tribunal still recognized the NDA, meaning the Tribunal violated the principle of employee compliance with the law as well as prohibitions in the Law on Employment 2013. It is noted that Article 4 of the Civil Code 2005 stipulates: “The freedom to commit and agree on establishing civil rights and obligations is guaranteed by law if such commitment or agreement does not violate legal prohibitions or social ethics. In civil relations, parties are completely voluntary; no party may impose, prohibit, coerce, threaten, or hinder another. Lawful commitments and agreements have binding effect on the parties and must be respected by individuals, legal entities, and other subjects.” In this case, Ms. T and Company R voluntarily signed the agreement; when signing, Ms. T was a person with full civil act capacity according to the law, not coerced, deceived, or imposed upon to accept signing the NDA. Therefore, the NDA is effective. The Arbitral Tribunal’s recognition of the NDA’s effectiveness is entirely lawful.
[7] Reason for setting aside the arbitral award because “Arbitration procedure is contrary to the provisions of the Law on Commercial Arbitration.” Ms. T argued that the procedure was contrary to the Law on Commercial Arbitration because: “The award was made on the 31st day from the date of the Arbitral Tribunal’s meeting” and “The award was not sent to her immediately after the date of issuance, which should have been January 20, 2018.” Based on Clause 5 and Clause 6 of Article 148 of the Civil Code 2015: “When the last day of a time limit is a weekend or a holiday, the limit ends at the end of the next working day following that holiday” and “The end of the last day of the limit is at twenty-four hours of that day.” The final meeting to resolve the dispute between Company R and Ms. T was held on January 19, 2018; however, since February 18, 2018 (the 30th day from the final meeting) was a Sunday (weekend), the Arbitral Tribunal’s issuance of the award on February 19, 2018, was still within the prescribed time limit. February 20 and 21, 2018, were Lunar New Year holidays, so according to Clause 5, Article 148 of the Civil Code 2015, the time limit for sending the award could not end on those days but ended at twenty-four hours of the next working day, which was February 22, 2018. Therefore, sending the award to the parties on February 22, 2018, was still within the time limit prescribed by the Law on Commercial Arbitration.
[8] Reason “The dispute does not fall under the jurisdiction of the Arbitral Tribunal”: Ms. T argued that “The dispute over the NDA is a dispute to be resolved by the Court.” Based on Clause 2, Article 2 of the Law on Commercial Arbitration: “Jurisdiction of Arbitration to resolve disputes: Disputes arising between parties in which at least one party has commercial activities.” Company R is a merchant, with business registration and commercial activities according to the Law on Commerce 2005. Therefore, the arbitration agreement falls under the jurisdiction of VIAC and arbitration according to Clause 2, Article 2 of the Law on Commercial Arbitration. This content was concluded by the Arbitral Tribunal at the Meeting on January 19, 2018 (Part A, page 5 and Part C, page 6 of the award). Clause 4, Article 35 of the Law on Commercial Arbitration stipulates: “Where the respondent believes that the dispute does not fall under the jurisdiction of Arbitration, there is no arbitration agreement, the arbitration agreement is void or cannot be implemented, it must state clearly in the Statement of Defense.” Meanwhile, in the Statement of Defense as well as throughout the arbitration proceedings, Ms. T did not raise any objection to the jurisdiction of the Arbitration but continued the proceedings and participated in the meeting to resolve the dispute. Thus, Ms. T lost the right to object to the jurisdiction of the Arbitral Tribunal according to Article 13 of the Law on Commercial Arbitration and the guidance in Article 6 of Resolution 01/2014/NQ-HDTP. Additionally, Ms. T argued that the dispute between the parties is a labor dispute under the jurisdiction of the Court because the NDA is an integral part of the Employment Contracts between her and Company R. In paragraph 11 of the Argument Statement dated January 18, 2018, by the lawyer protecting Ms. T’s legal rights and interests at VIAC and at the final Meeting, Ms. T’s lawyer reaffirmed the view that the NDA is completely independent of the Employment Contracts between Company R and Ms. T. Therefore, the Council for reviewing the request determines that the NDA is an independent agreement; when a dispute occurs, it falls under the jurisdiction of Arbitration as chosen by the parties since signing.
[9] Reason “Evidence provided by the parties which the Arbitral Tribunal relied on to issue the award is forged”: It is noted that Company R provided the Arbitral Tribunal and Ms. T with: a Confirmation Letter from Z Bank (Vietnam) Co., Ltd. and the pay slip for the month immediately preceding Ms. T’s violation of the NDA. This evidence consists of documents confirmed by Bank Z and Company R, so they cannot be considered forged. Furthermore, based on Clause 4, Article 71 of the Law on Commercial Arbitration, this pertains to the merits, which is not within the jurisdiction of the Council for reviewing the request.
[10] The representative of the People’s Procuracy of Ho Chi Minh City attending the meeting gave an opinion: Recommend not accepting Ms. T’s request to set aside the arbitral award. The recommendation of the Procuracy representative is consistent with the findings of the Council for reviewing the request and is therefore accepted.
[11] From the above findings, Ms. Do Thi Mai T’s request is not accepted.
[12] Based on Clause 3, Article 39 of Resolution No. 326/2016/UBTVQH14 on court fees and charges, Ms. Do Thi Mai T would have to bear court fees. However, the list of court fees does not clearly specify the fee for the type of case involving a request to set aside an arbitral award. Therefore, Ms. Do Thi Mai T does not have to bear the fee.
For the reasons above,
Pursuant to Clause 2 Article 31, Point a Clause 3 Article 38, Clause 3 Article 414, and Article 415 of the Civil Procedure Code 2015;
Pursuant to Clause 1 Article 5, Point g Clause 2 Article 7, Clause 2 Article 16, Article 60, Clause 2 Article 68, Clause 1 Article 69, Article 71, and Article 72 of the Law on Commercial Arbitration;
Pursuant to Resolution No. 01/2014/NQ-HDTP dated March 20, 2014, of the Council of Judges of the Supreme People’s Court guiding the implementation of several provisions of the Law on Commercial Arbitration.
DECISION:
1. Do not accept Ms. Do Thi Mai T’s request to set aside Arbitral Award No. 75/17 HCM of the Arbitral Tribunal under the Vietnam International Arbitration Centre (VIAC) issued on February 19, 2018, in Ho Chi Minh City.
2. This decision is the final decision and takes effect from the date of signing, June 12, 2018. The parties and the Arbitral Tribunal have no right to complain or appeal; the Procuracy has no right to protest.
CONTENT OF THE PRECEDENT
“[8] … Ms. T argued that “The dispute over the NDA is a dispute to be resolved by the Court”. Based on Clause 2, Article 2 of the Law on Commercial Arbitration: “Jurisdiction of Arbitration to resolve disputes: Disputes arising between parties in which at least one party has commercial activities.” Company R is a merchant, with business registration and commercial activities according to the Law on Commerce 2005. Therefore, the arbitration agreement falls under the jurisdiction of VIAC and arbitration according to Clause 2, Article 2 of the Law on Commercial Arbitration. This content was concluded by the Arbitral Tribunal at the Meeting on January 19, 2018 (Part A, page 5 and Part C, page 6 of the award). Clause 4, Article 35 of the Law on Commercial Arbitration stipulates: “Where the respondent believes that the dispute does not fall under the jurisdiction of Arbitration, there is no arbitration agreement, the arbitration agreement is void or cannot be implemented, it must state clearly in the Statement of Defense.” Meanwhile, in the Statement of Defense as well as throughout the arbitration proceedings, Ms. T did not raise any objection to the jurisdiction of the Arbitration but continued the proceedings and participated in the meeting to resolve the dispute. Thus, Ms. T lost the right to object to the jurisdiction of the Arbitral Tribunal according to Article 13 of the Law on Commercial Arbitration and the guidance in Article 6 of Resolution 01/2014/NQ-HDTP. Additionally, Ms. T argued that the dispute between the parties is a labor dispute under the jurisdiction of the Court because the NDA is an integral part of the Employment Contracts between her and Company R. In paragraph 11 of the Argument Statement dated January 18, 2018, by the lawyer protecting Ms. T’s legal rights and interests at VIAC and at the final Meeting, Ms. T’s lawyer reaffirmed the view that the NDA is completely independent of the Employment Contracts between Company R and Ms. T. Therefore, the Council for reviewing the request determines that the NDA is an independent agreement; when a dispute occurs, it falls under the jurisdiction of Arbitration as chosen by the parties since signing.”
