CASE LAW NO. 69/2023/AL On the jurisdiction of Commercial Arbitration in resolving disputes over confidentiality and non-competition agreements (Please note that this image is not related to the specific case being discussed).

CASE LAW NO. 69/2023/AL

On the jurisdiction of Commercial Arbitration in resolving disputes over confidentiality and non-competition agreements

Approved by the Judicial Council of the Supreme People’s Court on August 18^th, 2023, and published under Decision No. 364/QĐ-CA dated October 1^st, 2023, by the Chief Justice of the Supreme People’s Court.

Source of the Case Law:

The Decision No. 755/2018/QĐ-PQTT dated June 12^th, 2018, of the People’s Court of Hồ Chí Minh City regarding the civil matter of “Request to cancel the arbitration award”; the requester is Mrs. Đỗ Thị Mai T, and the interested party is Limited Liability Company R.

Location of the Case Law’s Content:

Paragraph 8 of the “Court’s Opinion” section.

Summary of the Case Law:

– Case Background:

The employee and employer entered into a confidentiality and non-competition agreement stipulating that after the termination of the employment contract, the employee is prohibited from engaging in similar or competitive work with the employer for a certain period. In case of any dispute, it would be resolved by commercial arbitration.

– Legal Resolution:

In this case, the Court must determine that the dispute over the confidentiality and non-competition agreement between the two parties is independent of the employment contract and falls within the jurisdiction of commercial arbitration.

Relevant Legal Provisions:

– Clause 2 Article 2, Article 13, and Clause 4 Article 35 of the Law on Commercial Arbitration 2010;

– Clause 2 Article 3 of the Civil Code 2015;

– Article 6 of Resolution No. 01/2014/NQ-HĐTP dated March 20^th, 2014, of the Judicial Council of the Supreme People’s Court guiding the implementation of the Law on Commercial Arbitration.

Keywords:

“Confidentiality and non-competition agreement”; “Agreement to resolve disputes by commercial arbitration”; “Jurisdiction of commercial arbitration”.

CASE DETAILS

On October 10^th, 2015, Limited Liability Company R and Mrs. Đỗ Thị Mai T signed a 12-month employment contract (from October 10^th, 2015, to October 31^st, 2016), where Mrs. T worked at Company R as the Head of Recruitment.

On October 21^st, 2015, Company R and Mrs. T signed a Confidentiality and Non-Competition Agreement (hereinafter referred to as NDA), in which Clause 1, Article 3 of the NDA states: “During the recruitment or employment period with Company R and for twelve (12) calendar months after the termination of recruitment or employment with Company R, regardless of the reason for termination,

the individual agrees not to, directly or indirectly and throughout the entire territory, engage in similar work or essentially similar work to any business that competes with L.vn (…), currently or in the future will compete with the business of L.vn, Company R, and/or Company R’s affiliates and partners”. The parties also agreed that any disputes would be resolved by arbitration.

On November 1^st, 2016, Company R and Mrs. T continued to sign a 12-month employment contract (from November 1^st, 2016, to October 31^st , 2017) with the position of Head of Recruitment.

On November 18^th, 2016, Mrs. T terminated the 2016 Employment Contract with Company R. On October 2^nd, 2017, Company R filed a lawsuit with supporting evidence at the Vietnam International Arbitration Center (VIAC), requesting Mrs. T to compensate Company R an amount of VND 205,197,300, equivalent to three (03) times the monthly salary immediately preceding her unilateral termination of the 2016 Employment Contract for violating Clause 1, Article 3 of the NDA.

On February 19^th, 2018, the Arbitration Council of VIAC, established in Hồ Chí Minh City, issued Arbitration Award No. 75/17 HCM with the following content:

1. Accept the entire claim of the plaintiff, requiring the defendant to pay the plaintiff compensation of VND 205,197,300 (two hundred and five million, one hundred and ninety-seven thousand, three hundred VND).
2. The defendant must bear all arbitration fees for this dispute amounting to 24,600,000 VND. Since the plaintiff has already paid the entire arbitration fee, the defendant must reimburse the plaintiff the amount of 24,600,000 VND (twenty-four million, six hundred thousand VND).
3. The defendant must pay the plaintiff the total amount stated in Sections 1 and 2, Part IV above, within 30 days from the date of this arbitration award. In case of delayed payment, the defendant 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 delayed period.

This arbitration award was issued on February 19^th, 2018, in Hồ Chí Minh City, Vietnam. This arbitration award is final, binding on the parties, and effective from the date of issuance.

Disagreeing with the Arbitration Award, on March 22^nd, 2018, Mrs. T filed a lawsuit at the People’s Court of Hồ Chí Minh City, requesting the vacatur of the entire Arbitration Award No. 75/17 HCM dated February 19^th, 2018, issued by VIAC, for the following reasons:

– The arbitration agreement is invalid due to a violation of legal prohibitions, and the arbitration award contradicts the fundamental principles of Vietnamese law.

– The arbitration procedures were contrary to the provisions of the Law on Commercial Arbitration.

– The dispute was beyond the jurisdiction of the Arbitration Council.

– The Arbitration Council used falsified evidence.

At today’s hearing, the petitioner maintained her request. The interested parties retained their opinions. The legal counsel of Company R requested the Court to dismiss Mrs. T’s lawsuit.

The representative of the People’s Procuracy of Hồ Chí Minh City expressed the following opinion:

Upon reviewing the case from the time it was accepted until now, it is evident that the Judge has complied with the regulations regarding the jurisdiction to resolve the case. The Court’s decision to open the hearing and send the case file to the Procuracy for study was made within the prescribed time limit, and procedural documents were served to the parties involved and the Procuracy in accordance with the Civil Procedure Code.

Compliance with the law by the trial panel: At today’s hearing, the proceedings were conducted in accordance with the civil procedure laws.

The parties involved have exercised their rights and fulfilled their obligations in accordance with the Civil Procedure Code.

Regarding the merits: There is no basis to accept Mrs. Đỗ Thị Mai T’s request to have the arbitration award vacated.

COURT’S OPINION:

[1] After reviewing all the documents in the case file, all of which was examined at the hearing, listening to the arguments of the parties involved, and considering the opinion of the representative of the People’s Procuracy of Hồ Chí Minh City, the Trial Panel concludes:

[2] Regarding procedural matters:

[3] Concerning the statute of limitations for filing the request: February 19^th, 2018, is the date the Arbitration Award No. 75/17 HCM was announced. On February 27^th, 2018, the respondent received the arbitration award, and on March 22^nd, 2017, Mrs. Đỗ Thị Mai T filed a request with the People’s Court of Hồ Chí Minh City to have the arbitration award vacated, which is within the time limit prescribed in Clause 1, Article 69 of the Law on Commercial Arbitration.

[4] The Trial Panel considers the reasons provided by Mrs. Đỗ Thị Mai T to have the arbitration award vacated as follows:

[5] The reason “The arbitration agreement is invalid due to a violation of legal prohibitions” and “The arbitration award contradicts the fundamental principles of Vietnamese law”. 

According to Article 13 of the 2010 Law on Commercial Arbitration: “In the event that a party discovers a violation of the provisions of this Law or the arbitration agreement but continues to participate in the arbitration proceedings without objecting to the violation within the time limit prescribed by this Law, they lose the right to object at the Arbitration or Court”. 

Resolution No. 01/2014/NQ-HĐTP dated March 20^th, 2014, guiding the implementation of the Law on Commercial Arbitration by the Judicial Council of the Supreme People’s Court, states: “If a party discovers a violation of the provisions or the arbitration agreement but continues to participate in the arbitration proceedings without objecting to the violations to the Arbitration Council or the Arbitration Center within the time limit prescribed by the Law on Commercial Arbitration, they lose the right to object at the Arbitration or the Court regarding the known violations.

If the Law on Commercial Arbitration does not prescribe a time limit, the time limit is determined according to the agreement of the parties or the arbitration procedures”. 

Article 9 of VIAC’s Arbitration Rules, effective from March 1^st, 2017, stipulates: “If the respondent believes that the arbitration agreement does not exist, is invalid, or cannot be performed, the respondent must specify this in the Statement of Defense. If the respondent does not specify this in the Statement of Defense, the respondent loses the right to object”. 

In Mrs. T’s Statement of Defense dated December 4^th, 2017, as well as throughout the arbitration proceedings, Mrs. T did not raise any objections to the arbitration agreement. Therefore, Mrs. T has lost the right to object to the arbitration agreement according to the aforementioned provisions.

[6] Furthermore, Mrs. T argues that the NDA violates the regulations on labor rights, violating the prohibited acts under the 2013 Employment Law, and the Arbitration Council still recognized the NDA. Therefore, the Arbitration Council violated the principle of compliance with labor laws and the prohibitions under the 2013 Employment Law.

According to Article 4 of the 2005 Civil Code: “The freedom to commit and agree to establish civil rights and obligations is guaranteed by law, provided that the commitment or agreement does not violate legal prohibitions and does not contravene social morals. In civil relations, the parties are completely voluntary, and no party may impose, prohibit, coerce, threaten, or prevent another party. A lawful commitment or agreement is binding on the parties and must be respected by individuals, legal entities, and other subjects.”

In this case, Mrs. T and Company R voluntarily signed the NDA. When signing, Mrs. T had full legal capacity according to the law, and was not coerced, deceived, or imposed upon to accept the NDA. Therefore, the NDA is valid. The Arbitration Council’s recognition of the NDA’s validity is entirely lawful.

[7] The reason for vacating the arbitration award due to “Arbitration procedures contrary to the provisions of the Law on Commercial Arbitration”.

 Mrs. T contends that the arbitration procedures were contrary to the provisions of the Law on Commercial Arbitration because: “The award was made on the 31st day from the date of the Arbitration Council meeting” and “The arbitration award was not sent to her immediately after the issuance date, i.e., it should have been sent by January 20^th, 2018.”

According to Clauses 5 and 6 of Article 148 of the 2015 Civil Code, it is stipulated that: “When the last day of the time limit is a weekend or a public holiday, the time limit ends at the end of the next working day” and “The time limit ends at midnight on the last day”. The final meeting to resolve the dispute between Company R and Mrs. T was held on January 19^th, 2018.

However, since February 18^th, 2018, the 30th day from the date of the last meeting, was a Sunday, a weekend day, the Arbitration Council issued the award on February 19^th, 2018, which was still within the time limit as per the cited provisions. February 20^th, 2018, and February 21^st, 2018, were Tet holiday days.

Therefore, according to Clause 5 of Article 148 of the 2015 Civil Code, the time limit for sending the award could not end on these days but ended at midnight on the next working day, i.e., February 22^nd, 2018. Therefore, the award sent to the parties on February 22^nd, 2018, was still within the time limit prescribed by the Law on Commercial Arbitration.

[8] The reason “The dispute does not fall under the jurisdiction of the Arbitration Council”.

Mrs. T asserts that “The NDA dispute should be resolved by the Court”. According to Clause 2 of Article 2 of the Law on Commercial Arbitration, it is stipulated: “The arbitration has the authority to resolve these disputes: Disputes arising between parties, at least one of whom engages in commercial activities.”

Company R is a business entity, registered for business, and engages in commercial activities according to the 2005 Commercial Law. Therefore, the arbitration agreement falls under the jurisdiction of VIAC and arbitration according to Clause 2 of Article 2 of the Law on Commercial Arbitration. This content was concluded by the Arbitration Council at the meeting on January 19^th, 2018 (Part A, page 5 and Part C, page 6 of the award).

Clause 4 of Article 35 of the Law on Commercial Arbitration stipulates: “If the respondent contends that the dispute does not fall under the jurisdiction of the Arbitration, there is no arbitration agreement, the arbitration agreement is invalid, or the arbitration agreement cannot be performed, it must be specified in the Statement of Defense.”

In the Statement of Defense and throughout the arbitration proceedings, Mrs. T did not raise any objections to the Arbitration’s jurisdiction and continued to participate in the arbitration proceedings and the dispute resolution meeting. Thus, Mrs. T lost the right to object to the jurisdiction of the Arbitration Council according to Article 13 of the Law on Commercial Arbitration and the guidance of Article 6 of Resolution No. 01/2014/NQ-HĐTP.

Additionally, Mrs. T asserts that the dispute between the parties is a labor dispute under the jurisdiction of the Court because the NDA is an inseparable part of the labor contracts between her and Company R.

In paragraph 11 of the Argument dated January 18^th, 2018, by the legal counsel representing Mrs. T at VIAC and at the final meeting, Mrs. T’s counsel reaffirmed the position that the NDA is completely independent of the labor contracts between Company R and Mrs. T. Therefore, the Trial Panel determined that the NDA agreement is an independent agreement, and in the event of a dispute, it falls under the jurisdiction of Arbitration as chosen by the parties upon signing.

[9] The reason “The evidence provided by the parties, on which the Arbitration Council based its decision, is falsified”.

Company R provided the Arbitration Council and Mrs. T with: A confirmation letter from Z One Member Limited Liability Bank (Vietnam) and the salary slip for the month immediately preceding Mrs. T’s NDA violation. These pieces of evidence were confirmed by Z Bank and Company R, thus cannot be considered falsified. Moreover, according to Clause 4 of Article 71 of the Law on Commercial Arbitration, this is a substantive issue, not within the jurisdiction of the Trial Panel.

[10] The representative of the People’s Procuracy of Hồ Chí Minh City attending the hearing opined: It is recommended not to accept Mrs. T’s request to have the arbitration award vacated. The representative’s recommendation is consistent with the Trial Panel’s assessment and thus accepted.

[11] Based on the above assessments, the request of Mrs. Đỗ Thị Mai T is not accepted.

[12] According to Clause 3 of Article 39 of Resolution No. 326/2016/UBTVQH14 on the court fees and charges issued by the Standing Committee of the National Assembly, Mrs. Đỗ Thị Mai T is subject to court fees. However, the list of court fees does not specify the fee for requests to have arbitration awards vacated. Therefore, Mrs. Đỗ Thị Mai T is exempt from court fees.

In light of the foregoing,

Pursuant to Clause 2 of Article 31, point a Clause 3 of Article 38, Clause 3 of Article 414, and Article 415 of the 2015 Civil Procedure Code;

Pursuant to Clause 1 of Article 5, point g Clause 2 of Article 7, Clause 2 of Article 16, Article 60, Clause 2 of Article 68, Clause 1 of Article 69, Article 71, and Article 72 of the Law on Commercial Arbitration;

Pursuant to the Resolution No. 01/2014/NQ-HĐTP dated March 20^th, 2014, of the Judicial Council of the Supreme People’s Court guiding the implementation of certain provisions of the Law on Commercial Arbitration.

IT IS DECIDED:

1. The request of Mrs. Đỗ Thị Mai T to have the Arbitration Award No. 75/17 HCM of the Arbitration Council under the Vietnam International Arbitration Centre (VIAC) dated February 19^th, 2018, in Hồ Chí Minh City, vacated is not accepted.
2. This decision is final and effective from the date of signing, June 12^th, 2018. The parties, the Arbitration Council, have no right to complain or appeal, and the Procuracy has no right to protest.

CONTENT OF THE CASE LAW:

“[8] … Mrs. T asserts that “The NDA dispute should be resolved by the Court”. According to Clause 2 of Article 2 of the Law on Commercial Arbitration, it is stipulated: “The arbitration has the authority to resolve these disputes: Disputes arising between parties, at least one of whom engages in commercial activities.”

Company R is a business entity, registered for business, and engages in commercial activities according to the 2005 Commercial Law. Therefore, the arbitration agreement falls under the jurisdiction of VIAC and arbitration according to Clause 2 of Article 2 of the Law on Commercial Arbitration. This content was concluded by the Arbitration Council at the meeting on January 19^th, 2018 (Part A, page 5 and Part C, page 6 of the award).

Clause 4 of Article 35 of the Law on Commercial Arbitration stipulates: “If the respondent contends that the dispute does not fall under the jurisdiction of the Arbitration, there is no arbitration agreement, the arbitration agreement is invalid, or the arbitration agreement cannot be performed, it must be specified in the Statement of Defense.”

In the Statement of Defense and throughout the arbitration proceedings, Mrs. T did not raise any objections to the Arbitration’s jurisdiction and continued to participate in the arbitration proceedings and the dispute resolution meeting. Thus, Mrs. T lost the right to object to the jurisdiction of the Arbitration Council according to Article 13 of the Law on Commercial Arbitration and the guidance of Article 6 of Resolution No. 01/2014/NQ-HĐTP.

Additionally, Mrs. T asserts that the dispute between the parties is a labor dispute under the jurisdiction of the Court because the NDA is an inseparable part of the labor contracts between her and Company R.

In paragraph 11 of the Argument dated January 18^th, 2018, by the legal counsel representing Mrs. T at VIAC and at the final meeting, Mrs. T’s counsel reaffirmed the position that the NDA is completely independent of the labor contracts between Company R and Mrs. T. Therefore, the Trial Panel determined that the NDA agreement is an independent agreement, and in the event of a dispute, it falls under the jurisdiction of Arbitration as chosen by the parties upon signing.”

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