When disputes arise, the parties involved may choose to resolve them through negotiation, mediation, litigation, or arbitration. Arbitration is a common alternative to litigation in commercial disputes as it is often faster, more efficient, and more confidential than court proceedings.
In Vietnam, arbitration agreements in the resolution of commercial disputes are governed by the Law on Commercial Arbitration 2010 and relevant legal documents.
1. Jurisdiction of Commercial Arbitration
What is commercial arbitration? Commercial arbitration is a dispute resolution method agreed upon by the parties and conducted in accordance with the provisions of the applicable law. Like other disputes, disputes under the jurisdiction of the courts are governed by the law (Civil Procedure Code 2015). According to the Law on Commercial Arbitration 2010, the jurisdiction of arbitration extends to the following disputes.
Disputes between parties arising from commercial activities;
Disputes between parties where at least one party engages in commercial activities;
Other disputes between parties as prescribed by law to be resolved through arbitration.
2. Conditions for Resolving Disputes via Arbitration
Article 2 of the Law on Commercial Arbitration 2010 outlines the jurisdiction of arbitration. For disputes to be resolved through arbitration, not only must they fall under the jurisdiction of the courts, but the parties must also meet certain conditions. Specifically, Clause 1, Article 5 of the Law on Commercial Arbitration 2010 provides:
“A dispute shall be resolved by arbitration if the parties have an arbitration agreement. The arbitration agreement may be made before or after the dispute arises.”
An arbitration agreement is an agreement between the parties to resolve a dispute, whether anticipated or already arisen, through arbitration. If an arbitration agreement exists but is invalid, arbitration lacks jurisdiction to resolve the dispute. In such cases, if an arbitration center or arbitrator proceeds to resolve the matter, the arbitral award will be subject to annulment.
It is clear that the arbitration agreement is a critical factor and plays a decisive role in applying arbitration as a dispute resolution method in business. In other words, without an arbitration agreement, disputes cannot be resolved through arbitration.
3. Invalid Arbitration Agreements
An arbitration agreement is deemed invalid in the following circumstances:
The dispute arises in areas outside the jurisdiction of arbitration as specified in Article 2 of the Law on Commercial Arbitration 2010;
The individual or entity entering into the arbitration agreement lacks the legal authority to do so under the law;
The individual entering into the arbitration agreement lacks legal capacity in accordance with the Civil Code 2015;
The form of the arbitration agreement does not comply with Article 16 of the Law on Commercial Arbitration 2010;
One party was deceived, threatened, or coerced during the formation of the arbitration agreement and requests that the agreement be declared invalid;
The arbitration agreement violates prohibitions prescribed by law.
3. Forms of Commercial Arbitration
Commercial arbitration exists in two main forms: ad-hoc arbitration and institutional arbitration.
Ad-hoc Arbitration
Ad-hoc arbitration is the earliest form of arbitration and has been widely used worldwide. The arbitration laws of various countries recognize the existence of this form of arbitration, though the depth and breadth of regulations differ among jurisdictions. Ad-hoc arbitration refers to dispute resolution conducted in accordance with the Law on Commercial Arbitration 2010 and the procedures agreed upon by the parties.
Characteristics of Ad-hoc Arbitration
- First, ad-hoc arbitration is established only when a dispute arises and automatically terminates (self-dissolves) upon the resolution of the dispute. This form of arbitration exists and operates solely during the period of resolving a dispute between the parties, and ceases to function once the dispute is resolved.
- Second, ad-hoc arbitration does not have a permanent office, an executive apparatus, or a dedicated list of arbitrators. It is established solely to resolve a specific dispute based on the agreement of the parties. Arbitrators selected or appointed by the parties may be individuals from within or outside the arbitrator lists of arbitration centers.
- Third, ad-hoc arbitration does not have its own procedural rules.
Since ad-hoc arbitration is only formed upon the occurrence of a dispute, the procedural rules for resolving the dispute must be agreed upon by the parties. However, to save time and effort in developing procedural rules, the disputing parties may agree to adopt any established procedural rules, typically those of reputable domestic or international arbitration centers.
The formation, procedural framework, the binding effect of arbitral awards, and enforcement mechanisms for ad-hoc arbitration were first formally regulated under the Ordinance on Commercial Arbitration 2003. Prior to the issuance of this Ordinance, ad-hoc arbitration was recognized merely as a dispute resolution method without any specific regulations on its mechanisms.
Ad-hoc arbitration has several advantages, such as speedy resolution, cost efficiency, and the parties’ unrestricted choice of arbitrators. Arbitrators may be selected from within or outside the arbitrator lists of any arbitration center. Additionally, ad-hoc arbitration provides flexibility in determining procedural rules for dispute resolution.
Institutional Arbitration
Under the laws of most countries, arbitration exists in the form of non-governmental arbitration (as a professional social organization) and is not part of the state apparatus. However, exceptions exist in certain Asian countries, such as China and Thailand, which have distinct approaches in their arbitration laws.
Under Vietnamese law, institutional arbitration is organized through arbitration centers. An arbitration center is a non-governmental organization with legal entity status, its own seal, independent accounts, and a stable transaction office.
Institutional arbitration refers to dispute resolution conducted at an arbitration center in accordance with the Law on Commercial Arbitration 2010 and the procedural rules of that center.
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