When it comes to settling disputes arising out of commercial transactions, besides litigation, alternative dispute resolution (ADR) mechanisms (more specifically arbitration) have gained popularity and became regarded as a viable method for dispute settlement in recent years. The statistics published by the Vietnam International Arbitration Centre (VIAC) in respect of disputes that it has heard over the years clearly demonstrate the rapid shift from litigation to ADR in Vietnam. As reported, 211 disputes with the estimated value of VND 17,021 billion had been settled by VIAC in 2020, which is 3.5 times higher than the cases recorded in 2010 (63 cases)[1]. The figures speak for themselves.
To help businesses capture and utilize this alternative tool of dispute settlement, in this article, we furnish you with an overview of one of the most commonly employed forms of alternative dispute resolution in Vietnam – commercial arbitration. This article discusses the reasons why arbitration should be worth considering.
1. What is alternative dispute resolution (ADR)?
A widely accepted definition of ADR is that the disputants decide to settle the dispute by themselves or via a third party without initiating court proceedings. By this definition, resolution of disputes via arbitration centers will fall into the category of ADR and has to be conducted by individuals and organizations satisfied with the provisions of laws on arbitration and related legislation. Besides arbitration, mediation is making its presence felt among firms and companies in Vietnam for its flexibility and business-friendliness.
2. Regulatory framework for commercial arbitration
In Vietnam, the rules pertaining to the conduct of commercial arbitration is provided by the Law on Commercial Arbitration (2010) (“Law on Commercial Arbitration”) and its implementing regulations, including (i) Decree No. 63/2011/ND-CP implementing certain provisions of Law on Commercial Arbitration (“Decree 63”), (ii) Decree No. 124/2018/ND-CP amending certain provision of Decree 63 (“Decree 124”). In essence, given the fact arbitration is an alternative method of resolution conducted by non-court organizations, the final arbitral awards are basically rendered by applying the substantive laws, which is quite similar to the ones delivered by courts in this regard. In other words, Law on Commercial Arbitration and its implementing regulations are to serve the purpose of setting up a regulatory framework on major matters, e.g., forms of arbitration, procedures for arbitration, rights and obligations of involved parties, validity and enforcement of arbitral awards.
Aside from domestic legislation, one major international treaty on arbitration to which Vietnam is a member is The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”)[2]. However, in a report published by the Ministry of Justice, during the period from 1st January 2017 to 30 September 2019, the number of requests for recognition and enforcement of foreign arbitral awards in Vietnam was 82 requests, and 30 of which were rejected by the competent courts in Vietnam for various reasons[3].
3. Validity and enforcement of arbitral awards
Article 61 of the Law on Commercial Arbitration states that “the final arbitral award is final and binding upon the parties”. Unlike a court’s decision, in which the parties can bring an appeal to a higher court to reconsider the lower court’s decision, an arbitral award cannot be appealed or be reconsidered regarding the principal view of the arbitral tribunal.
An arbitral award shall take effect from the date of issuance in the eyes of the Law. This is another main difference between an arbitral award and a court’s decision. As is the case, a court’s decision basically takes effect upon the expiration of the appealing term without being appealed by the parties under laws of civil procedures. By law, this term is 30 days from the date on which the decision was delivered by the lower court.
While the main contents of an arbitral award could not be appealed, the parties to the dispute can request the arbitral tribunal to correct, interpret, or supplement the arbitral award. Yet, such adjustments must not alter the principal points of the arbitral award, and will be under the following circumstances:
- Correct spelling, numerical errors caused by a mistake or incorrect computation or another error of a similar nature;
- Interpret a particular part or the whole of the arbitral award;
- Make an additional arbitral award with respect to the issues presented during the arbitral proceedings but not yet recorded in the Arbitral Award.
Besides the abovementioned validity, the arbitral award enforcement, which secures the legitimate interest of concerned parties, also deserves further consideration.
Considering the nature of commercial disputes, the parties are encouraged to “voluntarily enforce the arbitral award”, before the arbitral award is enforced by a civil enforcement agency at the request of the concerned party. Although not issued by the Court, arbitral award could be enforced by involving civil enforcement agency if the concerned party fails to voluntarily perform its obligations under the arbitral award. Mechanisms and procedures for enforcement of arbitral awards are provided in the Law on Enforcement of Civil Judgment (2008) (amended and supplemented in 2014), which is also applied to enforce the court’s judgments.
In general, based on the current regulatory framework and, an arbitral award issued by the arbitral tribunal is legally valid and binding upon the parties. The enforcement of arbitral awards is ensured through the apparatus of civil enforcement agencies.
4. Advantages and remarks when choosing commercial arbitration as a method of dispute resolution
4.1 Advantages
In commercial disputes between corporates, the application of commercial arbitration has certain advantages compared to conventional dispute resolution methods.
Streamlining procedures and shortening dispute settlement time: Issues regarding the: formality of arbitration requests, dispute settlement procedures, evidence submission procedures, handling records and dispute resolution sessions are relatively straightforward when it comes to arbitration. The procedural simplicity results in the reduction of the average time taken to resolve a dispute. Realistically, for a typical commercial dispute, dispute resolution can range from 3 to 4 months depending on its complexity, the number of parties, availability of documents and evidence of the parties concerned.
Flexibility in language and seat of arbitration: Depending on their needs, parties can consider choosing the language and seat of arbitration they find most convenient. Especially, in the current situation of the COVID-19 epidemic, some arbitration centers have even launched dispute resolution sessions through digital means such as Zoom or Google Meet over physical sessions.
Applicability of foreign laws: Due to increasing commercial transactions involving foreign persons and entities, jurisdictional issues may also arise between parties. Accordingly, the Law allows parties to choose the applicable law to settle the dispute. If the parties do not have an agreement, the arbitral tribunal will decide to apply the Law that it considers most appropriate. The choice of this jurisdiction is subject to the rules of International Law.
4.2 Remarks
In order to effectively employ arbitration in practice, parties need to put special emphasis on the validity of the agreements or clauses on arbitration.
First of all, the parties need to determine whether the dispute falls within the scope of jurisdiction by the arbitral tribunal. Under current regulations, a dispute can be resolved by arbitration when the dispute between the parties arises from commercial activities or there is at least one party engaged in commercial activities. In other words, ordinary civil disputes between individuals or legal entities will not be able to be resolved through arbitration.
In addition, when drafting and negotiating contracts, the parties need to have a clause clearly stipulating that the parties agree to choose arbitration to settle possible disputes. The model arbitration clause usually includes the following major points:
- Details on the selected arbitration center
- Seat of arbitration
- Applicable jurisdiction
- Arbitration language
Number of members of the arbitral tribunal
[1] Statistics on dispute settlement activity of VIAC in 2020: https://www.viac.vn/thong-ke/thong-ke-hoat-dong-giai-quyet-tranh-chap-nam-2020-s36.html
[2] dated 10 June 1958
[3]Database on recognition and enforcement of foreign arbitral awards and decisions of foreign courts: https://moj.gov.vn/tttp/Pages/dlcn-va-th-tai-Viet-Nam.aspx?fbclid=IwAR1wTsvb5Sl_61pjUiNMLqyP3XoWsNlzAi_GgZCsp1D44t0a8Rl5eF4pqAM
