Arbitration is an increasingly popular dispute resolution method used in commercial contracts to avoid lengthy court proceedings. Many businesses in Vietnam include arbitration clauses in their contracts, believing they offer a faster, more confidential, and expert-driven alternative to litigation. However, not all arbitration clauses are automatically enforceable, and some can be challenged or deemed invalid in court.

This article explores the legal framework governing arbitration in Vietnam, the enforceability of arbitration clauses, common challenges in enforcement, and best practices to ensure validity.

What is an Arbitration Clause?

An arbitration clause is a contractual provision that requires parties to resolve disputes through arbitration instead of litigation. This clause is commonly found in commercial agreements, joint venture contracts, construction contracts, and international trade agreements.

Key Benefits of Arbitration Clauses:

• Confidentiality: Unlike court trials, arbitration proceedings are private.
• Faster Resolution: Arbitration can be quicker than drawn-out court cases.
• Specialized Decision-Makers: Arbitrators with industry expertise handle disputes.
• Enforceability Across Borders: Vietnam is a signatory to the New York Convention (1958), facilitating international enforcement.

While arbitration offers these advantages, its effectiveness depends on whether the clause itself is legally valid and enforceable under Vietnamese law.

Legal Framework for Arbitration in Vietnam

Arbitration in Vietnam is governed by the Law on Commercial Arbitration (2010) and international treaties like the New York Convention (1958). Key regulations include:

• Domestic Arbitration: Administered under the Law on Commercial Arbitration, with disputes typically resolved by institutions like the Vietnam International Arbitration Center (VIAC).
• International Arbitration: Recognized for cross-border contracts, provided the arbitration clause meets Vietnamese legal standards.
• Court Recognition of Arbitration Awards: Vietnamese courts recognize and enforce both domestic and foreign arbitration awards, provided they do not violate Vietnamese public policy.

These laws establish arbitration as a legitimate dispute resolution mechanism, but not all clauses will hold up under scrutiny.

When is an Arbitration Clause Enforceable?

For an arbitration clause to be legally valid and enforceable in Vietnam, it must meet the following conditions:

• Written Agreement: The arbitration clause must be in writing and clearly stated within the contract.
• Clear Intent to Arbitrate: The clause must explicitly require disputes to be resolved by arbitration and exclude court litigation.
• Valid Arbitration Institution: The chosen arbitration center (e.g., VIAC, ICC, SIAC) must be properly designated in the clause.
• Defined Scope of Disputes: The clause must specify what types of disputes are subject to arbitration.
• Compliance with Public Policy: If an arbitration clause contradicts Vietnamese public policy or fundamental legal principles, it may be invalidated.

Common Challenges in Enforcing Arbitration Clauses

Even if a contract includes an arbitration clause, enforcement may be challenged in court. Common issues include:

• Ambiguous Wording: Poorly drafted clauses can create uncertainty about whether arbitration is mandatory or optional.
• Naming an Invalid Arbitration Center: If the arbitration clause refers to a non-existent or unapproved arbitration institution, it may be void.
• Court Intervention: Some parties attempt to bypass arbitration by filing lawsuits in Vietnamese courts, arguing that arbitration is inapplicable.
• Recognition of Foreign Arbitration Awards: While Vietnam follows the New York Convention, courts may reject awards that violate Vietnamese legal principles.

A 2022 case in Vietnam demonstrated how a business dispute between a local company and a foreign investor was sent back to Vietnamese courts because the arbitration clause failed to specify a recognized arbitration center.

How to Ensure Your Arbitration Clause is Enforceable

To prevent disputes over arbitration validity, businesses must ensure that arbitration clauses are drafted with precision and legal compliance. The wording of the clause should explicitly state that arbitration is the exclusive method of dispute resolution and that litigation in local courts is not an option. Any ambiguity can lead to enforcement issues, as courts may interpret unclear clauses in favor of litigation.

It is also crucial to specify the arbitration institution that will handle disputes. Recognized institutions such as the Vietnam International Arbitration Center (VIAC), the International Chamber of Commerce (ICC), or the Singapore International Arbitration Centre (SIAC) provide credibility and established procedures for resolving conflicts. Failing to name a valid arbitration institution could result in the clause being deemed unenforceable.

The arbitration clause should define the scope of disputes covered under arbitration. Clearly outlining what types of contractual disagreements fall within the arbitration process helps prevent challenges to its applicability. identifying the seat of arbitration and the governing law ensures clarity on the procedural and substantive laws that will govern the arbitration proceedings.

Consulting legal professionals experienced in Vietnamese arbitration law can help businesses draft enforceable clauses. Legal experts can ensure that arbitration agreements align with Vietnam’s Law on Commercial Arbitration (2010) and international standards, minimizing the risk of court intervention and increasing the likelihood of enforcement.

Arbitration vs. Litigation: What’s Better for Your Contract?

While arbitration offers advantages, it is not always the best choice. Businesses should weigh arbitration against litigation based on:

In contracts where confidentiality, expertise, and enforceability are priorities, arbitration is preferable. However, in disputes involving strong legal protections under Vietnamese law, litigation may be the better option.

Conclusion

Arbitration clauses can be a powerful tool for resolving business disputes efficiently, but they must be carefully drafted to be legally enforceable in Vietnam. Businesses must ensure their arbitration agreements comply with Vietnamese law to avoid unexpected court intervention.

Le & Tran is a leading law firm in Vietnam, specializing in arbitration and dispute resolution. Our firm is recommended by AmCham Vietnam, the US Consulate, and consistently top-ranked in Chambers, Legal500, and Benchmark Litigation for our expertise in commercial arbitration. Whether you need assistance with contract drafting, arbitration representation, or enforcing arbitration awards, our team provides tailored legal solutions to safeguard your business interests.

For expert legal guidance on arbitration in Vietnam, contact us at info@letranlaw.com.