Similar to judicial proceedings in a court, arbitration is a form of dispute resolution. The process involves one or more arbitrator(s) acting as independent, impartial adjudicator(s) who issues a final binding judgment to end the dispute.  Arbitration, however, has some unique characteristics that are distinct from adjudication in court:

Which cases may the parties resolve a dispute by arbitration?

A dispute can be subject to arbitration if it arises from commercial activities and there is a valid agreement between the parties to resolve such dispute by arbitration; otherwise, the dispute may be subject to the court’s jurisdiction.

Usually, an agreement to resolve disputes by arbitration is directly stated in the contract between the parties, and is often referred to as the “arbitration clause.”  Arbitration centers usually offer a model arbitration clause on their websites for the parties’ reference and as a starting point in the drafting process.  For instance, the Vietnam International Arbitration Centre has the model arbitration clause as follows: “Any dispute arising out of or in relation with this contract shall be resolved by arbitration at the Vietnam International Arbitration Centre (VIAC) in accordance with its Rules of Arbitration.”

Advantages of dispute resolution by arbitration

Having a dispute decided by arbitration offers some notable advantages over adjudication by a court.  Particularly:

• Time spent on resolving a dispute will be shorter. It may take years to obtain a final judgment from a court; but if arbitration is utilized, it may take less than a year. The reasons for this are:
• Arbitration centers will only accept commercial disputes in the event that there is an arbitration agreement among the parties. Therefore, the number of cases resolved by arbitration is much fewer than those adjudicated by the courts (e.g. in 2016, VIAC only received 155 cases, while the courts in Ho Chi Minh City received 65,164 cases); and
• Arbitrators do not work as full-time judges and only accept disputes and receive remuneration when there is a request from the parties (i.e. the parties will select their arbitrators during the arbitration proceedings).  Hence, an arbitration center can maintain a list of hundreds of arbitrators who will participate in cases on the parties’ request without incurring significant operational expenses.

The parties have the flexibility to select arbitrators that have qualifications and expertise suitable to the case. For example, the parties may select arbitrators who are foreign lawyers for cases relating to foreign laws or those having expertise in construction, shipping, technology, etc. that correspond to the subject matter of the dispute.

Higher level of confidentiality compared to court proceedings. Arbitrators are obliged to keep the dispute to which they are assigned confidential. Arbitration hearings are not open to the public like court trials and only the relevant parties may join. Thus, the parties can keep the dispute confidential and minimize any negative impacts to their reputation or standing in the business community.

Disadvantages of dispute resolution by arbitration

Apart from the advantages set forth above, arbitration does have certain drawbacks.

Arbitrators have very little oversight by other authorities, so their decisions may not strictly follow legal regulations but instead, may involve novel reasoning and attempt to equitably balance the benefits/disadvantages for all parties.

Arbitration fees are significantly higher than court fees.  To take one example, for a commercial dispute valued at VND1,000,000,000 (around USD43,966), the arbitration fee of the VIAC is VND85,800,000 (around USD3,772); while the first-instance court fee is VND42,000,000 (around USD1,847) and the appellate court fee is VND2,000,000 (around USD88).

Arbitral awards are final and cannot be appealed. The award by the arbitrator(s) may only revoked by the court in certain rare cases, such as when there are serious violations of litigation procedures or the fundamental principles of the Vietnamese laws.

Disputes that should be resolved by arbitration

To utilize the advantages as well as limit the disadvantages of arbitration, the parties should consider selecting arbitration to resolve their future disputes (by adding an arbitration clause to their agreements) in the following cases:

• The parties want to prioritize a quick dispute resolution rather than a thorough but time-consuming one;
• The parties aim to preserve confidentiality during the dispute resolution and prevent their transactions and the fact that they are in a dispute from becoming public knowledge; and
• The dispute is related to a field that requires persons who have the corresponding expertise to resolve (e.g. an intellectual property dispute).

Should you have any question of the arbitration proceedings in Vietnam, please contact our Commercial Litigators and Trial Lawyers at info@letranlaw.com