The court is a judicial body that adjudicates cases in the name of the State’s authority, with broad jurisdiction. How does the jurisdiction of arbitration compare to that, Mr. Sang?

Mr. Pham Xuan Sang: Arbitration is a private adjudicative body, not a governmental agency. Arbitration is conducted by the “delegation of authority” granted by the disputing parties themselves through a legally binding “arbitration agreement.” This arbitration agreement is typically included as a clause within the contract or drafted as a separate agreement. With the "delegation of authority" from the parties and in accordance with the Law on Commercial Arbitration of Vietnam, arbitration has the authority to resolve disputes, specifically: disputes between parties arising from commercial activities; disputes between parties where at least one party is engaged in commercial activities; and disputes that are required by law to be resolved by arbitration.

Therefore, when the parties have chosen arbitration to resolve their dispute, if one of the parties files a lawsuit in court, the court must reject the case. This is also a legal obligation of Vietnam as a member of the 1958 New York Convention since 1995.

Could you please explain how this “delegation of authority” from businesses, specifically merchants, companies, and investors, to arbitration is implemented in practice in Vietnam?

Mr. Pham Xuan Sang: In Vietnam, from the 1960s, economic arbitration emerged and developed alongside the birth of the economic contract regime. During the period of centralized planning, state economic arbitration not only resolved economic disputes but also managed the economic contract regime. Entering the period of economic reform and international integration, since 1994, economic arbitration has been defined as a social-professional organization with the function of dispute resolution, no longer carrying out state management functions as before.

With the enactment of the 2003 Ordinance on Commercial Arbitration and later the 2010 Law on Commercial Arbitration, commercial arbitration has made significant progress and gradually became the preferred choice of merchants, especially foreign investors, for dispute resolution.

The “delegation of authority” to resolve disputes is typically made during the contract negotiation and drafting phase. However, most Vietnamese businesses tend to pay little attention to dispute resolution clauses, and by default, they often assume that the court will be the competent authority to resolve disputes, rarely negotiating or choosing other adjudicative bodies (such as arbitration) for dispute resolution. This is one of the reasons why more than 90% of domestic commercial contract disputes are taken to court. This has led to an overload in the judiciary for many decades. Moreover, court-based dispute resolution reveals many limitations, particularly the lengthy process involving multiple levels of adjudication, which can result in delays. This situation creates disadvantages for businesses and investors, especially in the context of Vietnam’s deeper integration into the global economy.

In your opinion, what are the similarities and differences between court and arbitration in dispute resolution?

Mr. Pham Xuan Sang: There are many similarities between courts and arbitration, but fundamentally, we can observe that: both courts and arbitration serve as neutral third parties to adjudicate disputes, both have jurisdiction to hear and decide disputes, and the judgments, rulings, and decisions of courts and the awards and decisions of arbitration are binding and enforceable by civil enforcement authorities in accordance with the Law on Civil Enforcement.

In addition, there are several key differences between court and arbitration in business dispute resolution:

First, when resolving disputes in court, the parties must comply with the provisions of the Civil Procedure Code and cannot choose or change this procedure. Meanwhile, arbitration respects and prioritizes the parties’ choices. The parties can agree on the selection of arbitrators, the location and time of the arbitration hearings, the language of the proceedings, and the law applicable to disputes with foreign elements, among other factors necessary for resolving the dispute.

Second, court hearings are generally public, whereas arbitration proceedings are confidential. This helps parties protect the confidentiality of their disputes, business operations, and reputations.

Third, unlike the courts, arbitration operates with only one level of adjudication, making the arbitration process typically faster. A dispute following standard procedures can be resolved in less than three months and may be even shorter if expedited procedures are applied.

Fourth, when resolving disputes in court, if a party disagrees with the first-instance judgment, they can appeal to the appellate court and may even request a review of the effective judgment through cassation or reopening procedures. In contrast, arbitration awards are final, meaning they cannot be altered or reviewed on the merits and are binding upon the parties from the date of issuance.

Fifth, since 1995, Vietnam has been a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. As a result, arbitral awards from Vietnam can be recognized and enforced in member states of the New York Convention. In contrast, the enforcement of court judgments abroad depends on bilateral agreements such as judicial assistance treaties that Vietnam has signed.

Are the advantages of resolving business disputes through arbitration the reason you established the Vietnam Traders Arbitration Centre (VTA)?

Mr. Pham Xuan Sang: VTA was established in 2018 with the approval of the Ministry of Justice to resolve disputes through arbitration in accordance with the law.

VTA was initiated from the dispute resolution experience of the lawyers who also serve as founding arbitrators of VTA. These lawyers have been closely involved in the development of many private economic corporations in Vietnam for nearly two decades. Their observations and experiences as litigators and in-house counsel for large corporations in the private sector have fostered the creation of VTA, with the mission of providing a reputable and effective dispute resolution mechanism based on respect, legal standards, and responsibility towards merchants and society.

To realize this mission, VTA pursues the core value of “RAPID,” built on five foundational elements: Respect – Alternative – Prestige – Intelligence – Dedication.

So, when it comes to dispute resolution, businesses can choose either arbitration or the courts. What should businesses keep in mind when exercising this “right to choose”?

Mr. Pham Xuan Sang: Businesses and traders should be proactive in negotiating and agreeing on the choice of adjudicative authority during contract negotiation and signing. When drafting and signing contracts, the parties should carefully consider the advantages and disadvantages of court-based and arbitration-based dispute resolution to make the best choice for the specific nature of each business transaction.

If arbitration is chosen as the method of dispute resolution, it is crucial to select an arbitration institution that aligns with the characteristics of the contracting parties, the transaction subject, the location of contract performance, and the place of enforcement. Additionally, it is important to draft a valid arbitration clause to avoid invalid or unenforceable arbitration agreements. Special attention should be given to correctly and fully naming the chosen arbitration institution in the contract.

By Thanh Tung – The Corporate Finance Magazine

VTA’s Model Arbitration Clause: “Mọi tranh chấp phát sinh từ hoặc liên quan đến hợp đồng này sẽ được giải quyết bằng trọng tài tại Trung tâm Trọng tài Thương nhân Việt Nam (VTA) theo Quy tắc tố tụng trọng tài của Trung tâm này”. “Any dispute arising out of or in relation with this contract shall be resolved by arbitration at the Vietnam Traders Arbitration Centre (VTA) in accordance with its Rules of Arbitration”.

The Vietnam Trade Arbitration Center (VTA) is responsible for organizing and coordinating the resolution of business disputes through institutional arbitration, with jurisdiction over disputes including: (i) disputes arising from commercial activities between parties; (ii) disputes involving at least one party engaged in commercial activities; and (iii) disputes as prescribed by law to be resolved by arbitration.