INTERNATIONAL COMMERCIAL ARBITRATION AND WHAT YOU NEED TO KNOW!

International Commercial Arbitration is an out-of-court dispute resolution method, with the jurisdiction to resolve disputes arising from international judicial relationships at the request of parties.

In the international commercial reality of today, disputes arising from the signing and performance of contracts are quite common. Such disputes could originate from a number of causes, such as: parties having different ways of understanding and applying the provisions of the contract, cases where one of the parties clearly violates its obligations under the contract but the parties cannot agree on how to handle it, events that are unforeseen by the parties so there is no governing contract. Therefore, the parties have the need to refer to a third party to act as an intermediary to arbitrate and make the final decision.

So why don’t parties select the Court as a mean to resolve disputes?

Selecting the method to resolve disputes is a right of parties when negotiating and signing the contract. Parties have the right to resolve the disputes in Court or at an international arbitration center; and these two methods are interchangeable. This means that if parties have chosen to settle their disputes at the International Arbitration Center then the Court must refuse to take the case. If parties have chosen the Court as their dispute resolution body then the Arbitration Center must refuse to take the case.

In international justice, parties tend to choose international arbitration for many reasons, in which, the basic reasons include: Dispute settlement at international commercial arbitration takes little time, saves costs and provides better information security. On the other hand, dispute settlement by arbitration method will ensure the maximum freedom of agreement of the parties on the arbitration proceedings, on the scope and content of settlement, as well as ensure objectivity and accuracy. The court is a system of the State apparatus, so it tends to use the power of the State to make judgments rather than using the experience, knowledge and capacity of the trial panel. In the method of dispute settlement by international commercial arbitration, the arbitration tribunal consists of lawyers and experts selected from many different organizations and at the request of the parties, so the arbitrators do not have State power but only soft power in terms of knowledge, skills, impartiality and objectivity.

What should parties be aware of when choosing to resolve the dispute via International Commercial Arbitration?

As a form of dispute resolution, international commercial arbitration offers a high degree of flexibility to parties. Parties are entitled to search and designate arbitrators to resolve the case, to negotiate the time and arbitration proceedings, parties are also entitled to negotiate and mediate to resolve the case even during the performance of the arbitration process. However, it is precisely because of that level of flexibility that arbitration could be confusing to the inexperience. As such, parties have the tendency to seek to support of Consulting Lawyers experienced in the field of dispute resolution via arbitration.

Usually, parties choose International Commercial Arbitration as the method of dispute resolution right in the contract negotiation process, and stipulate it into a specific clause in the contract. However, in cases where the contract has fixed the method of dispute resolution by Court, the parties can also change this by making addendums to readjust the provisions of the contract. Or, in case the contract does not provide for a method of dispute settlement, the parties may also agree to an additional method of dispute settlement by international commercial arbitration in a separate document. In general, when submitting an application to an international commercial arbitration body, one of the mandatory conditions is that the parties must have an arbitration agreement. The arbitration agreement can be made into a separate document or via a clause in a contract. The arbitration agreement can be made before the time of the dispute or after the time of the dispute.

With the method of dispute resolution via the Court, the trial panel is decided by the Court and parties have no say in this. However, in resolving disputes via arbitration, parties are entitled to choose and appoint arbitrators. Each party shall select one arbitrator and the arbitrators shall vote for another arbitrator to become the President of the Arbitration Tribunal. Parties will need to research thoroughly the listing of arbitrators of the International Arbitration Center to find the person with the capability, experience and expertise to become the arbitrator. The arbitrator must take an oath and commit to be honest, objective and partial during the handling of the case.

Whichever international arbitration center the parties choose, the proceedings will follow the rules of the proceedings of that center. Basically, arbitration rules are not so complicated and detailed as the laws on court proceedings. Therefore, the parties need to carefully study in order to discuss with each other and propose to the arbitration tribunal issues that are not provided for in the rules of arbitration proceedings. The parties have the right to negotiate to change some contents in the rules of arbitration to apply to their case if so agreed by the Arbitration Tribunal.

Although the procedural rules are issued by the Arbitration Center, the applicable law is governed by the agreement of the parties. In case the contract has no provisions on applicable law and the parties cannot reach an agreement among themselves, the arbitration tribunal has the right to consider and decide.

Regarding the applicable Law, you can refer to Article 14 of the Law on Commercial Arbitration 2010 as follows:

“Article 14. Applicable laws for dispute settlement

For a dispute involving no foreign element, the arbitration tribunal shall apply Vietnamese law for settling the dispute.

 For disputes involving foreign elements, the arbitration tribunal shall apply the law selected by the parties; if the parties have no agreement on the applicable law, the arbitration council shall decide to apply a law it sees as the most appropriate.

 When the Vietnamese law or law selected by the parties contains no specific provisions concerning the dispute, the arbitration tribunal may apply international practices for settling the dispute, provided such application or consequence of such application does not go against the fundamental principles of Vietnamese law.”

Commercial arbitration is a dispute resolution method in general, and international commercial arbitration is a resolution method for disputes arising from International Judicial relationship, meaning relationships with foreign elements. Even so, this does not mean that International Arbitration Centers can only resolve disputes with foreign elements, they can resolve both domestic disputes and those with foreign elements.

The most well known international arbitration center in Vietnam is the Vietnam International Arbitration Center (VIAC) next to Vietnam Chamber of Commerce and Industry. However, in Vietnam, there are over 15 International Arbitration Centers licensed to operate, and you can find the list of these 15 centers in the directory of the Ministry of Justice.

In international commercial contracts, parties can select the International Arbitration Center in Singapore, Hong Kong or London as the dispute resolution body, without necessarily choosing an arbitration center in Vietnam. Regarding how to select the appropriate dispute resolution body, the contract drafting consultant lawyer will have to consider and advise the client in a complete and detailed way, because it is related to many other factors, such as culture, habits, place of performance of the contract and power of each party.