Today, when signing commercial contracts, businesses often negotiate to choose commercial arbitration as a method of dispute resolution. However, in many cases, there were arbitration agreements, but because of not understanding the legal provisions, many cases of arbitration agreements were invalid or the arbitration body had no competence to settle disputes. The following article will help readers understand more about arbitration agreements in commercial contracts.

ARBITRATION AGREEMENT IN COMMERCIAL CONTRACTS

What is an arbitration agreement?

According to Clause 2, Article 3 of the Law on Commercial Arbitration 2010 following:

“Arbitration agreement means an agreement between the parties to settle by arbitration a dispute which may arise or has arisen.”

Accordingly, when there is a dispute or in the process of entering into a contract, the commercial arbitration method is applied when there is an arbitration agreement between the disputing parties. The reason for this agreement is that the arbitral award is final and not subject to appeal or protest. The parties take responsibility for the execution of the sentence. Therefore, the parties must negotiate to apply this method, and then follow the arbitration award.

According to Article 5 of the Law on Commercial Arbitration 2010, the conditions for applying commercial arbitration to settle disputes are as follows:

• A dispute shall be settled by arbitration if the parties have an arbitration agreement. An arbitration agreement may be made either before or after a dispute arises.
• When one of the parties being an individual to an arbitration agreement dies or loses his/her act capacity, such arbitration agreement remains valid for his/her heir or representative at law, unless otherwise agreed by the parties.
• When one of the parties being an institution to an arbitration agreement has to terminate its operation, goes bankrupt, or is dissolved, consolidated, merged, divided, split up, or reorganized, such arbitration agreement remains valid for an institution that takes over the rights and obligations of the institution to such arbitration agreement, unless otherwise agreed by the parties.

Therefore, the parties can not always choose commercial arbitration as a dispute settlement agency but must meet the necessary conditions prescribed by law.

 

Advantages of Dispute Resolution by Arbitration

Simple, fast, flexible:

This method allows the parties to agree on the time, place, and arbitration procedures themselves, without being imposed on formalities like settlement in the Court. Therefore, the parties do not spend too much time and necessary costs to resolve disputes.

High security:

Dispute settlement by arbitration shall be conducted in private unless otherwise agreed by the parties. Therefore, all information related to the dispute is only kept by the parties, the arbitration body, and will be kept strictly confidential, unless otherwise agreed by the parties. This is necessary because when a commercial dispute occurs, the parties suffer damage in many ways. If the information is published, it will affect the reputation, brand and business.

Based on the agreement of the parties:

From the selection of a commercial arbitration body to settle disputes as well as during the dispute settlement process, everything is done based on the agreement between the disputing parties. Accordingly, the parties have the right to agree on the time, place, arbitration procedure, arbitrator, law and language for dispute settlement. This makes it easy for the parties without being bound to comply with the procedure of the Court.

 

Disadvantages of Dispute Resolution by Arbitration

Although there are many advantages mentioned above, commercial arbitration also has certain disadvantages compared to the Court, specifically:

Errors may occur during processing:

Because the arbitrator issues an arbitral award after only one level of trial, sometimes the arbitrator’s decisions are incorrect, causing damage to the legitimate rights of the parties that cannot be resolved on appeal as the procedure in the Court.

Security measures cannot be taken:

Arbitration is not a state authority. In cases where it is necessary to apply an urgent provisional measure to secure evidence, the arbitrator cannot make a binding decision but must request the Court to enforce its award.

Commercial arbitration can only be applied when there is an agreement

If there is no arbitration agreement, when a dispute occurs, the arbitrator has no authority to resolve it even if one of the parties intends to do so.

 

Forms of arbitration agreement

According to  Article 16 of the Law on Commercial Arbitration 2010, the form of arbitration agreement is as follows:

• An arbitration agreement may be made in the form of an arbitral clause in a contract or in the form of a separate agreement.
• An arbitration agreement must be in writing. The following forms of agreement may also be regarded as written forms:
• Agreement made through communication between the parties by telegram, fax, telex, email or other forms provided for by law;
• Agreement made through the exchange of written information between the parties;
• Agreement recorded in writing by a lawyer, notary public or competent institution at the request of the parties;
• In their transactions, the parties make reference to a document such as a contract, document, company charter or other similar documents which contain an arbitration agreement;
• Agreement made through exchange of petitions and self-defense statements which reflect the existence of an agreement proposed by a party and not denied by the other party.

Accordingly, the mandatory arbitration agreement must be made in writing, terms of contract or negotiated in the form of a separate agreement and must comply with the law.

Principles of dispute settlement by arbitration

According to  Article 4 of the Law on Commercial Arbitration 2010, the principles of dispute settlement by arbitration are as follows:

• Arbitrators must respect the party’s agreement if such agreement neither breaches prohibitions nor contravenes social ethics.
• Arbitrators must be independent, objective and impartial and shall observe law.
• Disputing the parties are equal in their rights and obligations. The arbitration council shall create conditions for disputing the parties to exercise their rights and fulfill their obligations.
• Dispute settlement by arbitration shall be conducted in private unless otherwise agreed by the parties.
• Arbitral awards are final.

These principles are the distinctive feature that distinguishes dispute settlement procedures under commercial arbitration and the Courts. This is the basis for the parties to choose the appropriate dispute resolution method.

Invalid arbitration agreement

According to  Article 18 of the Law on Commercial Arbitration 2010, Article 3 Resolution 01/2014/NQ-HDTP, the arbitration agreement is invalid in the following cases:

• “The dispute that arises is related to the fields beyond the competence of arbitral tribunals” according to Clause 1 Article 18 of the Law on Commercial Arbitration 2010 means the case in which an arbitration agreement is negotiated to resolve the disputes related to the fields other than those mentioned in Article 2 of this law.
• “The arbitration agreement is negotiated by incompetent persons” according to Clause 2 Article 18 of the Law on Commercial Arbitration 2010 means the arbitration agreement is negotiated by persons other than legal representatives or authorized persons, or authorized persons that act beyond his/her authorized entitlements.

If arbitration agreement principles are established by incompetent persons, such arbitration agreement is invalid. If the arbitration agreement is negotiated by incompetent persons but the persons competent to negotiate arbitration agreements accept it or do not object to it during the negotiation or arbitral proceedings, such an arbitration agreement is valid.

• “The arbitration agreement is negotiated by persons capable of civil acts” according to Clause 3 Article 18 of the Law on Commercial Arbitration 2010 means the minors or the persons incapable of civil acts. In this case, the Court must collect evidence that the person who negotiates the arbitration agreement is not capable of civil acts, including papers bearing his/her date of birth, a conclusion by a competent authority, or a declaration by the Court that such per person is not capable of civil acts.
• “Format of the arbitration agreement is not conformable” according to Clause 4 Article 18 of the Law on Commercial Arbitration 2010 means the case in which the arbitration agreement is not negotiated using the methods mentioned in Article 16 of this law and the guidance in Article 7 of the Resolution 01/2014/NQ-HDTP.
• “Either party is cheated, threatened, or forced to reach the arbitration agreement” according to Clause 5 Article 18 of the Law on Commercial Arbitration 2010 means the case in which either party is cheated, threatened, or forced according to Article 4 and Article 132 of the Civil Code.
• “The arbitration agreement contravenes the law” according to Clause 6 Article 18 of the Law on Commercial Arbitration 2010 means any arbitration agreement in the cases according to in Article 128 of the Civil Code.

 

Relationship between arbitration agreement and contract

According to Article 19 of the Law on Commercial Arbitration 2010, an arbitration agreement is entirely independent from the contract. The arbitration agreement can be specified as a clause in a commercial contract but it only defines the method of dispute resolution, while the main contract stipulates the rights and obligations of the parties. The change, extension, cancellation of the contract, or the invalid or unenforceable contract shall not affect the validity of the arbitration agreement.