Like many other countries, Vietnam adopted two methods for commercial dispute resolution, namely court process and commercial arbitration. Commercial dispute resolution by arbitration in Vietnam is not popular, however. In the two biggest cities (Hanoi and Ho Chi Minh City), the number of commercial lawsuits is some 1,200 - 1,500 per year resolved by the people's courts compared with 60 - 80 cases per year handled by commercial arbitration centers.

Compared to other foreign arbitration centers in the regions, in 2007, SIAC settled 119 cases; ICC settled 599 cases; China International Economic and Trade Arbitration Commission settled 1,118 cases, and Hong Kong International Arbitration Center handled 448 cases.

Dispute settlement by arbitration is expected more convenient, faster, confidential and with less bias compared to court system, arising from ongoing concerns on the lack of transparency and overload in the court's work. Nevertheless, the above figures show the paradox: arbitration has not fully utilized its capacity. It is not the habit of companies in Vietnam to select arbitration as their dispute settlement method in the commercial transactions as they have very limited knowledge on arbitration system concept.

Businesses in Vietnam see uncertainty for the enforcement of arbitration awards.

One of the reasons for such limitation is the inadequate legal framework on settlement of disputes via commercial arbitrators. Even lawmakers viewed that arbitration should not play an important role in commercial dispute settlement and gave very limited power to arbitrators, seen in the Ordinance on Commercial Arbitration2003 with many vague and dubious provisions.

Businesses may expect some changes to the situation. On 17 June 2010 lawmaker adopted the Law on Commercial Arbitration which overcomes mostly the loopholes and incorporates better bases for arbitration dispute settlement. This new Law shall take effect from 1 January 2011.

Commercial arbitration's competence enlarged

The Ordinance on Commercial Arbitration sets out limited competence of commercial arbitration to settle disputes from commercial transactions arising between individuals and organizations that are engaged in trade. For that reason, if a party not doing business entered into a commercial contract with another party doing business, they may not use arbitration for settlement of disputes; or if the transaction is not related to trade, they may not use arbitration for dispute settlement. The Law on Commercial Arbitration now eases the conditions and extends the scope for disputes that can be settled by commercial arbitration if the disputes satisfy any of the below conditions:

• Disputes arising from commercial activities; or
• Disputes in which at least one of parties is engaged in commercial activities; or
• Other laws allow dispute settlement by arbitration.

Under the new Law, disputes arising from commercial transaction are no longer a pre-condition for arbitration resolution as a method of dispute resolution. If only one party is engaged in commercial activities, all parties may select arbitration as a method for settlement. The new Law also leaves it open to other laws to regulate dispute settlement by arbitration to avoid conflict from other laws. For instance the Law on Investment may have provisions to allow arbitration settlement for disputes between investors that are related to investment.

Parties free to agree on dispute settlement by arbitration

The new Law adopted international practice to respect the agreement between the parties on selection of arbitration as a method for dispute settlement. In addition to the traditional form that the agreement should be written in a single document, Article 16 of the new Law adds two forms of arbitration agreement as same as the Model Law on International Commercial Arbitration approved by the United Nations Commission on International Trade Law (UNCITRAL) on June 21, 1985.This allows for:

• agreement on selection of arbitration can be indirectly established if, when entering into the transaction, parties referred to another document such as a contract, articles of incorporation, or other similar document which contain an arbitration clause; or
  
• agreement on selection of arbitration can be indirectly established through communications in claim submission wherein a party agreed to the selection of arbitration and another party did not disagree.

Further, the new Law also provides that an agreement on arbitration can be established by means of recognising parties' request through lawyers, prosecutors or other competent organisations.

While the new Law respects the parties' selection of arbitration, it may also query the selection in certain cases - for example, arbitration clause can be invalidated to protect consumers' interest. When commodity or service suppliers stated the arbitration clause in the standard terms and conditions and consumers accepted that clause when concluding transactions, consumers may still bring the case to court for settlement of disputes, subject to the consumers' discretion.

Vague arbitration agreement shall not be voidable

Under the old Ordinance, if the statement of arbitration agreement fails to specify or specifies unclearly the exact competent arbitration institution to settle the dispute, and later the parties reached no additional agreement, the agreement on arbitration shall be deemed to be invalid. The new Law makes a considerable improvement and allows for the plaintiff, in that case, having the right to select a competent arbitration institution. This shall cause the agreement on arbitration to remain viable even it was not sufficiently specific.

Commencement of arbitration proceedings

Defining the commencement of arbitration proceedings is meaningful to determine whether the deadline for submission of claim to arbitration has expired. The Ordinance did not define the commencement time of arbitration proceeding, which caused some arguments on the right to file a petition to arbitration when the statutory time limitation of the disputes expired.

The new Law clearly regulates the commencement time for arbitration proceeding in regard to the settlement at Arbitration Center (which shall be the time of Arbitration Center's receipt of the statement of claim) and also for the settlement by Ad-hoc Arbitration (which shall be the time of the respondent's receipt of the statement of claim).

More requirements for revocation of arbitral awards

Under the Ordinance, if any party disagrees with an arbitral award, it may lodge a written request at a competent court for revoking the award. This has caused a bad practice for losing parties to make claims to court to challenge the legality of the arbitral awards, even without reasonable grounds.

The new Law increases the requirements that there should be appropriate evidences and grounds for requesting the competent court to review the arbitral Previously the court's verdict on revocation of the arbitral award may undergo appellate review procedure. To simplify this procedure, the new Law gives immediate effect to the court's verdict on revocation of the arbitral award, which shall not be appealable.

Courts have bigger roles in supporting arbitration activities

The new Law covers more specifics on court's supporting activities during the course of appointment of arbitrator, establishment of ad hoc arbitration tribunal, replacement of arbitrator, making decision on the claims related to invalid arbitration agreement, settlement of unenforceable arbitral wards, settlement of claims related to power of an arbitral tribunal, making decision on application of injunctive relief, making decision on revocation of arbitral awards.

Arbitration tribunal given the right to apply interim injunctive relief

One reason that Vietnam's businesses do not prefer arbitration is that arbitrators have no right to apply any injunctive relief. The new Law makes a significant improvement that arbitration tribunals have the right to grant injunctive relief, including: retaining the status quo of the assets in dispute; prevention or enforcement of acts, aim at preventing conduct detriment to the arbitration process; attachment of the assets in dispute; requirement of preservation, storage, sale or disposal of any assets in dispute; requirement of interim payment; prevention of transferring asset rights in dispute. This improvements will help increase the merits of arbitration and mitigate bad actions damaging the right and interest of the parties in disputes during the court of arbitration proceeding.

Foreigners can be arbitrators

The new Law is not strict that arbitrator must be Vietnamese. This leaves some rooms to other guiding documents to clarify how a foreigner can become an arbitrator for settlement of disputes locally. If so, a certain localisation in the tribunal should occur.

Foreign arbitration organizations allowed

In compliance with Vietnam's commitment to the WTO, the new Law allows foreign arbitration organisations to operate in Vietnam in form of a representative office or branch. A branch of an foreign arbitration organisation has the right to execute the fundamental functions the same as a Vietnamese arbitration center, such as to appoint arbitrators to establish arbitration tribunals pursuant to authority delegated by the foreign arbitration institution; to provide arbitration, mediation services and other commercial dispute resolution methods; to supply administrative services, office and other services for dispute resolution by the foreign arbitration tribunals; to collect arbitration fees and other lawful fees and to pay remuneration to arbitrators.

An award issued in Vietnam by an arbitral tribunal appointed by a branch of foreign arbitration organisation shall be considered an award of foreign arbitration. Such award shall not be immediately enforced and it must undergo the procedures for recognition by Vietnamese court before enforcement in Vietnam.

Changing trend in legal advice

In the transactions involving foreign companies and Vietnamese partners, Vietnamese arbitrators and courts are not favoured. For foreign companies, lawyers usually advise clients to choose Singapore International Arbitration Center (SIAC) or ICC Arbitration, as they are most familiar with the dispute settlement clause in contractual transactions. The number of dispute settlement at SIAC involving Vietnamese companies ranks third in the number of cases involving all nations heard at the centre.

It is still too far ahead for Vietnamese arbitration organisations to compete with SIAC or ICC but, after adoption of the new Law, lawyers have the reason to expect that they may feel confident to advise their clients to choose arbitration rather than court process for the transactions involving purely Vietnamese companies.