Main points to know about arbitration agreements

In the context where dispute resolution is becoming increasingly important and widespread, arbitration agreements have emerged as a main method chosen by many parties to resolve legal disputes effectively. A clear understanding of arbitration agreements not only helps the parties protect their legitimate rights and interests, but also contributes to maintaining long-term and sustainable business relationships. The following article provides fundamental information and essential points to know about arbitration agreements, helping parties better understand the procedures, rights, and obligations when choosing such a dispute resolution mechanism. Below, NPLaw respectfully invites our readers to explore the legal issues related to arbitration agreements.

I. Current status of arbitration agreements

At present, arbitration agreements are increasingly common in dispute resolution, particularly in commercial transactions and international contracts. However, in practice, not all enterprises fully understand the procedures and benefits of applying arbitration. Although arbitration is recognized by law, insufficient understanding and inadequate preparation may result in arbitration agreements being ineffective in practice, leading to additional costs and delays in dispute resolution.

Moreover, besides arbitration’s advantages, arbitral awards may also be subject to requests for careful review or have difficulties in enforcement, resulting in it remains a significant challenge. In addition, inconsistencies in the application of arbitration rules among domestic and international arbitration centers also cause difficulties for enterprises in selecting and placing trust in such a dispute resolution method.

II. Legal regulations on arbitration agreements

1. What is an arbitration agreement?

An arbitration agreement is an agreement between the parties to a contract or in a specific situation to resolve disputes that may arise or have already arisen through arbitration. Pursuant to Clause 2, Article 3 of the Law on Commercial Arbitration 2010, such an agreement may be established either before a dispute arises or after a dispute has occurred, and it requires the parties to comply with arbitral procedures to resolve the matter efficiently.

The existence of the arbitration agreement helps parties avoid court intervention, save time and costs, and protect their rights and interests in a less public dispute resolution environment.

2. Characteristics of the arbitration agreement

Based on Clause 2, Article 3 of the Law on Commercial Arbitration 2010, the arbitration agreement is defined as:

• The arbitration agreement is an agreement between the parties to resolve disputes that may arise or have arisen by arbitration.

Accordingly, the arbitration agreement has the following characteristics:

• Voluntariness: The disputing parties voluntarily agree to resolve disputes through arbitration, reflecting their commitment to the outcome of the arbitral process.
• Customization: The parties have the right to agree on arbitrators, the location of arbitration, dispute resolution procedures, and other rules corresponding with the specific dispute.
• Binding effect: Once the parties enter into the arbitration agreement, they are obliged to comply with it; if one party fails to do so, the other party has the right to request court intervention in accordance with the law.
• Confidentiality: Arbitration proceedings are generally conducted privately and are not public, thereby protecting the parties’ sensitive information.
• Applicability to future disputes: The arbitration agreement may apply to disputes arising after its execution and does not require that a dispute occur immediately.

3. Form of the arbitration agreement

The arbitration agreement may be established in the form of an arbitration clause in a contract or as a separate agreement between the parties. Under Article 16 of the Law on Commercial Arbitration 2010, the agreement must be made in writing and may take the form of communications via telegram, fax, email, or similar means; written exchanges between the parties; or records made by lawyers or notaries. The agreement may also be reflected in documents such as contracts, transaction records, company charters, or through exchanges of statements of claim and statements of defense.

III. Questions on arbitration agreements

1. Circumstances in which the arbitration agreement is invalid

The arbitration agreement may be declared invalid in certain cases according to Article 18 of the Law on Commercial Arbitration 2010. Specifically, the arbitration agreement is invalid it:

• The dispute falls outside the jurisdiction of arbitration; 
• The person entering into the agreement lacks authority under the law or lacks civil act capacity; 
• The agreement does not comply with the form requirements stipulated in Article 16; 
• The agreement was established through deception, threat, or coercion and a request is made for it to be declared invalid;
• It violates prohibitions of the law.

2. May the parties designate a specific arbitration institution in an arbitration agreement?

When entering into an arbitration agreement, the parties have the right to designate a specific arbitration institution to resolve disputes, although this is not mandatory. Under Article 43 of the Law on Commercial Arbitration 2010, if the parties have an arbitration agreement but do not specify a particular arbitration institution, upon the occurrence of a dispute, the parties must reach a further agreement on the form of arbitration or the specific arbitration institution. If they fail to reach such agreement, the selection of the arbitration institution or form of arbitration shall be made at the request of the claimant.

If the parties have agreed to resolve disputes at a particular arbitration center but such a center has ceased operations without a successor arbitration institution, the parties may agree to choose another arbitration center; if no agreement can be reached, they have the right to request the Court to resolve the dispute.

3. Courts lack jurisdiction where an arbitration agreement exists

Pursuant to Article 6 of the Law on Commercial Arbitration 2010 regarding the court’s refusal to accept cases where an arbitration agreement exists:

• In the case that the disputing parties have an arbitration agreement and one party initiates a lawsuit at the Court, the Court must refuse to accept the case, unless the arbitration agreement is invalid or cannot be executed. 

Accordingly, the choice of commercial arbitration limits the jurisdiction of the Court, as the Court will not accept disputes for which the parties have validly agreed to arbitration.

IV. Legal consulting services related to arbitration agreements

Above is the detailed information provided by NPLaw to assist our valued clients regarding arbitration agreements. Should you have any questions related to the above matters or other legal issues, please contact NPLaw using the information below for direct consultation and guidance from our professional team.