One of the fundamental benefits of commercial arbitration is the confidence it instills in parties to international transactions. Should a dispute arise, the arbitration mechanism ensures a swift, impartial, and effective resolution. To maximize the effectiveness of arbitration, a critical factor for parties to consider during negotiations is the choice of the seat of arbitration, as this determines the procedural law governing the dispute resolution process.

1. Legal significance of the seat of arbitration

The “seat of arbitration” is a term agreed upon by the parties. Typically, selecting the seat of arbitration implies choosing the legal system of that jurisdiction to govern the procedural aspects of resolving the dispute. Consequently, the choice of the seat carries significant legal implications, which parties must carefully consider when negotiating arbitration clauses in international transactions.

When parties select Vietnam as the seat of arbitration, Vietnamese law, particularly the 2010 Commercial Arbitration Law (“CAL”), applies to govern the arbitration proceedings. This includes matters such as the jurisdiction of commercial arbitration, forms of arbitration, arbitration institutions, arbitrators, arbitration procedures, the rights, obligations, and responsibilities of the parties, the role of courts in arbitration activities, the operations of foreign arbitration institutions in Vietnam, and the enforcement of arbitral awards. Additionally, other relevant provisions of Vietnamese law also apply to regulate procedural aspects during dispute resolution and award enforcement.

2. Choosing Vietnam as the seat of arbitration

Overall, selecting Vietnam as the seat of arbitration is a viable option for disputing parties. The CAL incorporates key principles from the UNCITRAL Model Law on International Commercial Arbitration (1985, as amended in 2006), establishing a favorable and internationally aligned legal framework for arbitration-based dispute resolution. Notable aspects include:

• Respect for party autonomy: The principle of freedom of agreement is upheld throughout the arbitration process, from initiation to conclusion. The law intervenes only when there is no agreement between the parties or when an agreement contravenes legal provisions.
• Court support and supervision: The CAL establishes mechanisms for courts to assist and supervise arbitration proceedings. Courts provide support in evidence collection, witness summoning, and applying interim emergency measures. In terms of supervision, courts handle complaints regarding the jurisdiction of arbitral tribunals, requests to set aside arbitral awards, and registration of arbitral awards. This mechanism facilitates smoother arbitration processes by addressing inherent limitations, such as the arbitral tribunal’s authority being limited to the disputing parties and lacking direct effect on third parties.
• Expanded powers of arbitral tribunals: Tribunals are granted broader authority to summon witnesses, apply interim emergency measures, and reject supplementary claims that may be abused to complicate or delay the issuance of arbitral awards. This ensures that proceedings are not unnecessarily delayed, saving time and costs for the parties.

Furthermore, Article 3(8) of the CAL stipulates that “[…] if the dispute resolution takes place in Vietnam, the arbitral award shall be deemed to have been issued in Vietnam, regardless of the place of hearing where the arbitral tribunal conducts its sessions to issue the award.” Thus, selecting Vietnam as the seat of arbitration is a critical condition for an arbitral award to be recognized as a domestic award. This eliminates the need for recognition and enforcement procedures in Vietnam under Part Seven of the Civil Procedure Code. In practice, this is a crucial factor determining the overall effectiveness of the dispute resolution process, as it directly impacts the enforceability of the arbitral award.

However, when choosing Vietnam as the seat of arbitration, parties should also be aware of certain challenges to ensure appropriate legal strategies. For instance: (i) The application of interim emergency measures in practice can be time-consuming and procedurally complex, potentially undermining their urgency; (ii) Although arbitral tribunals have broad jurisdiction, Vietnamese law reserves certain disputes for resolution by courts or specialized agencies, which may complicate the tribunal’s determination of jurisdiction and increase the risk of an award being set aside.

3. Recommendations for businesses

Vietnam’s Commercial Arbitration Law provides a relatively favorable legal framework, with provisions closely aligned with international arbitration practices. This makes Vietnam a reasonable choice for parties considering the seat of arbitration, particularly when one of the parties is based in Vietnam or holds assets there. Nonetheless, businesses must carefully assess the existing limitations in Vietnam’s arbitration law to make informed decisions that safeguard their interests and ensure enforceability of arbitral awards.

When drafting arbitration clauses, businesses should clearly distinguish between the “seat of arbitration” and the “place of hearing.” The seat of arbitration is a legal term that determines the applicable procedural law and the court with supervisory jurisdiction over the arbitration. In contrast, the place of hearing refers to the physical location where hearings are conducted and does not carry the same legal significance. This distinction is reflected in Article 3(8) of the CAL, as cited above. Therefore, when drafting dispute resolution clauses, parties must use precise terminology to reflect their agreement accurately and avoid unnecessary disputes.

Moreover, the seat of arbitration must be specified clearly, such as “Hanoi, Vietnam” or “Singapore.” Designating an arbitration institution, such as “VIAC,” is insufficient, as the choice of seat implies the selection of a specific legal system.

In complex international disputes, parties should consult local legal counsel to assess the suitability of the seat of arbitration for the specific type of dispute, particularly in specialized fields or cases with factors that may lead to the risk of an award being set aside. Such legal advice enables businesses to accurately evaluate legal risks, choose effective dispute resolution strategies, and draft arbitration clauses that are both legally valid and practically effective.

Credit

We sincerely express our gratitude to Senior Associate Chon Duong and Trainee Associate Minh Nguyet for their insightful expertise and dedicated contributions to the development of this article.