The availability of multiple commercial dispute resolution methods, specifically, via Litigation or Commercial Arbitration, allows parties to have options in the resolution of their conflict in commercial activities. Suppose the Court exercising judicial power is deemed as the judicial authority of the Socialist Republic of Vietnam. In that case, Arbitration is a private judicial institution, chosen by the parties of their own will to resolve the arisen disputes.

Resolution of Commercial Disputes

Commercial Disputes are conflicts of rights and obligations between parties in commercial activities, mainly between traders. Accordingly, the term “commercial activities” is defined in Clause 1 Article 3 Law on Commerce 2005 as “profit-gaining activities”, including the sale of goods, services, investment, commercial promotion, or other profit-gaining activities

Moreover, because parties to commercial disputes are mostly traders and the disputes arise out of commercial relations, aside from the traditional dispute resolution via court, commercial disputes are also allowed to be resolved via arbitration [1]

See more: Dispute settlement by Commercial Arbitration

Download the PDF file of this article here: PDF_05 Differences between the resolution of commercial disputes via Court and Arbitration

First: Jurisdiction over Commercial Disputes

Inherent jurisdiction of the Court

As the judicial authority, the Court has inherent jurisdiction over any activities in the private sector, including commercial activities. If disputes occur between parties in commercial activities, any party to the dispute is entitled to request the Court to resolve the dispute.

Specifically, according to Civil Procedure Code 2015, the Court’s jurisdiction over commercial disputes is categorized into the following[2]:

However, as mentioned above, the law allows parties to opt for commercial arbitration as an alternative means of dispute resolution instead of Courts. Accordingly, once parties have agreed to resolve disputes via arbitration, the Court must reject the request for resolution of such disputes, provided that the agreement between the parties satisfies the conditions set out under the law.[3]

Empowered jurisdiction of arbitration based on agreements between the parties

In contrast to courts, Arbitration only has jurisdiction over commercial disputes if the parties to the disputes agree so. To be specific, Article 5 of the Law on Commercial Arbitration 2010 (“Law on Arbitration”) specifies that arbitration only has jurisdiction over disputes if there exists an arbitration agreement between the parties.

Arbitration agreements are viewed as the consensus of parties on the empowerment of arbitration to resolve occurred disputes as well as the binding effects of such agreements on the parties. Based on this empowerment nature, one of the most notable differences is that arbitration functions based on the voluntariness of involved parties instead of the state authority wielded by the Courts.

Second: Individuals in charge of Dispute Resolution

Due to the differences in the nature of each dispute resolution method, a fundamental difference in individuals in charge of dispute resolution also exists between litigation and arbitration.

Responsible position for dispute resolution in Courts

Regarding dispute resolution via litigation, the individuals directly responsible for the cases are judges – individuals who apply laws into practice to resolve existing disputes between the parties. In accordance with the laws of Vietnam, for an individual to be appointed a judge, a certain mastery over laws, legal professional capacity, experience with case resolution, and especially, at minimum 5 years’ worth of experience in the legal field are required.[4]

Moreover, once a case has been accepted, the involved parties are not allowed to choose their own judge, instead, the judge responsible for the case shall be appointed by the Chief Justice. Such appointments are made to ensure[5]:

• Impartiality, Objectiveness, Unpredictability
• Equality, Democracy, Transparency, Reasonability, Promptness; and
• Quality and Efficiency

Meanwhile, in dispute resolution via arbitration, Arbitrators could be appointed by the involved parties, experience in the legal field may or may not be required of appointed arbitrators.

Arbitrators may or may not be legal experts

Different from Judges, Arbitrators (individuals directly in charge of dispute resolution) are not necessarily officers in judicial authority[6]. Rather, arbitrators often hold concurrent positions, with one being arbitrator and the other being a position working in the field relevant to disputes requested by the parties.[7]

The Arbitral Tribunal or arbitrators serve as independent third parties during the dispute resolution process. In fact, for arbitral tribunals with 3 arbitrators, parties often appoint at least one arbitrator who works in the relevant field but is not a legal expert. Specifically, for disputes in the field of construction, finance, intelligent property, etc., where an enormous amount of documents and materials are submitted, in-depth knowledge of the relevant field is required of the arbitral tribunal to make a solid finding.

Furthermore, as an entity empowered by the parties to the dispute, arbitral tribunals responsible for the dispute resolution are established based on the appointment of the parties.

Specifically, in cases of arbitral tribunals with 3 arbitrators, the arbitral tribunal is established as follows[8]:

• 1 Arbitrator appointed by the claimant;
• 1 Arbitrator appointed by the respondent; and
• 1 Arbitrator – the presiding arbitrator, shall be appointed per agreement between the two appointed arbitrators.

Third: Confidentiality

When it comes to arbitration, one of the features valued by most traders is the almost absolute confidentiality of information. Meanwhile, Courts would value the publicity and transparency of the trial, thereby promoting democracy and supervision of judicial activities.

Confidentiality In Arbitration

One of the most prominent features of arbitration is the non-public hearing to ensure confidentiality throughout the dispute resolution process[9]

Aside from the claimant and plaintiff, the Arbitral Tribunal only summons other parties if necessary. Third parties are not allowed to have access to the documents and information on the dispute unless the laws accord them information collection entitlement. Such confidentiality is maintained throughout both the pre-arbitral proceedings and the post-arbitral proceedings since the Arbitral Tribunal is obliged to ensure confidentiality by all means possible, including refusing to provide information relevant to the dispute, keeping the content of the dispute confidential, etc.[10]

Additionally, the Arbitral Tribunal binds the parties to their non-disclosure obligations, unless the other party has approved the disclosure in advance.

Since most of the disputing parties are traders, confidentiality in arbitral proceedings is of great value to them considering the following aspects:

• Firstly, maintenance of credibility in business;
• Secondly, mitigation of dispute risks;
• Lastly, protection of the enterprise’s information and intellectual property.

Confidentiality in Litigation

To promote democracy in litigation proceedings, the publicity of trials allows people to supervise the activities of the Court in general and judgments on commercial disputes in particular. However, trials are not always held in public as Courts likely hold trials in private in cases of exceptions[11]

Although trials are held publicly, the confidentiality of certain information is ensured in accordance with the law. Parties to the trials might request the courts to keep the information confidential either prior to or during the trials, provided that there is a submission in writing detailing the reasons. Based on the request, the Court might consider not announcing judgments or decisions on the Court’s Information Portal, thereby maintaining the commercial interest of the involved parties.[12]

Notwithstanding whether the trials are held in public or private, Courts must make the pronouncement of judgments publicly[13]

Fourth: Conditions on Pre-Proceeding Mediation

In principle, parties are entitled to request the judicial authorities, namely, courts and/or arbitral tribunals to not reject requests for dispute resolution due to pre-proceeding requirements. However, with the promulgation of the Law on Mediation or Dialogue at Court 2020 on 01/01/2021, the requirement of pre-proceeding mediation has become mandatory for Courts to resolve disputes between parties via litigation. Meanwhile, whether or not pre-proceeding mediation is required for arbitration remains to be a debated issue.

Mediation is a mandatory pre-litigation procedure

Mediation at Court is a mandatory pre-litigation procedure, taking place prior to the Judge’s acceptance of the dispute in accordance with Clause 2, Article 1 of the Law on Mediation and Dialogue 2020.

Regarding the procedure, Court Mediation is an activity conducted by the mediator during the period in-between the receipt of the plaintiff’s petition and the court’s acceptance of such petition. This is the main difference between mediation at court (prior to acceptance) and mediation during litigation (post acceptance), as specified in point g, clause 2, Article 203 of Civil Procedure Code 2015, with the latter taking place during the preparation phase.

Accordingly, within 2 days from the date of receipt of the petition, the Court has to issue a notification in writing to the plaintiff about the option of mediation and selection of the Mediator. Afterward, plaintiffs respond as to whether or not they would opt for mediation. If they do, the Court assigns a Judge to be in charge of the mediation, the assigned Judge performs procedures such as: appointment of the Mediator, notification of (i) decision on mediation as the method of resolution for the case received and (ii) Mediator appointment decision to the Mediator, plaintiff, petitioner,  people with relative rights and/or obligations

Inversely, if either the plaintiff or the defendant (after the defendant has received the above mentioned notifications) reject mediation as the method to resolve a dispute, the petition is transferred back for resolution via litigation in accordance with the law.[14]

It should be noted that the right to opt out of mediation of the plaintiff and defendant does not dismiss the mandatory nature of mediation at court. Parties are entitled to opt out of mediation; however, such entitlement is only granted after the procedure for mediation has been started, at the same time, parties must expressly opine against mediation, otherwise, parties are deemed to have agreed to the mediation and the mediation must be unsuccessful. Only after either one of the two aforementioned conditions is fulfilled could the litigation proceedings be started.

Mediation in Arbitration

Pre-proceeding arbitration is often recorded under the agreement of parties in the MDR clause[15]. Which means the parties to the contract have agreed that for either of them to bring disputes to arbitration, such disputes must first be resolved via mediation.

An example of how a dispute resolution agreement could be established is as follows:

“Once disputes arise during the implementation of the Contract, parties shall negotiate on mediation as the method of dispute resolution. If the negotiation fails to show any result, within 30 days of the occurrence of the dispute, parties might bring the dispute to arbitration for resolution in accordance with the rules and laws of Vietnam. The arbitral award is final and binding on both parties“

Currently, the legal framework of Vietnam does not have any explicit or specific provision on whether the pre-proceeding mediation is a prerequisite condition prior to arbitration. Judicial practice has shown that there exists two approaches to this issue.

The first approach is to respect the binding nature of the MDR clause on both parties, but this does not deem mediation as the prerequisite condition for arbitration. In other words, the jurisdiction of the arbitral tribunal is unhindered.

This approach is upheld by the People’s Court of Ho Chi Minh City in the case between Shiseido Co. Ltd and Thuy Loc Company[16]. Accordingly, Thuy Loc Company (Respondent) claimed that the Arbitral Tribunal holds no jurisdiction over the dispute since Shiseido Co. Ltd (Claimant) violated the MDR clauses on mediation and negotiation prior to arbitration. However, the Court reasoned that “this violation [mediation, negotiation] did not invalidate the Arbitration Agreement in Clause 13.3 of the Contract”[17]. Furthermore, the Court has also found that the Law on Commercial Arbitration does not have any provision on the connection between the arbitration jurisdiction and pre-proceeding mediation.[18]

The second approach is to view the binding nature of the pre-proceeding mediation agreement as absolute[19]. Simply put, unless the parties performs pre-proceeding mediation, the arbitral tribunal shall not have jurisdiction over disputes.

This is the approach adopted in Decision No. 10/2014/QD-PQTT on setting aside arbitration awards of the People’s Court of Hanoi between Vietmindo and Hoang Long Company[20]. In the decision, the Court agrees with the binding effect of the agreement made by the parties once the parties have agreed on the establishment of “layers” for dispute resolution. This means that if either of the parties ignores the agreed procedure and brings the dispute to arbitration, such action shall be deemed that it “gravely violates the arbitral proceedings in accordance with Clause 2 Article 68 Law on Commercial Arbitration”[21].

Furthermore, the definition of the term “mediation” or “negotiation, mediation” is also another aspect that likely affects whether or not pre-proceeding mediation is mandatory.

Specifically, if “mediation” or “negotiation, mediation” is defined as “parties either on their own or jointly shall, in their best effort, negotiate with the other parties to reach an agreement on how to resolve the disputes”, the pre-proceeding mediation shall not be seen as a prerequisite for arbitration.  In this situation, the fact that one party has, in their best efforts, put forward their suggestion while the other party opposes such suggestion or remains silent, could be deemed as “mediation, negotiation”.

On the other hand, if “mediation” or “negotiation, mediation” is defined as “mediation facilitated by mediators”, the pre-proceeding mediation shall be deemed a prerequisite for arbitration. In this situation, mediation is viewed as an equally valid method for resolution of commercial disputes[22] as arbitration.

Therefore, the dispute resolution agreement between the parties shall be interpreted as the consensus that mediation is the chosen method of dispute resolution, and arbitration shall only serve as a substitution in case the former has occurred unsuccessfully.

Fifth: Judicial levels

Two Judicial Levels in Litigation

Regarding dispute resolution via Litigation, commercial disputes must go through two judicial levels, including (i) first-instance trial, and (ii) appellate trial. This is also known as the principle of two judicial levels.

Accordingly, after the first-instance trial, one of the involved parties may appeal against the first-instance judgment for a retrial in an appellate trial. The Litigation proceeding will end after the appellate judgment is given effect (pronouncement date)[23]. However, aside from the two judicial levels, decisions and judgments of Courts are likely to be requested for the Cassation or Reopening procedure in the event there are appeals by competent authorities in accordance with the Civil Procedure Code 2015.[24]

Arbitral Proceeding ends upon the issuance of the arbitral award

Arbitral Awards are final and signal the conclusion of arbitral proceeding[25]. Neither the parties nor the procuracy may appeal the arbitral award. However, the award can still be set aside (partially or entirely) upon request of either of the disputing parties.[26] If the award is set aside (partially or entirely) via a Court’s decisions, parties may only bring the disputes to arbitration (or courts) once again since neither the parties nor the procuracy are likely to appeal such decisions.

Conclusion

From the above analysis, it is clear that the methods are established to assist parties in dispute resolution, however, each method shall have its own differences. Therefore, a firm grasp of the fundamental differences between dispute resolution via Litigation and Arbitration for commercial disputes shall help parties make informed selections of the dispute resolution authority, thereby reducing unnecessary costs and risks due to the selection of inappropriate dispute resolution method.

Managed by

Legal Assistant Mrs. Kieu Nu My Hao  Phone: (84) 028 6276 9900 Email: hao.kieu@cnccounsel.com

[1]Article 317 of Law on Commerce

[2] Article 30, Article 36, Article 37, Article 39, Article 40 of Civil Procedure Code 2015

[3] Article 6, Article 18 of Law on Commercial Arbitration 2010

[4] Article 66, Article 67 of Law on Organization of People’s Court 2014; Article 4 of Circular No. 01/2022/TT-TANDTC on the assignment of Judges to cases under the jurisdiction of Courts,

[5] Article 3, Circular No. 01/2022/TT-TANDTC dated 15/12/2022

[6] Clause 2, Article 20 of Law on Commercial Arbitration 2020.

[7] Duong Van Hau, “Bàn về sự phân biệt giữa Tòa án và trọng tài”, People’s Court Magazine (2019), <https://tapchitoaan.vn/ban-ve-su-phan-biet-giua-toa-an-va-trong-tai>, accessed on 24/5/2024

[8] Article 40, Law on Commercial Arbitration 2010.

[9] Clause 4, Article 4 Law on Commercial Arbitration 2010.

[10] Article 21 of Law on Commercial Arbitration 2010

[11] Article 25 of Civil Procedure Code 2015

[12] Article 4,5 of Resolution No. 03/2017/NQ-HDTP

[13] Article 25 of Civil Procedure Code 2015

[14] Article 16 of Law on Mediation and Dialogue at Court 2020

[15]  MDR Clause (Multilayer Dispute Resolution Clause) is an agreement established by parties under the form of a clause in the contract, accordingly, parties shall agree that the disputes occuring between them shall be resolved via a series of dispute resolution metods such as negotiation, mediation, expert determination and finally arbitration.

[16] Decision No. 526/2013/KDTM-QD dated 15/05/2013 of the People’s Court of Ho Chi Minh City

[17] Decision No. 525/2013/KDTM-QD dated 15/05/2013 of the People’s Court of Ho Chi Minh City

[18] Tran Viet Dung, Nguyen Thi Hoa, “Trọng tài Thương Mại Quốc Tế những Vấn đề đương đại và thực tiễn Việt Nam”, Chapter 2

[19] Tran Viet Dung, Nguyen Thi Hoa, “Trọng tài Thương Mại Quốc Tế những Vấn đề đương đại và thực tiễn Việt Nam”, Chapter 2

[20] Decision No. 10/2014/QD-PQTT dated 28/10/2014 of People’s Court of Hanoi

[21] Decision No. 10/2014/QD-PQTT dated 28/10/2014 of People’s Court of Hanoi

[22] Decree No. 22/2017/ND-CP dated 24/02/2017 on Commercial Mediation

[23] Clause 6 Article 313 Civil Procedure Code 2015

[24] Chapter XX, XXI of Civil Procedure Code 2015

[25] Clause 5 Article 61 of Law on Commercial Arbitration 2010.

[26] Clause 1 Article 68 of Law on Commercial Arbitration 2010.