Dispute resolution via Arbitration is garnering more and more attention with increased application amongst professionals around the world – most likely due to the overwhelming advantages provided by this method dispute resolution.  Advantages such as: promptness and utmost confidentiality, just to name a couple. Accordingly, one of the prerequisites for parties to bring a dispute to arbitration is an Arbitration Agreement. However, due to certain lackings in details or clarity, not all Arbitration Agreements are enforceable or even valid.

The information contained in this article provides readers with necessary information about Arbitration Agreements that are unclear, as well as solutions to such clauses.

Overview: Arbitration Agreements

What are Arbitration Agreements?

According to the Law on Commercial Arbitration of 2010, Arbitration Agreements are defined as agreements between parties on Arbitration as the means for the solution or resolution of potential or ongoing disputes.[1]

As such, Arbitration Agreements are, by nature, are agreements between parties in which each party agrees that the resolution of disputes pertaining to the contract are under the jurisdiction of Arbitration rather than under a Court of law.

Moreover, regarding the time of establishment, Arbitration Agreements could be made either before or after the dispute.

Of the two, the more prevalent ones are Arbitration Agreements made before or prior to the dispute, which are often made under the form of a clause within the Contract. The clause containing Arbitration Agreements is most likely to be found under the title of “Arbitration”, “Dispute” or “Claim and Dispute Resolution”, just to name a few.

Establishment of Arbitration Agreements immediately upon the moment of contract conclusion is an appropriate, optimal, and time-effective method that provides parties the initiative. This is due to the nature of arbitration agreements being the consensus of parties, as such, for a party to bring disputes to Arbitration upon occurrence, in which such parties must reach an agreement with the other party. However, once both parties fail to find common ground on certain aspects of the Contract, it would be hard for the parties to work together on Arbitration Agreements, especially when one of the parties does not desire to bring the dispute to Arbitration or desires to procrastinate dispute resolution or just outright chooses the dispute to remain unresolved, and there is almost no chance of an arbitration agreement being established.

Therefore, once an arbitration agreement has been established in advance and recorded in the Contract, any dispute between the parties may be brought to Arbitration without any further negotiation between the parties.

Forms of Arbitration Agreements

In practice, Arbitration Agreements are usually found in the form of a clause of the Contract, leading many people to subscribe to the train of thought that only when the Arbitration Agreement is explicitly specified in the contract is it considered to have satisfied the conditions of the format. However, such ideas are false as, aside from being specified in the Contract, an Arbitration Agreement may be made separately.

Whether existing as a clause within the Contract or as an independent agreement, Arbitration agreements MUST BE in writing. According to Clause 2 Article 16 Law on Commercial Arbitration 2010, “writings” must include

Contrary to the conventional belief, the Law on Commercial Arbitration has expanded upon the meaning of “in writings” to include electronic mail or telex.

This approach has shown that the law is leaning toward the recognition of the parties’ agreement on the selection of Arbitration as the body and method for resolving disputes. To the point that even if an arbitration agreement does not exist between the parties and yet one of the parties submits a request for arbitration, such requests may be accepted and the other parties are deemed to have consented that Arbitration is the body and method for resolving disputes, provided that the other party does not oppose or submit self-defense statements.

Although it may be seen that the Law has respected and facilitated the recognition of Arbitration Agreements made by the parties, plenty of established Arbitration Agreements are still inapplicable in practice due to their lack of clarity.

Unclear Arbitration Agreements

What are unclear Arbitration Agreements?

Unclear Arbitration Agreements are agreements – established by the parties – in which the content is insufficiently transparent, do not specify a format, do not identify a particular arbitration organization, or may be interpreted in multiple ways.

Based on Clause 5 Article 43 Law on Commercial Arbitration of 2010, such unclear agreements, in theory, continue to be respected, and upon the occurrence of disputes, the parties renegotiate the format and the specific arbitration organization to resolve the dispute. Renegotiation failure results in the format and the arbitration organization being decided by the claimant.

Practical Dispute Resolution

Despite the existence of Clause 5 Article 43 Law on Commercial Arbitration of 2010, the term “results in failure” has yet to be defined or explained in any legal medium or measure, and has inadvertently led to an inconsistency in ideas and opinions in both the interpretation and application of law during the dispute resolution process at Arbitration Centers.

The reality of dispute resolution at the Southern Trade Arbitration Center (STAC) has shown that, when encountering such situations, arbitrators often have two separate perspectives. To be specific:

The first perspective is that the particular stipulation mentioned above is redundant as it is observed in practice that once a specific arbitration organization is not determined and disputes occur, it also means both parties are no longer able to negotiate on the dispute and potentially resort to either arbitration proceedings or court litigation. As such, renegotiation to select a specific arbitration is impractical, and even more so in cases where one party intentionally avoids negotiation. Therefore, people who hold this perspective opine that the existence of renegotiation is trivial and the selection of competent arbitration organizations should instead be based on the choice of the Claimant.

Meanwhile, people who subscribe to the second perspective opine that the above situation may be interpreted that the parties did indeed renegotiate on a specific arbitration center and such matters would only be decided by the choice of the Claimant should renegotiation result in failure. The criteria “result in failure” could be deemed to have been satisfied if the Claimant has sent a document in which the selection of a specific arbitration organization is explicitly expressed to the address of the Respondent specified in the contract or any other means that could convey such selection and the Respondent does not either provide a documented response or proceed with any other actions pertaining to the selection of arbitration organizations. In such event, the selection of arbitration organizations is decided by the Claimant.[2]

For example:

“Article 17: Arbitration

Any dispute pertaining to this Contract shall be resolved through negotiation, cooperation. In case negotiation is not possible, either of the parties is entitled to bring the dispute to Arbitration in accordance with the Rules of the International Chamber of Commerce (ICC) in Vietnam”

In this situation, it could be observed that an arbitration agreement has been established between the parties prior to the dispute under the form of a clause of the contract. However, this arbitration agreement is not specific enough for implementation as there are several interpretations that may be drawn from this.

No agreement on arbitration organizations

The first interpretation is based on the wording of the agreement which only explicitly includes (i) “entitled to bring the dispute to Arbitration”; (ii) “in accordance with the Rules of the International Chamber of Commerce (ICC)” and (iii) “in Vietnam”. It is clear that the content of the agreement has no mention of any particular arbitration organization and therefore, one party could not expand the scope of the agreement without the consent of the remaining party.

However, such an interpretation would leave the arbitration agreement vulnerable to the potential risk of inapplicability due to a breach of the rules of arbitration. This is because even if the parties were to agree on an arbitration agreement (aside from ICC Arbitration), there is a possibility that the ICC Rules won’t be accepted by the chosen arbitration organization. Since the ICC Rules do specify that, once a dispute is resolved via Arbitration under ICC Rules, it also means the parties have agreed that the Arbitration Tribunal is subjected to the sole management of ICC Arbitration[3]. Therefore, arbitration organizations that are not under the management of ICC such as VIAC, HKIAC, KCAB,… might not accept ICC Rules as the Arbitration Rules for dispute resolution.

Agreement on ICC Arbitration as the chosen arbitration organization

This interpretation stems from the opinion that once parties have opted for ICC Rules, ICC Arbitration is the chosen arbitration organization, however, there is no concrete basis for this interpretation. As analyzed above, the interpretation of unclear arbitration agreements is not to be unilaterally decided by one party, and it would be similar to renegotiation if the parties were to work together to clarify the content.

However, both above-mentioned situations lead to the same result which is the renegotiation by the parties to clarify the arbitration agreement that has been established beforehand. So as to prevent this outcome, parties should have a firm understanding of arbitration agreements at the outset, thereby ensuring the content is sufficiently clarified and able to completely reflect the intent of the parties at that moment.

Considerations regarding the renegotiation to clarify the Arbitration Agreement

In practice, the Court has once dismissed an unclear Arbitration Agreement that had been amicably resolved at VIAC.[4]

To be specific, during the execution of the signed Construction Contract, the parties have disputes pertaining to: payment obligations, material price fluctuation, price adjustments, Contract termination, and confiscation of performance bonds and maintenance money. Prior to the disputes, an Arbitration Agreement had been established by the parties in the form of a Clause of the Contract as follows:

“Disputes shall be settled through arbitration as follows:

SELECTION OF ARBITRATION

Any dispute brought up by either party shall be settled at the commercial arbitration center of Ho Chi Minh City

Any dispute arising out of or relevant to this contract shall be settled at the International Arbitration Center in Vietnam near the Vietnam Chamber of Commerce and Industry, under the rules of this arbitration center”

As the above Agreement does not specify a specific arbitration organization when the dispute arises, the parties worked together to clarify that the chosen arbitration organization is the Vietnam International Arbitration Center (VIAC) situated near the Vietnam Chamber of Commerce and Industry (VCCI) and the arbitration process is to be conducted under the Rules of this Arbitration Center. However, the clarification of the name of the chosen arbitration organization only extends to certain disputes arising out of the contract; namely, disputes pertaining to payment, material price fluctuations, price adjustment, and confiscation of performance bonds. However, disputes pertaining to maintenance money are not covered by the clarification. As a consequence, even when the dispute has been amicably resolved at VIAC, upon the lawsuit being filed by one of the parties to the Court for maintenance money, the Court issued its decision to dismiss the Arbitration Agreement pertaining to maintenance money and accept all of the Plaintiff’s requests.

Conclusion

Succinctly, an Arbitration Agreement established prior to the dispute could help parties gain initiative and save time. However, as analyzed above – In both theory and practice – such agreements are still subject to the risk of inapplicability if neither of the parties has sufficient knowledge of arbitration agreements.

Download the PDF version of this article here: [pdf] Newsletter_Unclear Arbitration Agreement

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

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[1] Clause 2 Article 3 Law on Commercial Arbitration 2010

[2]Solution to Unclear Arbitration Clause, Southern Trade Arbitration Center- STAC . Accessible via: https://stac.com.vn/cach-giai-quyet-thoa-thuan-trong-tai-khong-ro-rang/

[3] Article 1.2 and Article 6.2 ICC Rules 2021, 2021 Arbitration Rules, accessible via : https://iccwbo.org/dispute-resolution/dispute-resolution-services/arbitration/

[4] Judgment No. 54/2013/KDTM-ST dated 15/10/2013, accessible via: https://caselaw.vn/ban-an/2430/54-2013-kdtm-st-tranh-chap-tien-bao-hanh-cong-trinh#/