Core elements of an arbitration agreement

As the method of resolving disputes by commercial arbitration becomes more popular, businesses are increasingly familiar with drafting complex arbitration clauses. However, for various reasons, there are cases where the arbitration agreement is later determined invalid, the dispute is not arbitrable, or even the arbitration agreement does not exist between the parties. To limit the occurrence of this undesirable situation, the parties in the transaction should pay attention to the core elements of an arbitration agreement as analysed below. 

1. What is an arbitration agreement? 

a. Definition of “arbitration agreement”  

The definition of an arbitration agreement stipulated in the Law on Commercial Arbitration of Vietnam 2010 (“LCA”) is generally quite similar to the provisions of the UNCITRAL Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law (UNCITRAL) in 1985 (“Model Law”) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1958 (“New York Convention”). Accordingly, an arbitration agreement is understood as an agreement between the parties expressing their agreement to resolve part or all of the disputes that have arisen or will arise in relation to a specific relationship (which may be a contractual or other relationship) by arbitration.  

Article 3 of the LCA 

2. Arbitration agreement means an agreement between the parties to settle by arbitration a dispute which may arise or has arisen.

Through the arbitration agreement, the parties express their will to resolve disputes by arbitration (rather than by court or other dispute resolution methods) which may follow a procedural procedure partially or entirely determined by the parties. 

b. Characteristics of an arbitration agreement 

Compared with a regular agreement, an arbitration agreement has the following characteristics: 

• Regarding the time of establishing the agreement: the arbitration agreement can be established before or after the dispute arises.

• Regarding the form of the agreement: the arbitration agreement can exist as a standalone agreement or as a clause in the main contract/agreement. 

• Independent nature of the agreement: the arbitration agreement is determined to be independent of the main contract/agreement. 

See more:Which disputes can be resolved by commercial arbitration?

2. Key elements of the arbitration agreement 

a. Regarding the legal capacity of the persons establishing the arbitration agreement

In principle, the arbitration agreement established by the person without authority will be invalid. This regulation is recorded in the LCA (Article 18.2), the New York Convention (Article V.1), and the Model Law (Article 34 (2) (a) (i) & Article 36 (1) (a) (i)).  

Article 18 of the LCA. Invalid arbitration agreement 

2. The person who establishes the arbitration agreement with no authority in accordance with the law.

The next issue that needs to be determined is the legal basis for determining the authority of the person entering into the agreement. The New York Convention and the Model Law uniformly stipulate that the capacity of the subject entering into an arbitration agreement is determined by the law applicable to them/the law governing the parties. Similar to the spirit of international arbitration law, in Official Dispatch No. 246/TANDTC-KT of the Supreme People’s Court dated July 25, 2014, on resolving requests for recognition and enforcement in Vietnam of foreign arbitrations’ decisions on business and commerce, the Supreme People’s Court clarifies that the Council considering the request will base on the law applicable to each party to determine whether the person entering into the arbitration agreement has the capacity (authority) to enter into the arbitration agreement or not. Accordingly, Vietnam’s regulations are recorded in Articles 466 and 467 of the Civil Procedure Code 2015 (“CPC”) (previously Articles 407 and 408 of the Civil Procedure Code 2004) as follows: 

• For foreign individuals, the legal basis to determine their capacity is based on the law of the country where this person has citizenship (Article 466 of the CPC).

• For foreign agencies and organisations, the civil legal capacity is determined in accordance with the law of the country where such agencies or organisations are established (Article 467 of the CPC).

However, it should be noted that, in case foreign legal entities establish and carry out civil transactions in Vietnam, the civil legal capacity of that foreign legal entity is determined by Vietnamese law (Clause 3 Article 676 of the Civil Code 2015).  

Thus, the law governing the capacity of the persons establishing the arbitration agreement may differ from the law governing the contract. For example, in the sales of goods contract between a Chinese company (seller) and a Vietnamese company (the buyer), the parties agreed that the contract is governed by Vietnamese law and all disputes arising from the contract will be solved by commercial arbitration. Thus, the legal basis for determining whether the person establishing the arbitration agreement is competent or not will be the law of China for the Chinese company and the law of Vietnam (the Civil Code, Enterprise Law, and other relevant regulations) for the Vietnamese company. Meanwhile, the contract’s substantive law is Vietnamese law. 

b. The parties’ mutual consent to agree to resolve the dispute by arbitration 

The parties’ consent in resolving disputes by arbitration is one of the basic principles of commercial arbitration law. Similar to a regular agreement, under the LCA, in case one of the parties is deceived, threatened, or coerced during the process of establishing the arbitration agreement and requests the Court to declare the arbitration agreement invalid, the arbitration agreement will be invalid (Clause 5, Article 18). 

c. Scope of disputes resolved by arbitration  

In the contractual relationship between the parties, many different types of disputes may arise (for example, disputes about the validity of the contract, disputes about the quality of goods/services, disputes about determining damages to be compensated, disputes about contract termination, etc.). However, the arbitration tribunal does not automatically have the authority to resolve all disputes between the parties; it only has the authority to resolve the types of disputes for which the parties have specifically agreed to grant arbitration authority. 

Normally, arbitration clauses often provide that all disputes arising from or relating to the Contract will be resolved by commercial arbitration. If the parties want to exclude some disputes from being resolved by arbitration, they need to record it in the contract. 

Example: Decision on annulment of arbitration award No. 1420/2019/QD-PQTT dated October 16, 2019, of the People’s Court of Ho Chi Minh City at the request of LP Company Limited (Defendant) with arbitration award of dispute case No. 82/17 HCM of the QT Arbitration Center issued on July 29, 2019, in Ho Chi Minh City with the Claimant being CK Group in Korea. 

The Council found that, according to the agreement dated May 16, 2017, between the Plaintiff, the Defendant, and the Maritime Materials JSC, the parties agreed that 05 issues would be resolved by arbitration, and these issues only related to the Plaintiff’s obligations to the Defendant, there was no content referring to the Defendant’s obligations to the Plaintiff. Therefore, the Arbitration tribunal’s settlement of the Plaintiff’s request to the Defendant for other costs and business losses due to the arrest of the ship was beyond the scope of the parties’ dispute settlement agreement. As the part of the arbitral award that the arbitral tribunal resolved beyond its authority could not be separated because the arbitral award had set off the mutual obligations between the Plaintiff and the Defendant, the entire arbitral award was declared null and void by the Court. 

d. Formality of the arbitration agreement

The form of the arbitration agreement is an essential factor affecting the validity of the arbitration agreement. If the form of the arbitration agreement is not by the provisions of law, it may be the basis for making the arbitration agreement invalid (Clause 4, Article 18 of the LCA). 

According to Vietnamese law, an arbitration agreement can be established in the form of an arbitration clause in a contract or in the form of a separate agreement. Most importantly, an arbitration agreement must be established in writing. However, the concept of writing here is understood in a broad sense. Accordingly, Clause 2, Article 16 specifically stipulates 05 cases where an arbitration agreement is considered to have been established in writing as follows: 

• The agreement is established through the exchange between the parties by Telegram, Fax, Telex, Email and other forms as prescribed by law;

• Agreement is established through written exchange of information between the parties;

• Agreement recorded by lawyers, notary, or competent organizations in writing at the request of the parties;

• In transactions, the parties have referred to a document that shows an arbitration agreement such as contracts, documents, company charter and other similar documents; 

• Through the exchange of lawsuits and self-defense, which shows the existence of the agreement given by one party and the other party does not deny. 

Example: Decision on annulment of arbitration award No. 1191/2021/QD-PQTT of Ho Chi Minh City People’s Court dated December 1, 2021, [2] at the request of VH Tourism Company Limited (Defendant 01) and HA Group Corporation (Defendant 02) with arbitration award No. 49/20/HCM issued by VIAC on April 7, 2021, with AR Company Limited as the Plaintiff. 

Defendant 02 requested to cancel the arbitration award and argued that there was no arbitration agreement between the Plaintiff and Defendant 02, as although Defendant 01 and Defendant 02 had a capital ownership relationship, the design service contract dated February 14, 2019 (with an arbitration clause) was only signed between Defendant 01 and the Plaintiff. However, the Council determined that there was an arbitration agreement between Defendant 02 and the Plaintiff, as: (1) in part 1 of the definition of the design service contract, it was stated that the customer was Defendant 02 and (2) during the performance of the contract, Defendant 02 and the Plaintiff had many communications regarding the content of the contract. Therefore, it is necessary to determine that there was arbitration agreement between the two parties.  

See more: Seat of arbitration or venue of hearing?

The above is a summary of some critical components of an arbitration agreement the parties should note when drafting the dispute resolution term to ensure the arbitration agreement is valid and can be implemented. In addition to the issues presented in this article, many other factors of the arbitration agreement are frequently confused, such as seat of arbitration, place of hearings, arbitration proceedings law, contract law, and law governing the arbitration agreement. For detailed advice, please reach out to our lawyers to be supported. 

[1]: https://thuvienphapluat.vn/cong-van/Thuong-mai/Cong-van-246-TANDTC-KT-2014-cong-nhan-quyet-dinh-thuong-mai-cua-Trong-tai-nuoc-ngoai-477151.aspx  

[2]: https://congbobanan.toaan.gov.vn/2ta833313t1cvn/chi-tiet-ban-an  

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