An arbitration agreement is one of the prerequisites for disputes between parties to be resolved through arbitration. Accordingly, an invalid arbitration agreement may result in the inability to resolve the dispute by arbitration.
According to Clause 2, Article 3 of the Law on Commercial Arbitration 2010, an arbitration agreement is defined as an agreement between the parties to resolve disputes whether existing or potential through arbitration. Accordingly, an arbitration agreement excludes the jurisdiction of the court and brings disputes between the parties under arbitration as Article 6 of the 2010 Law on Commercial Arbitration stipulates that when disputing parties have an arbitration agreement, the court must refuse to accept the case, except in instances where the arbitration agreement is invalid or unenforceable.
Currently, the conditions under which an arbitration agreement is considered invalid are governed by Article 18 of the 2010 Law on Commercial Arbitration and further clarified in Article 3 of Resolution No. 01/2014/NQ-HDTP, dated March 20, 2014, issued by the Council of Judges of the Supreme People’s Court (“Resolution 01/2014“).
Case 1: Disputes arising in areas not under the jurisdiction of the Arbitration as prescribed in Article 2 of the Law on Commercial Arbitration 2010
According to Article 2 of the Law on Commercial Arbitration 2010, the Arbitration has the authority to resolve:
(i) Disputes between parties arising from commercial activities;
(ii) Disputes arising between parties in which at least one party is engaged in commercial activities;
(iii) Other disputes between parties that the law stipulates must be resolved by arbitration.
Accordingly, in cases where the arbitration agreement is established to resolve disputes not falling within these areas, the arbitration agreement will be invalid.
Case 2: The person establishing the arbitration agreement does not have the authority as prescribed by law
According to the guidance in Clause 2, Article 3 of Resolution 01/2014, the case where the person establishing the arbitration agreement does not have the authority as prescribed by law is understood as the case where the person establishing the arbitration agreement is not the legal representative, is not a legally authorized person, or is a legally authorized person but exceeds the scope of authorization. Accordingly, in principle, an arbitration agreement established by an incompetent person is invalid.
However, it should be noted that in cases where an arbitration agreement is established by an incompetent person, but during the process of establishing and implementing the arbitration agreement or in the arbitration proceedings, the person with the authority to establish the arbitration agreement has accepted or has known but has not objected, the arbitration agreement is not invalid.
Case 3: The person establishing the arbitration agreement does not have civil act capacity as prescribed by the Civil Code
According to Article 19 of the Civil Code 2015, the civil act capacity of an individual is the ability of an individual to establish and exercise civil rights and obligations through his or her own actions. Accordingly, a person without civil act capacity will not have the capacity to establish and exercise civil rights and obligations. Resolution 01/2014 has guided that the person establishing an arbitration agreement without civil act capacity is a minor, a person who has lost civil act capacity, or a person with limited civil act capacity. Therefore, in cases where the arbitration agreement is established by these people, it will be invalid.
Case 4: The form of the arbitration agreement is not in accordance with the provisions of Article 16 of the 2010 Law on Commercial Arbitration
According to Article 16 of the Law on Commercial Arbitration 2010, an arbitration agreement may be established in the form of an arbitration clause in a contract or in the form of a separate agreement. However, regardless of the form, the arbitration agreement must be in writing. In cases where the arbitration agreement is not established in the form prescribed in Article 16 of the Law on Commercial Arbitration 2010, the arbitration agreement will be invalid.
Case 5: One of the parties was deceived, threatened, or coerced during the process of establishing the arbitration agreement and requests that the arbitration agreement be declared invalid
One of the basic principles of civil law is the principle of freedom and voluntary commitment and agreement. Accordingly, in civil relations, the parties act completely voluntarily; no party may impose, prohibit, coerce, threaten, or prevent the other party. When a party participates in a civil transaction due to being deceived or threatened, it has the right to request the Court to declare that civil transaction invalid.
According to Article 132 of the Civil Code 2015, deception in a transaction is an intentional act of a party or a third party aimed at making the other party misunderstand the subject, nature, object, or content of the civil transaction, so that it establishes that transaction. Threats and coercion in civil transactions are intentional acts of one party or a third party that force the other party to perform a civil transaction to avoid damage to the life, health, honor, reputation, dignity, or property of themselves or their relatives.
An arbitration agreement is a civil transaction between the parties because it creates, changes, or terminates civil rights and obligations between the parties in the settlement by arbitration. Therefore, in the event that an arbitration agreement is established because one of the parties is deceived, threatened, or coerced during the process of establishing the arbitration agreement, this arbitration agreement will be invalid, provided that the deceived, threatened, or coerced party requests that the arbitration agreement be declared invalid.
Case 6: The arbitration agreement violates the prohibitions of the law
According to Article 128 of the Civil Code 2015, civil transactions with purposes and contents that violate the prohibitions of the law and social ethics are invalid. Prohibitions of the law are provisions of the law that do not allow subjects to perform certain acts. Social ethics are common standards of conduct between people in social life, recognized and respected by the community.
With the wording of the Law on Commercial Arbitration 2010, it can be understood that the current law only stipulates that arbitration agreements that violate the prohibitions of the law are invalid, while arbitration agreements that violate social ethics are still valid. However, to avoid this confusion, Resolution 01/2014 clearly guides that an arbitration agreement that violates the prohibitions of the law as prescribed in Clause 6, Article 18 of the Law on Commercial Arbitration 2010 is an agreement that falls under the provisions of Article 128 of the Civil Code 2015, which includes cases that violate the prohibitions of the law and are contrary to social ethics.
With the clear provisions and guidance of the Law on Commercial Arbitration 2010 and Resolution 01/2014, parties intending to resolve disputes by arbitration should take note to ensure that the establishment of an arbitration agreement is not invalid, as a basis for disputes between parties to be resolved by arbitration.
See more:
1/ When an arbitration agreement can’t be enforced under Vietnamese law
2/ Which disputes can be resolved by commercial arbitration?
3/ Seat of arbitration or venue of hearing?
Disclaimers:
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