Circumstances in which an arbitration agreement cannot be performed under Vietnamese law

Commercial arbitration is increasingly prioritized by businesses as a dispute resolution mechanism due to its procedural flexibility, expeditious resolution, and ability to ensure confidentiality. However, the arbitral tribunal’s jurisdiction is established only where there is a valid and enforceable arbitration agreement between the parties. In this context, accurately identifying the circumstances in which an arbitration agreement cannot be performed is of particular importance in assessing arbitral jurisdiction, as well as in reducing the risk of the tribunal declining jurisdiction or procedural delays. In this article, TNTP provides a detailed analysis of the circumstances in which an arbitration agreement cannot be performed under current Vietnamese law, thereby assisting enterprises and relevant stakeholders in proactively assessing and selecting an appropriate dispute resolution mechanism.

1.Concept of an arbitration agreement incapable of performance

An arbitration agreement is an agreement between the parties to resolve by arbitration disputes that have arisen or may arise between them. Such agreement may be established before or after a dispute arises and constitutes the legal basis for establishing the arbitral tribunal’s jurisdiction.

An arbitration agreement is considered incapable of performance where the parties have entered into a valid arbitration agreement, but such agreement falls within statutory circumstances that render the establishment of the arbitral tribunal or the conduct of arbitral proceedings practically impossible.

2.Cases where an arbitration agreement is incapable of performance

For the purpose of unifying the interpretation and application of the Law on Commercial Arbitration 2010, Article 4 of Resolution No. 01/2014/NQ-HĐTP sets out the cases in which an arbitration agreement is considered incapable of performance, specifically as follows:

• The arbitration center selected by the parties no longer exists and cannot be replaced

Where the parties have agreed to resolve the dispute at a specific arbitration center, but at the time the dispute arises such arbitration center has ceased operations and has no successor organization, and the parties fail to reach a new agreement on the selection of another arbitration center, the arbitration agreement is incapable of performance.

• The arbitrator agreed upon by the parties is unable to participate in the resolution of the dispute

An arbitration agreement is incapable of performance where the parties have specifically designated an arbitrator in an ad hoc arbitration agreement, but upon the occurrence of the dispute, such arbitrator is unable to participate due to force majeure events or objective impediments, or where the arbitration center or the court is unable to appoint an arbitrator in accordance with the parties’ agreement, and the parties fail to reach agreement on the appointment of a replacement arbitrator.

Example: Company A and Company B enter into a contract in which they agree that “Any dispute arising from the contract shall be resolved by ad hoc arbitration, with Mr. C acting as the sole arbitrator”. When the dispute arises, Mr. C is unable to participate in the resolution of the dispute due to a force majeure event. The Court, upon request of the parties, is unable to appoint the arbitrator in accordance with their agreement, and the parties fail to reach agreement on appointing another arbitrator.

• The arbitrator agreed upon by the parties refuses the appointment

An arbitration agreement is incapable of performance where the parties have specifically agreed on an arbitrator in an ad hoc arbitration agreement, but upon the occurrence of the dispute, such arbitrator refuses to accept the appointment, or where the arbitration center refuses to appoint the arbitrator, and the parties fail to reach agreement on appointing a replacement arbitrator.

Example: Company P and Mr. Q enter into a contract in which they agree that “Any dispute arising from the contract shall be resolved by ad hoc arbitration, with Ms. A acting as the sole arbitrator”. When the dispute arises, Ms. A refuses the appointment as arbitrator due to a conflict of interest with one of the disputing parties. The Court, upon request of the parties, refused to appoint the arbitrator on the ground that the statutory conditions were not satisfied. At the same time, the parties fail to reach an agreement on the appointment of another arbitrator as a replacement.

• Where the agreement on the rules of arbitration proceedings is not applicable

Where the parties agree to resolve a dispute at a specific arbitration center and at the same time agree to apply the procedural rules of another arbitration center, but under the Charter of the selected arbitration center, the application of the procedural rules of another arbitration center is not accepted. In such case, if the parties fail to reach an agreement on the application of other arbitral procedural rules as a replacement, the arbitration agreement cannot be performed.

Example: In 2021, Company E and Mr. F entered into a franchise agreement in which the parties agreed that “Any dispute arising from or related to this contract shall be resolved at Arbitration Center A, applying the arbitral procedural rules of Arbitration Center B”. In 2025, a dispute arose between the two parties regarding franchise fees. Upon filing a request with Arbitration Center A, the Charter of Arbitration Center A provides that only the procedural rules issued by that arbitration center shall apply. The parties failed to reach agreement on the selection of other arbitral procedural rules as a replacement.

• In case of disputes between suppliers and consumers

Where an arbitration agreement is recorded in the general terms and conditions for the provision of goods or services prepared in advance by the supplier in accordance with Article 17 of the Law on Commercial Arbitration 2010, but when a dispute arises, the consumer does not agree to choose arbitration to resolve the dispute, the arbitration agreement cannot be performed.

3.Legal consequences of an arbitration agreement incapable of performance

• The arbitral tribunal lacks jurisdiction to resolve the dispute

Pursuant to Clause 1 Article 43 of the Law on Commercial Arbitration 2010, before considering the merits of the dispute, the arbitral tribunal must examine the validity of the arbitration agreement, the possibility of performing such agreement, and its own jurisdiction. Where the arbitration agreement is determined to fall within circumstances in which it is incapable of performance, the arbitral tribunal has no legal basis to continue the proceedings and must issue a decision terminating the proceedings and notify the relevant parties.

If the arbitral tribunal nevertheless proceeds and renders an arbitral award despite the arbitration agreement being incapable of performance, such award may be set aside by the court on the ground that the arbitral tribunal lacked jurisdiction, in accordance with Article 68 of the Law on Commercial Arbitration 2010.

• The court has jurisdiction to resolve the dispute

The legal consequence of an arbitration agreement incapable of performance is provided for in Article 6 of the Law on Commercial Arbitration 2010. Accordingly, where the parties have an arbitration agreement but such agreement falls within circumstances in which it is incapable of performance, the court has jurisdiction to accept and resolve the dispute in accordance with civil procedural law in order to protect the lawful rights and interests of the parties.

• Risks arising in terms of time, costs, and dispute resolution strategy

In practice, an arbitration agreement incapable of performance often leads to prolonged dispute resolution. When arbitration is no longer feasible, the parties are compelled to initiate court proceedings, re-determine the competent authority, prepare new procedural documents, and comply with civil procedural requirements. This process not only delays the protection of lawful rights and interests but also results in additional litigation costs.

In addition, the inability to implement the arbitration mechanism also affects the parties’ initial legal strategy, particularly in cases where the parties chose arbitration with expectations regarding confidentiality, procedural flexibility, and the expeditious resolution of disputes.

Accurately identifying the circumstances in which an arbitration agreement is incapable of performance helps ensure that dispute resolution jurisdiction is established in accordance with the law, while minimizing risks arising in the protection of the lawful rights and interests of enterprises and related parties.

Respectfully,