Commercial contracts play a crucial role in regulating economic relationships between enterprises in the modern day. However, the performance of the contract does not always go in their favor. Commercial disputes can arise at any time due to differences in the interpretation and performance of contract terms. Therefore, anticipating dispute resolution methods, especially drafting arbitration clauses, becomes extremely important. Through this article, TNTP will highlight the matters to be noted when drafting arbitration clauses in commercial contracts.
1. Choosing an arbitration center
• The first and most important consideration when drafting an arbitration clause in a commercial contract is selecting an arbitration center. Enterprises should choose an arbitration center based on criteria such as reputation, experience in the relevant field, transparent dispute resolution processes, and service fees. According to Article 43, Clause 5 of the Law on Commercial Arbitration 2010, if the parties have an arbitration agreement but do not specify a particular arbitration center, they must deal again with the choice of the arbitration center. If an agreement cannot be reached, it will be chosen at the request of the Plaintiff.
• Thus, choosing the right arbitration center in the contract will save time and avoid unnecessary disputes. Some common arbitration centers include: Vietnam International Arbitration Center (VIAC), Singapore International Arbitration Centre (SIAC), International Chamber of Commerce (ICC), Hong Kong International Arbitration Centre (HKIAC), and many other international arbitration centers.
2. Arbitration Rules
• Each arbitration center typically has its own set of rules governing the dispute resolution process. For example, VIAC has its own Arbitration Rules, similar to SIAC and HKIAC.
• Usually, once an arbitration center is chosen, the parties will apply the procedural rules of that center. However, in practice, there could be possibilities where the parties, having chosen a particular arbitration center, wish to use the procedural rules of a different center. Nonetheless, agreeing to apply the procedural rules of another arbitration center can risk invalidating the arbitration agreement. Specifically, according to Article 4 of Resolution 01/2014/NQ-HĐTP, one reason an arbitration agreement may be unenforceable is if the parties agree to resolve disputes at a specific arbitration center but choose to apply the procedural rules of another center, despite the chosen center’s regulations not permitting this.
• When a dispute arises, it is often very difficult for the parties to sit down together and amend their agreement. The inability to reach an agreement will render the arbitration agreement unenforceable, leading to the dispute being resolved by the court. This contradicts the initial intention of choosing arbitration for dispute resolution, despite its many advantages, particularly the quick resolution time.
3. Arbitration Venue
Choosing the arbitration venue or dispute resolution location is also very important, especially in international arbitration. Typically, the law of the country and local legal regulations at the arbitration venue will apply to govern arbitration procedures. When selecting an arbitration venue, the parties should consider the following factors:
• Neutrality: The arbitration venue should be neutral and not disadvantage any party.
• Cost: Travel, accommodation, and arbitration session costs at that venue.
• Convenience: The arbitration venue should be convenient for the parties to travel and participate in.
Specifying the arbitration venue helps ensure an efficient and fair arbitration process. This also enhances the feasibility and enforceability of the arbitration award, as a suitable venue minimizes legal risks and supports the enforcement process after the dispute is resolved.
4. Arbitration costs
When drafting the arbitration cost clause in a commercial contract, it is essential to ensure that all related costs are clearly defined and payment responsibilities are allocated fairly and transparently between the parties. The detailed factors to consider include:
• Arbitration center fees: Fees payable to the arbitration center for managing and conducting the arbitration process. The arbitration fee schedule applies according to the regulations of the arbitration center.
• Other costs: Lawyer and expert fees; Costs of hiring lawyers or other expert consultants for the arbitration process; Evidence and translation costs, including costs for collecting and presenting evidence, and translation if the parties use different languages from the arbitration language specified in the contract or language under the decision of the arbitration tribunal.
During arbitration proceedings, the parties may agree on which party will bear the arbitration and other costs. However, to avoid unnecessary disputes during the resolution process, the parties should clearly and explicitly outline the allocation of arbitration costs within the commercial contract. This ensures transparency and fairness and prevents unnecessary disputes over costs. Typically, in commercial contracts, the parties agree that the losing party will bear all the above-mentioned costs.
5. Arbitration language
The language used in the arbitration process is an important factor that should be clearly defined in the arbitration clause. For disputes in Vietnam, according to the 2010 Law on Commercial Arbitration, if the dispute does not involve foreign elements, the language used will be Vietnamese. For disputes involving foreign elements, the language will be agreed upon by the parties. If there is no such agreement, the Arbitration Tribunal will decide the language used in the proceedings. Factors to consider when choosing the arbitration language include:
• Contract language: Generally, the contract language will be chosen as the arbitration language to ensure consistency.
• Language both parties are fluent in: If the contract is bilingual or in a different language, the parties may agree to choose a language both parties are fluent in to avoid misunderstandings and difficulties during arbitration.
Choosing the right language helps ensure the arbitration process runs smoothly, avoiding misunderstandings and reducing time and costs for translation.
6. Validity and binding nature of arbitration awards
Finally, the arbitration clause should clearly stipulate the validity and binding nature of arbitration awards. Key factors to consider include:
• Binding nature: Arbitration awards must be binding on the parties. The parties should commit to complying with and implementing the arbitration awards seriously.
• Enforceability: Arbitration awards need to be enforceable in countries where the parties have assets or business operations. The parties should ensure that the arbitration award will be recognized and enforced according to the provisions of international arbitration agreements, such as the 1958 New York Convention.
Clearly stipulating the validity and binding nature of arbitration awards ensures that the parties will comply with the award, and the dispute will be definitively resolved.
Drafting arbitration clauses in commercial contracts is an important step to ensure that disputes can be resolved effectively and fairly. Businesses should pay attention to the above factors to ensure that the arbitration clause is drafted thoroughly and clearly, protecting the interests of both parties in the contract. Should readers require additional support in drafting arbitration clauses or any other legal issues, please do not hesitate to contact TNTP. TNTP is always ready to assist you with all legal matters.
This concludes the article “Matters to be noted when drafting arbitration clauses in commercial contracts” that TNTP presents to our readers. We hope this article is helpful to you.
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