When a Vietnamese company enters into a contract with a foreign party, the foreign party usually requires the contract to have an arbitration clause so that disputes arising from the contract will be settled by commercial arbitration instead of Vietnamese courts. When negotiating and drafting the arbitration clause of such contract, a Vietnamese company may need to consider the following points:

Governing law of the contract

If the governing law of the contract is Vietnamese law, then selecting arbitration centers in Vietnam may be appropriate since the arbitrators in Vietnam will likely be more familiar with Vietnamese law than arbitrators in other countries. If the governing law is a foreign law, then the Vietnamese party may consider selecting the jurisdictions whose law is more accessible from Vietnam. Based on this criteria, English law would be more favourable for Vietnamese companies since many English law textbooks are available in Vietnam or can be bought from online stores. There are more free internet sources about English law than other laws. In addition, it may easier to find UK qualified lawyers in Vietnam than lawyers from other jurisdictions.

Vietnam arbitration vs. foreign arbitration

Negotiating about whether the parties should use arbitration in Vietnam or foreign arbitration usually takes the most time. The Vietnamese party usually prefers to selecting Vietnam arbitration which usually is the Vietnam International Arbitration Center (VIAC). However, many foreign parties are reluctant (or in many cases are not allowed by internal requirements) to select Vietnamese arbitration because of the concern about quality and independence of arbitrators in Vietnam.

Regarding quality, VIAC has many well-known foreign arbitrators in its panel including Mr. Garry Born, Mr. Michael Hwang, or Ms. Lucy Reed. However, there are also many arbitrators whose background may not be relevant with complicated commercial disputes (e.g., ex-State officials or law school professors).

Regarding independence, one should note that VIAC is not really a private entity but is a unit of Vietnam Chamber of Commerce and Industry (VCCI), an organization funded and controlled by the Government. In addition, there are very few qualified full-time independent Vietnamese arbitrators (e.g. Mr. Hop Dang). Most Vietnamese arbitrators are having a second career whether as a practicing lawyer or otherwise. Therefore, it may be difficult to know whether an arbitrator in Vietnam is totally independent and has no conflict to handle the case.

Despite these potential issues, in case a foreign arbitration is not acceptable to Vietnamese party, a reasonable compromise is to use VIAC but requires the tribunal to include only arbitrators who are also listed in the list of arbitrators of a well-known foreign arbitration center (e.g., SIAC). This is because once the tribunal is set up, the quality of arbitrators, who are qualified to act as arbitrators in reputable arbitration centers, could provide substantial comforts to the foreign party that the dispute will be handled fairly and competently. The parties may also require the tribunal to adopt certain good arbitration practice such as IBA Rules on the Taking of Evidence in International Arbitration.

Foreign arbitration but where

If the parties have settled on foreign arbitration, then the next question is which foreign country should be selected as the place of arbitration. Regarding this issue, a Vietnamese company should consider the following:

· The Vietnamese company should not select the country (or the city) where the foreign party locates. If arbitration occurs in the country where the foreign party locates, then the foreign party will have a logistical advantage over the Vietnamese party. So to the extent possible, a Vietnamese party should select a country where both sides have to travel.

· The Vietnamese party should select a country which allow easy travelling. Under this criteria, Singapore and Malaysia (where no visa is required for Vietnamese) would be more preferable than Hong Kong or Seoul. In addition, Hong Kong is a part of China, which has a territorial dispute with Vietnam. Therefore, Hong Kong may not be a good place for a Vietnamese company to arbitrate.

Governing law of the arbitration clause

The arbitration clause in a contract is usually regarded as a separate arbitration agreement. Sometimes, it is not clear if the governing law of the contract will also be the governing law of the arbitration agreement. For example, if the governing law of the contract is Vietnamese law and the contract is subject to foreign arbitration, then there are strong arguments that the governing law of the arbitration clause is the law of the country where the arbitration is to be conducted. Therefore. it may be useful to specify the governing law of the arbitration agreement in the arbitration clause itself.

This post is written by Nguyen Quang Vu

Vietnam Business Law