Should Commercial Arbitration or Court be chosen to resolve disputes? A legal perspective for businesses

During contract negotiations, many businesses often focus on price, performance schedule, payment terms, or compensation liability, paying less attention to the dispute resolution clause. However, in reality, this is one of the most important clauses because it determines the mechanism for handling disputes, directly impacting time, costs, confidentiality, and the effectiveness of judgment enforcement.

One of the questions businesses are concerned about is: should Commercial Arbitration or Court be chosen to resolve disputes?

This article by OPLAW will analyze the significant differences between these two methods, and provide recommendations for businesses to choose the appropriate mechanism for each type of transaction.

How important is the dispute resolution clause?

According to the Law on Commercial Arbitration 2010, disputes can only be resolved by arbitration when the parties have a valid arbitration agreement. If there is no agreement or the arbitration agreement is invalid, the dispute will fall under the jurisdiction of the Court as prescribed by law.

This means that, from the moment the contract is signed, the business has already decided the "legal path" that will be applied if a dispute arises.

An inappropriate choice can cause businesses to:

• Spend a lot of time resolving the case;
• Increase litigation costs;
• Not ensure the confidentiality of business information;
• Encounter difficulties in enforcing judgments or awards abroad.

Therefore, the dispute resolution clause should be drafted from the contract drafting stage, instead of being considered merely a formality.

Comparison of Commercial Arbitration and Court

1. Conditions for resolution

This is the biggest difference between the two methods.

Commercial Arbitration

Arbitration only has jurisdiction if there is a valid arbitration agreement between the parties.

This agreement can be made:

• In the contract;
• Or after the dispute arises.

If there is an arbitration agreement, the Court must refuse to accept the case, except in certain cases stipulated by law.

Court

Conversely, the Court has jurisdiction to resolve disputes according to the provisions of the Civil Procedure Code without requiring prior agreement from the parties.

OPLAW's comments

If a business wishes to use arbitration, the arbitration clause must be carefully and validly drafted from the outset. Even a small error in the clause can render the arbitration agreement invalid.

2. Scope of dispute resolution

Arbitration primarily resolves:

• Disputes arising from commercial activities;
• Or disputes where at least one party is engaged in commercial activities.

Meanwhile, the Court has a broader scope, including:

• Civil disputes;
• Business and commercial;
• Labor;
• Marriage and family;
• Other types of disputes as prescribed by law.

Thus, for disputes not falling within the scope of the Law on Commercial Arbitration, businesses are compelled to choose the Court.

3. Dispute resolution body

One of the outstanding advantages of arbitration is the right to choose arbitrators.

The parties can choose:

• Lawyers;
• Financial experts;
• Construction experts;
• Investment experts;
• Individuals with extensive experience in the field of dispute.

Conversely, if the Court is chosen, the case will be resolved by a Judge assigned according to regulations, and the parties do not have the right to choose.

For disputes requiring high expertise such as construction, energy, M&A, or investment, this is a significant advantage of arbitration.

4. Resolution time

Arbitration applies a single-instance adjudication mechanism.

Arbitral awards are effective immediately upon issuance and there is no appeal procedure.

Meanwhile, the Court operates on two levels:

• First instance;
• Appeal.

In addition, there is the possibility of review under cassation or reopening procedures in some cases.

Therefore:

• Arbitration usually resolves cases faster;
• The Court allows for judgments to be reviewed if there are errors.

5. Confidentiality

For many businesses, especially listed companies or those with technological secrets, confidentiality is a very important factor.

Arbitration

Hearings are conducted in private, helping to protect:

• Business secrets;
• Financial information;
• Customer lists;
• Technology;
• Business reputation.

Court

The general principle is public trial, except in special cases as prescribed by law.

6. Place and language of proceedings

Arbitration offers high flexibility.

The parties have the right to agree on:

• Place of resolution;
• Language of proceedings;
• Arbitration center;
• Applicable procedural rules.

This is particularly suitable for international transactions.

Conversely, for Courts:

• Trials take place at the competent Court;
• The language of proceedings is Vietnamese.

7. Applicable Law

For disputes involving foreign elements, arbitration allows the parties to proactively choose the governing law for the contract or dispute.

Meanwhile, the Court will apply the conflict of laws provisions under Vietnamese law to determine the governing legal system.

This is an important advantage for investment contracts or international commercial contracts.

8. Resolution Costs

Costs are always a consideration for businesses.

Arbitration

• Arbitration fees are usually higher;
• However, resolution time is often shorter.

Court

• Court fees are lower;
• But litigation time is often longer due to multiple levels of adjudication.

Businesses need to evaluate the total cost, including opportunity costs due to extended timelines, rather than just comparing the fees payable.

9. Enforceability Abroad

This is the most significant difference for international transactions.

Arbitral awards can be recognized and enforced in over 170 countries under the 1958 New York Convention.

In contrast, judgments of Vietnamese Courts can only be recognized and enforced abroad if they meet the conditions of international treaties or the principle of reciprocity between countries.

Therefore, for contracts with foreign partners or assets abroad, arbitration is often the more effective choice.

When should businesses choose Arbitration?

According to OPLAW, businesses should prioritize arbitration when:

• The contract has a foreign element.
• The partner or assets are located outside Vietnam.
• Absolute confidentiality of business information is required.
• The dispute is highly technical or specialized.
• A quick resolution and a final award are desired.

When should the Court be chosen?

The Court will be more suitable if:

• There is no or cannot be a valid arbitration agreement.
• The dispute involves multiple parties, with many interested rights and obligations.
• The business wants a two-tier adjudication mechanism to minimize substantive risks.
• All parties operate domestically and prioritize saving litigation costs.

Some notes when drafting dispute resolution clauses

To limit legal risks, businesses should:

• Clearly define the dispute resolution method during contract negotiation.
• If arbitration is chosen, fully specify the arbitration center, number of arbitrators, venue, language, and applicable law.
• Review the arbitration clause to ensure it does not fall under invalid cases according to the Law on Commercial Arbitration.
• For international contracts, consider the enforceability of the award in the country where the partner has assets.

Conclusion

No dispute resolution method is optimal for all cases. The choice between Commercial Arbitration or the Court needs to be considered based on the characteristics of the transaction, contract value, foreign elements, confidentiality requirements, and business objectives.

In practice, many businesses only pay attention to the dispute resolution clause when a dispute has already arisen. However, at that point, changing the resolution method is often no longer feasible or creates many legal risks. Therefore, drafting the dispute resolution clause from the contract drafting stage is one of the most effective risk management measures.

If you need advice on contract drafting, arbitration clause construction, or representation in dispute resolution at Arbitration and Court, OPLAW's team of lawyers is always ready to accompany and support you.