Is it mandatory to conduct the negotiation and mediation as agreed before bringing a dispute to Commercial Arbitration in Vietnam?

In most of recent commercial business contracts, the contracting parties have often included an arbitration agreement to request Arbitration to resolve any dispute arising. However, the parties often give priority to finding good-faith and amicable solutions and agree that the dispute shall be resolved by mediation and negotiation before a party approaches the Arbitration proceedings.

So, how to solve it if a party fails to comply with this agreement and initiates Arbitration without conducting mediation and negotiation procedures before?

Through this article, BLawyers Vietnam will present the above issue.

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1. Dispute settlement through Commercial Arbitration

Commercial Arbitration is a method of non-State jurisdiction dispute resolution and shall only be applied upon the parties’ agreement. Accordingly, the dispute shall be resolved by a neutral third party (arbitrator or arbitral tribunal) to issue a final arbitral award binding upon the parties.

Not every dispute can be settled by Commercial Arbitration. Disputes falling under the Commercial Arbitration’s jurisdiction include:

  1. Disputes among the parties arising from commercial activities;
  2. Disputes among the parties at least one of whom conducts commercial activities; and
  3. Other disputes among parties that are permitted by law to be adjudicated by Arbitration.

2. Dispute settlement through negotiation and mediation procedures

In addition to Arbitration proceedings or litigation at Court, the prevailing laws also consider negotiation and mediation as other methods of dispute resolution.

Negotiation means communicating and exchanging directly or indirectly between the parties to mutually seek the solutions for dispute settlement without the involvement of any third parties.

Commercial mediation is a form of dispute resolution with the involvement of a neutral third party called the commercial mediator. The commercial mediator only works to assist the disputants in negotiating and reaching a reasonable compromise and has no power to impose a decision binding upon the parties.

Of note, mediation may be conducted as a pre-arbitral proceeding before bringing a dispute to Commercial Arbitration or a part of the Arbitration proceedings.

3. Multi-Tiered Dispute Resolution Clause (the “MDR Clause”)

The MDR Clause is the parties’ agreement on the dispute settlement. This clause states that in case of arising any dispute, the parties shall settle it through the methods of negotiation and mediation within a specific period of time. After that timeline, if the parties cannot resolve the dispute, a party is entitled to initiate a lawsuit at Court or Arbitration.

In fact, the MDR Clause is often breached in case a party files a petition to request Arbitration settle the dispute although the negotiation and mediation have not been conducted before, usually for the following reasons:

  • The parties fail to clearly understand the essence of mediation. In case of arising any dispute, the parties communicate with each other via direct meetings or telephone, email and then consider that they have got through the mediation and negotiation stage; or
  • The parties no longer have the goodwill to settle the dispute by mediation, negotiation according to the previous agreement.

4. Legal consequences in case a party approaches Arbitration proceedings without conducting the negotiation and mediation as agreed

The current Law on Commercial Arbitration of Vietnam has not yet clearly regulated the validity of MDR Clause, so the practice shows that although a party fails to comply with the agreement on conducting the negotiation, mediation prior to commencing arbitral proceedings, Arbitrator/ Arbitration Center still accepts the petitions to resolve and issue an arbitral award.

As a result, the other party often requests the competent Court to annul the arbitral award because of assuming that Arbitrator/ Arbitration Center has accepted the petitions when it is not eligible for accepting.

In the practice of settling the request for arbitral award annulment, the Courts in Vietnam have two viewpoints as follows:

  • First viewpoint: Not accepting the request for arbitral award annulment

The Court stated that the agreement on pre-arbitral proceeding dispute settlement is binding upon the parties but not a mandatory premise of the Arbitration procedure, so the parties still have the right to initiate a lawsuit at Arbitration and the arbitral award is valid and lawful (Refer to Decision No. 526/2013/KDTM-QD dated 15 May 2013 of the People’s Court of Ho Chi Minh City).

  • Second viewpoint: Accepting the request for arbitral award annulment

The Court stated that the agreement on pre-arbitral proceeding dispute settlement must be fully respected and fully implemented. Arbitration accepting the petition when it is not eligible for accepting shall be not in accordance with the regulations of law (Refer to Decision No. 10/2014/QD-PQTT dated 28 October 2014 of the People’s Court of Hanoi).

Shortly, because the regulations of law are not clear to ensure that the MDR Clause is legally binding and effective to apply in the future, the parties should be mindful of preparing and drafting a clear and specific MDR Clause for implementation.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

Date: 26 November 2022

Writer: Trinh Nguyen

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04 notes on the statute of limitations for requesting judgment enforcement of the foreign Court and Arbitration in Vietnam

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Statute of limitations in dispute settlement in Vietnam

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