Arbitrability: Notes For Enterprises When Choosing Arbitration As A Dispute Resolution Mechanism

Authors: Truong Trong Minh – Senior Associate, Pham Thi Hoai – Senior Paralegal.

The method of dispute resolution by commercial arbitration has been proven to have many advantages over ordinary litigation procedures. In addition to the existence of an effective arbitration agreement and arbitration agreement, the arbitrability or ability of disputes allowed by law to be resolved by arbitration (“Arbitrability“) is also one of the core conditions for determining whether a dispute can be resolved by arbitration or not. However, this condition of arbitrability has not been properly paid attention by the parties.

In fact, ignoring the issue of Arbitrability may cause the parties to choose the wrong dispute resolution mechanism or arise disputes over jurisdiction, resulting in the invalidity of the arbitration agreement, the suspension of settlement of the dispute or the annulment of the arbitral award. Leading to the expectation of unenforceable arbitration settlement, or the unenforceable arbitral award, prolonging the dispute resolution time, increasing costs and legal risks for enterprises.

In this context, it is important to understand and properly evaluate Arbitrability from the stage of contract drafting as well as when developing a dispute resolution strategy. This article will analyze the concept of Arbitrability, the legal basis of Arbitrability under Vietnamese law, common types of disputes and some special cases that may arise problems with Arbitrability, thereby providing some practical recommendations for enterprises when choosing arbitration as a dispute resolution mechanism.

1. What Is Arbitrability And Why Should Enterprises Pay Attention To?

1.1. What is Arbitrability? Legal framework as a foundation

Arbitrability is a matter of determining whether a dispute falls within the scope permitted by law to be resolved by Arbitration.

In international contractual relations, between parties of different nationalities, arbitrability is even more important because of the possibility that a dispute resolved by arbitration may be simultaneously governed by the law governing the arbitration agreement, the law of the arbitration venue and the law of the country where the arbitral award is requested.

From the provisions of the 1958 New York Convention (Article II.1 and Article V.2 (a)) and the UNCITRAL Model Law (Article 1.5) it can be seen that arbitrability is a fundamental condition of International Commercial Arbitration. Accordingly, not every dispute can be resolved by Arbitration, but the arbitrability of a dispute is always governed by the mandatory legal provisions and public policy limitations of the relevant legal systems.

In Vietnamese law, the determination of arbitrability is often associated with determining whether the subject and field of dispute fall within the scope permitted by law to be settled by arbitration or not. Specifically, Article 2 of the Law on Commercial Arbitration 2010 defines groups of disputes under the jurisdiction of arbitrators, including:

(i) Disputes between parties arising from commercial activities;

(ii) Disputes arising between parties in which at least one party has commercial activities; or

(iii) Other disputes between the parties that are prescribed by law shall be settled by arbitration.

From the above provisions, it can be seen that Arbitrability should be considered as a legal limitation on the freedom of agreement of the parties in choosing an Arbitration. In other words, even if there is an arbitration agreement between the parties, the dispute cannot be resolved by Arbitration if it is a type of dispute that the law determines is non-arbitrability.

1.2. Why do enterprises need to check Arbitrability before selecting Arbitration?

Arbitrability is an issue that needs to be considered at an early stage when the parties consider choosing arbitration as a method of dispute resolution, because:

Firstly, arbitrability is the basis for determining whether the type of dispute arising falls within the scope permitted by law to be resolved by Arbitration. Only when the dispute meets this condition can the parties continue to evaluate other issues such as the validity of the arbitration agreement, the jurisdiction of the Arbitral Tribunal and the ability to recognize and enforce the arbitral award.

Secondly, the issue of arbitrability can become complex when a dispute involves many claims or involves many different legal relationships. In such cases, an assessment should be made on each specific claim, on the basis of the legal nature of each disputed issue.

Thirdly, the correct determination of arbitrability is important for the efficiency and finality of the dispute resolution process. An arbitral award issued for a dispute that is not within the scope of arbitration resolution may face the risk of being annulled, not recognized, or not enforced.

Therefore, determining Arbitrability from the beginning not only helps the parties choose the appropriate dispute resolution mechanism but also contributes to limiting legal risks arising during the entire process of litigation and judgment enforcement later.

2. Types Of Disputes That Can Be Resolved By Arbitration Under Vietnamese Law

2.1. Disputes arising from commercial activities

This is a type of disputes determined based on the origin and nature of the disputed relationship, that is, disputes must arise from a commercial activity, distinguished from disputes arising from non-commercial legal relations, such as marriage and family relations or administrative relations between state agencies and people.

Specifically, according to the provisions of the Commercial Law 2005, Commercial activities mean activities for the purpose of generating profits, including: sale and purchase of goods, provision of services, investment, commercial promotion and other activities for the profit purpose.

For example, disputes arising from contracts for the purchase and sale of goods between enterprises, contracts for the provision of services between enterprises, agency and distribution contracts may fall into this group.

Note that the determination of disputes arising from commercial activities should be based on the nature of the disputed relationship rather than the name of the contract or the status of the subject participating in the transaction. In fact, a transaction signed by an enterprise is not necessarily a commercial activity; it is necessary to consider whether the transaction is carried out for the purpose of profit or not.

2.2. Disputes in which at least one party has commercial activities:

Unlike the case specified in Article 2.1 of the Law on Commercial Arbitration 2010, Article 2.2 of the Law on Commercial Arbitration 2010 does not require that the dispute must arise directly from a commercial activity of both parties. Accordingly, in terms of subjects, as long as at least one party to the dispute has commercial activities, the dispute may fall within the scope of arbitration.

For example, in the relationship between consumers and business organizations and individuals, consumers buy goods or use services to serve consumer needs, not for the purpose of profit. Therefore, consumer activities are not commercial activities as defined in Article 3.1 of the 2005 Commercial Law. Meanwhile, business organizations and individuals carry out business activities for the purpose of profit. The Law on Protection of Consumer Rights has its own provisions allowing parties to choose Arbitration to resolve disputes in cases prescribed by law. This case shows that a party not carry out commercial activities does not automatically exclude the possibility of resolving disputes by arbitration.

However, this provision should not be acknowledged that any dispute involving a subject who is conducting commercial activities can automatically be resolved by arbitration.

For example, in labor relations, the employer can simultaneously be the subject of commercial activities, but the relationship between the employer and the employee is an labor relationship, governed mainly by labor law and has its own dispute resolution mechanism. Therefore, the fact that the employer has commercial activities is not the only basis for determining labor disputes within the scope of commercial arbitration.

Therefore, in the author’s view, the phrase “at least one party has commercial activities” in Article 2.2 of the Law on Commercial Arbitration 2010 should be considered in the relationship itself that gives rise to the dispute, rather than just based on the fact that a party has the status of an enterprise or trader or is conducting commercial activities in other relationships.

2.3. Other disputes prescribed by law shall be settled by arbitration:

In case the dispute does not arise from commercial activities and there is no at least one party engaged in commercial activities, the dispute can still be resolved by arbitration if the law governing the dispute relationship allows the parties to choose arbitration as the dispute resolution mechanism.

This is a group of disputes with an open scope and often poses the most difficulties in determining Arbitrability. Unlike the two cases mentioned above, the determination of arbitrability is no longer based mainly on the “commercial” factor but depends on whether the specialized law allows the parties to choose arbitration as the dispute resolution mechanism or not.

For example, in the field of construction, Article 86.5 of the Law on Construction 2025 recognizes that the parties have the right to choose to negotiate, mediate, and apply dispute handling models according to international practices, arbitration or the Court to resolve disputes over construction contracts. This regulation represents the recognition of specialized laws for the dispute resolution mechanism by arbitration.

Instead of relying entirely on the criterion of “commercial activities”, the ability of dispute resolution by arbitration in this case is strengthened by the fact that the Construction Law directly recognizes the right to choose arbitrators as a method of dispute resolution.

Therefore, for fields with their own legal mechanisms, it is not enough to rely solely on the arbitration agreement or the identification of a party with commercial activities. Enterprises need to simultaneously consider the provisions of specialized laws in order to fully assess the possibility of disputes being resolved by arbitration.

3. Note On Some Types Of  Special Disputes

3.1. Arbitrability for a dispute with many requirements

In practice, a dispute can include many different requirements, such as requirement for payment, requirement of compensation for damages, requirement for the performance of obligations, or requirement related to another legal relationship that arise during the performance of a contract. The determination of arbitrability should be made for each requirement and the legal relationship that gives rise to that requirement, rather than implicitly applying the conclusion to the entire dispute.

This approach is also reflected in the regulations on annulment of arbitral awards. Specifically, Article 14.2 (c) of Resolution No. 01/2014/NQ-HDTP guides that, in case the arbitral award has contents beyond the jurisdiction of the Arbitral Tribunal, in principle, only the content beyond the jurisdiction will be annulled if it can be separated from the rest of the award; only in cases where it cannot be separated can the entire award be annulled.

For example, in a dispute arising from a franchise contract, the franchisor may simultaneously claim: (i) payment of the missing franchise fees under the contract; and (ii) the invalidation of a trademark protection title that the other party owns. In this case, the requirement for payment arises from the contractual relationship and may in principle fall within the scope of the Arbitration’s settlement. However, the claim for invalidation of a protection title relates to the establishment or termination of industrial property rights, which is a matter under the jurisdiction of the Court.

3.2. Land disputes

Land-related disputes are a case that needs special attention when assessing the possibility of settlement by arbitration. Before the promulgation of the Land Law 2024, the law did not have direct and clear provisions on the jurisdiction of commercial arbitration for land-related commercial disputes, leading to different interpretations and applications in practice. The Court determined on the basis of arguments that disputes arise mainly from commercial contractual relationships or arise from land use rights in a pure sense. However, this approach at that time was mainly based on the interpretation and combination of relevant legal provisions.

The Land Law 2024 has made a significant change when Clause 5, Article 236 clearly stipulates: “Disputes arising from land-related commercial activities shall be settled by courts in accordance with the civil procedure law or by Vietnam’s commercial arbitration centers in accordance with the commercial arbitration law.” This regulation creates a direct legal basis for the selection of Vietnamese Commercial Arbitration for disputes arising from land-related commercial activities, instead of having to deduce from other legal provisions as before.

3.3. Disputes arising from the Share Purchase Agreement (“SPA”) and Shareholder Agreement (“SHA”)

Disputes in this group are usually related to the performance of the obligation to pay the transfer price, adjustment of the purchase price, representations and warranties, non-compete obligations, the right to purchase shares, the right to divest, the right to prior purchase or the right of corporate governance specified in the SHA. In essence, these disputes are associated with investment and capital transactions of enterprises, which are commercial activities in accordance with the law. Therefore, this is a group of disputes with relatively clear grounds to be considered for settlement by arbitration according to Article 2 of the Law on Commercial Arbitration 2010, if the parties have a valid arbitration agreement.

However, special attention should be paid to the binding scope of the arbitration agreement. In M&A practice, not every entity with an interest related to the transaction is a signatory to the SPA or SHA. Therefore, before initiating an arbitration lawsuit, it is necessary to consider whether the target company, the new shareholder, the transferee of shares or other related entities are bound by the arbitration clause. The fact that the dispute falls within the scope of being resolved by arbitration does not mean that all related entities are automatically required to participate in the arbitration litigation proceedings.

3.4. Labor disputes

The relationship between the employer and the employee arising from the establishment, performance and termination of the labor contract is an employment relationship governed by the Labor Code 2019. The essence of this relationship is not a relationship aimed at profit generating activity between two parties: the employer hires the employee to organize and use the labor force, and the employee performs the work to receive the salary and benefits as agreed. A dispute over wages, working hours, labor discipline, unilateral termination of the labor contract or compensation for damages arising from the labor relationship does not become a commercial dispute just because the employer is a trader.

For labor disputes, the Labor Code 2019 establishes a separate labor dispute settlement mechanism, including labor mediators, labor arbitration councils and people’s courts depending on the type of dispute and statutory conditions. The labor law does not provide for the mechanism for carrying labor disputes governed by the Labor Code out to commercial arbitration under the Law on Commercial Arbitration 2010.

Therefore, in principle, disputes arising directly from labor relations are not currently within the scope of commercial arbitration under the Law on Commercial Arbitration 2010, but are resolved according to the mechanisms prescribed by labor law. However, it should be noted that the dispute is related to information confidentiality agreements and non-competition. In Precedent No. 69/2023/AL, the Court determined that an information security and non-compete agreement can be considered as an agreement independent from the labor contract and has content related to commercial activities. Therefore, disputes arising from this agreement can be considered from the perspective of commercial disputes and the possibility of resolution by arbitration, instead of being automatically determined as labor disputes just because the agreement is signed between the employer and the employee.

4. Recommendations And Strategies For Enterprises

4.1. Checking the Arbitrability before inserting arbitration clauses into contracts

Right from the contract negotiation stage, enterprises should review the type of transaction being carried out, relevant legal relations and specialized legal regulations governing that field. In particular, for complex transactions such as investment, project transfer, real estate transactions or transactions with corporate governance elements, it is necessary to assess in advance the possibility of arising claims that may not be within the scope of settlement by arbitration. Early identification of these issues will help enterprises choose the appropriate dispute resolution mechanism and limit the risk of jurisdictional disputes arising in the future.

4.2. Designing arbitration clauses suitable to the specifics of the transaction

After determining that the dispute is expected to be resolved by arbitration, the enterprise needs to develop an arbitration clause in accordance with the structure and characteristics of the transaction. A fully drafted arbitration clause not only helps to limit procedural disputes but also contributes to ensuring the effectiveness of the dispute resolution mechanism when disputes actually arise.

For simple transactions, enterprises can clearly specify the arbitration institution, the number of arbitrators, the venue of arbitration, the language of the litigation proceedings and the applicable law. Meanwhile, for complex structured transactions such as M&A, investment or transactions implemented through multiple related contracts, it is necessary to carefully consider the scope of application of the arbitration clause and the scope of the subject bound by this clause. The incomplete design may lead to the situation that some disputes or some related subjects are not bound by the arbitration agreement, giving rise to simultaneous litigation proceedings at the Arbitration and the Court.

Therefore, enterprises should anticipate dispute situations that may arise throughout the transaction life cycle to ensure that the arbitration clause properly reflects their risk management needs and dispute resolution strategies.

4.3. Re-evaluating Arbitrability as part of litigation strategy when disputes arise

Even if the contract already has an arbitration clause, the enterprise should still re-evaluate the issue of arbitrability when a dispute actually arises. This assessment should not be considered as just a technical issue of jurisdiction but should be considered an important step in the process of developing a litigation strategy.

In many cases, the actual content of the dispute may differ from what the parties anticipated at the time of signing the contract. A dispute may include many different claims, including those that fall within the scope of Arbitration but also those that may fall under the jurisdiction of the Court or competent state agency. If it does not fully assess from the beginning, the enterprise may face the risk of the arbitral award being annulled or facing difficulties in the process of recognition and enforcement.

Therefore, before initiating a lawsuit or before raising an objection to the jurisdiction of the Arbitration Council, enterprises should simultaneously review the arbitration agreement, the legal nature of each dispute claim and relevant specialized legal regulations. This approach will help enterprises accurately determine the scope of disputes that can be resolved by Arbitration, thereby building an effective litigation strategy and minimizing jurisdictional risks in the dispute resolution process.

In addition, for transactions that may arise many different types of claims at the same time, enterprises should assess potentially controversial issues on Arbitrability in advance to have a plan to choose an appropriate dispute resolution mechanism, avoiding the case that part of the claim falls under the jurisdiction of the Arbitration while the rest must be settled at the Court or other authorities.

4.4. Dispute resolution stage

When a dispute arises, the enterprise should conduct an Arbitrability assessment as an initial review step before initiating a lawsuit or giving a response to the other party’s lawsuit request. This assessment should be carried out for each specific claim and legal relationship arising in the dispute.

For disputes with many claims or related to specific fields such as real estate, corporate governance, investment or share transactions, capital contributions, enterprises need to consider whether all or only part of the claim falls within the scope of settlement by Arbitration.

Before choosing or objecting the arbitration method, enterprises should simultaneously review the arbitration agreement, the legal nature of each dispute claim and relevant specialized legal regulations. This approach not only helps to develop an appropriate litigation strategy but also contributes to ensuring the efficiency and enforceability of future dispute resolution results.

CONCLUSION

Arbitrability is one of the issues that enterprises need to check before choosing Arbitration. The fact that a contract has an Arbitration clause does not mean that all disputes arising from the contract can be resolved by Arbitration. Enterprises need to consider the nature of the dispute, each specific claim and the provisions of specialized laws to determine the limits of the ability to resolve disputes by Arbitration.

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You can refer for more information:

• • Defective Arbitration Clause: Handling Guidelines And Solutions For Enterprises
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  • Handling Capital After Dissolution for FDI Enterprises: Conditions for Closing the DICA Account and Legally Remitting Funds Abroad
  • Abandoning an FDI Legal Entity in Vietnam: The Risk of Exit Suspension and the Liability of the Foreign Director