In the Vietnamese legal system, besides the court, arbitration is also chosen by many parties to resolve disputes. This choice is usually recorded in the contract and is understood as an “Arbitration Agreement”. Currently, arbitration agreements are considered a flexible means to resolve disputes quickly and effectively. However, like any other solution, there are situations where the Arbitration Agreement cannot be executed.  This is because, at the time of establishing the arbitration agreement, these agreements are already in a position where the law determines that “the arbitration agreement cannot be executed”. So when is the Arbitration Agreement unenforceable? Please join us in reviewing situations where arbitration agreements cannot be executed through the article below.

1. In what cases is the Arbitration Agreement unenforceable?

According to procedural principles, when the parties have agreed that Arbitration is the dispute settlement body, then one party initiates a lawsuit in Court, the Court must refuse to accept the case, except in cases where the arbitration agreement is invalid or unenforceable. Unenforceable arbitration agreements are specified in the Law on Commercial Arbitration in the following cases:

• The parties have agreed to resolve disputes at a specific Arbitration Center, but this Arbitration Center has terminated operations without a successor arbitration organization, and the parties cannot agree on choosing an alternative Arbitration Center to resolve the dispute.
• The parties have had a specific agreement on choosing an ad hoc Arbitrator. Still, at the time of the dispute, due to force majeure events or objective obstacles, the Arbitrator cannot participate in the arbitration to resolve the dispute, or the Arbitration Center or Court cannot find an Arbitrator as agreed by the parties and the parties cannot agree on choosing alternative Arbitrator.
• The parties have had a specific agreement on choosing an ad hoc Arbitration, but at the time of the dispute, the Arbitrator refuses to be appointed or the Arbitration Center refuses to appoint an Arbitrator and the parties cannot agree on choosing an alternative arbitrator.
• The parties have an agreement to resolve disputes at an arbitration centre but the procedural rules of the arbitration centre differ from those of the chosen centre. This applicaiton is not allowed and can only be resolved if the partice can agree on on choosing alternative arbitration rulesSuppliers of goods and services and consumers have provisions on arbitration agreements recorded in the general conditions for the supply of goods and services prepared by the supplier as prescribed in Article 17 of the Law on Commerce. Still, when a dispute arises, the consumer does not agree to choose arbitration to resolve the dispute.

In the above cases, the arbitration agreement related to a contract in which one party is a consumer is a situation that often arises in reality at the time of establishing the contract, which the parties often do not pay attention to. Accordingly, in this case, although at the time of establishing the contract, the consumer did not object to the arbitration clause, when an actual dispute arises, the arbitration clause will not be applied. By default, consumers have the right to choose the Court as the dispute settlement body. This is applied in some specific cases as in our analysis in section 2 below.

2. Arbitration agreement in disputes with consumers and actual settlement by the Court

This issue is regulated in Article 38 of the Law on Protection of Consumer Rights as follows:

“Article 38. Effectiveness of arbitration clause

Organizations and individuals trading in goods and services must notify the arbitration clause before entering into a contract and obtain approval from consumers. If the arbitration clause is included in the form contract or general transaction conditions by an organization or individual trading in goods or services, when a dispute arises, the individual consumer has the right to choose another method of resolving disputes.”

According to the above clause, it is understood that the arbitration clause will be accepted if the goods or service provider notifies consumers to clearly understand the application of Arbitration as the dispute settlement body and consumers also agree. Then, in this case, Arbitration will be the chosen jurisdiction to resolve the dispute. When an arbitration clause is recorded in the form contract or general transaction conditions, Arbitration will be the dispute settlement body if the consumer agrees to choose Arbitration when an actual dispute arises.

In reality, it is shown that when selling goods or providing services, most enterprises prepare contract templates to provide to customers, and this is also considered a “form contract” as mentioned above. Therefore, to ensure that the arbitration clause is applicable in the dispute without depending on the consumer’s consent, the supplier of goods or services should inform the consumer of the arbitration clause in the form contract and obtain the consent of the consumer. This process needs to be specifically recorded as a basis to determine that the consumer clearly understands the arbitration clause in the Form Contract, and agrees to choose Arbitration as the dispute settlement body. The issue regarding consumers’ right to choose a dispute settlement body has been recognized in Case Law No. 42/2021/AL dated February 24, 2021.

Quoting the content of the case law as follows:

“[9] Vacation ownership contract No. PBRC -S-064621 is a type of prepared contract issued by a service provider with a pre-written arbitration agreement. The plaintiff, who is the consumer, did not agree to choose an arbitrator and requested the People’s Court of Nha Trang City to resolve this. This is following Article 38 of the Law on Protection of Consumer Rights, Article 17 of the Law on Commercial Arbitration and guidance in Clause 5, Article 4 of Resolution No. 01/2014/NQ-HDTP dated March 20, 2014 of the Council of Judges of the Supreme People’s Court. Therefore, the People’s Court of Nha Trang City accepted and resolved the dispute within its jurisdiction according to Clause 3, Article 26 and Clause 1, Article 35 of the Civil Procedure Code and it is still within the statute of limitations for initiating a lawsuit as prescribed in Article 429 of the Civil Code 2015, Article 184 of the Civil Procedure Code”

Thus, the supplier of goods and services needs to clearly understand that the arbitration agreement will not be automatically applied if the consumer does not clearly understand the arbitration clause in the form contract or general terms.

Time of writing: 28/12/2023

The article contains general information which is of reference value, in case you want to receive legal opinions on issues you need clarification on, please get in touch with our Lawyer  at  info@cdlaf.vn

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