THE SETTLEMENT OF TRADE DISPUTE BY COMMERCIAL ARBITRATION OR COURT

During the period that the globalization is becoming strongly growth, the commercial operations are extremely varied and rapid. The development, on the other hand creates the business opportunities for the enterprises, but on the other, there are also many inherent risks and the disputes arising are unavoidable.

There are many ways to resolve a dispute. With only one aim is the effective decision or award of the dispute settlement authority, the parties can select one of two types of dispute settlement by arbitration or court.

The selection of arbitration or court is the concern of the enterprises to the commercial dispute settlement. By the analysis below, Law Plus hopes the customers shall have an overall and overview of the legal provisions as well as the advantages and disadvantages of two types of disputes resolution to make suitable decision.

1. The legal nature of the dispute settlement by arbitration or court

a. Dispute settlement at the competent court

The commercial business dispute settlement by court is settling disputes at the judicial authorities. It is ensure to follow the strictly order and process. And the court judgment shall be enforced by the power of the State.

Settling disputes by court with the processes and procedures according to the provisions of civil and commercial and other relevant law provisions.

If the disputing parties have an arbitration agreement and one of them sued in court, the court would refuse to accept it, unless the arbitration agreement is invalid or the arbitration agreement can not be conducted.

b. Dispute settlement by arbitration

The dispute settlement by the commercial arbitration is a type of dispute settlement agreed by the parties and it is conducted in accordance with the Law on Commercial Arbitration. In other words, this is a private dispute, the case is resolved confidentially about information… can be used instead of the dispute settlement type by court.

Prerequisites for settling a dispute by arbitration is that the parties shall have an arbitration agreement. An arbitration agreement can be made either before or after a dispute.

This arbitration agreement has not been in invalid cases or unenforceable in accordance with the Law on Commercial Arbitration.

2. The final of an arbitral award

And another important point, there is the possibility of being appealed. In principle, an arbitral award shall be final, that means the arbitral award is not appealed as the Court’s judgment. Hence, the arbitral only adjudicates once, because the parties have chosen and believed in them, so that they shall accept the arbitral’s decision.

But first-instance decisions and judgments of the court can be appealed and erroneous decisions and judgments can still be reviewed according to cassation or reopening procedures at different levels in Court system.

However, the ability of the arbitrator to enforce the arbital awards is based on the willingness of the parties. Compared to the judgment issued by the Court – the judiciary agency – the ability to be sure of judgments execution is higher because of the enforceable power of the state. Judgment enforcement authority is a specialized agency has full skills and means to execute legally valid judgments and also is a measure for the executing party when the obligee has a sign in against.

Upon expiration for execution of an arbitral award, if the enforcing party are neither voluntarily execute nor requests cancellation of the arbitral award, the executing party shall have the power to send a request letter to the judgment enforcement authority.

An arbitral award may be canceled by the competent Court if it falls under the following cases:

  1. There is no arbitration agreement or the arbitration agreement is invalid;
  2. The composition of the arbitral tribunal, the arbitral proceedings are not consistent with the agreement of the parties or contrary to the provisions of the Law on Commercial Arbitration;
  3. The dispute does not fall beyond the arbitration’s jurisdiction; in case the arbitral award contains a content does not fall beyond the jurisdiction of the arbitration tribunal, that content shall be canceled;
  4. The evidence provided by the parties on which the arbitration tribunal bases on its judgment is forged; The arbitrator receives money, property or other material interests of a disputing party affecting the objectivity and fairness of the arbitral award;
  5. The arbitral award is contrary to the basic ruless of Vietnamese law.

3. Flexibility of dispute settlement by arbitration

With the arbitration procedures, the majority of the rules of arbitration are flexible, such as the arbitration procedures, the dispute settlement session, extension, the session place, the time for drafting the arbitral award. This helps to reduce costs and increase efficiency in the dispute settlement process. Besides, it helps the arbitration operations can occur continuously and quickly because the arbitration tribunal has been selected by the parties to resolve the dispute.

According to the law on arbitration, the parties shall have the power to choose the arbitration tribunal; arbitrators; dispute settlement location; the language used in the dispute settlement or the prevailing law to settle the dispute if one party has foreign selements.

Court have this different point from arbitration in this procedural rule because the Court’s trial is ceremonial, so the application of the law in general and the law of the location and the evidence in particular is very strict. In addition, Court is the judicial body in the name of state power. The use of public power of the state has to follow a strict process, comply with the provisions of the law. That is the reason why court can not be as flexible as the selection of the involved parties in arbitration proceedings. Therefore, sometimes, settling disputes by court makes the parties meeting with difficulties. Because they do not well- informed the provisions of the proceedings.

4. International Recognition of Commercial Arbitration and court

In case an international commercial contract arising, the national court’s judgement is difficult to obtain international recognition. Because the regulations of the court is belongs to the provisions of national, a Court’s awards to be recognized in another country often through a bilateral agreement or under the strict rules. However, there are some regional exceptions, for example the European Union and the countries of the Organization for the Harmonization of African Business Law – OHADA.

By contrast, arbitral awards achieved international recognition through a series of international conventions and in particular the 1958 New York Convention on Recognition and Enforcement of Arbitral Awards.

Foreign arbitral awards are recognized and enforced in Vietnam by competent courts in accordance with the civil procedure law.

5. The term of dispute settlement by the arbtitration and court

The court proceeding can be delayed and longer than the arbitration proceeding. Because:

  • Firstly, the national court are being overloaded.
  • Secondly, the national court has the differ competennt level (the first-instance court, the appeal court and the People’s Supreme Court)

The unpleasure party lose money as well as time when the parties shall have the power to appeal the judgment as prescribed.

On the other hand, the arbitration only adjudicates once. When they decide to resolute by arbitration, the parties are understood as have given up their right to appeal in any ways. When the judgement is finished, the Arbitration Committee (the Arbitration tribunal) completes its duties and terminates its existence.

VIAC settlement process (source: VIAC)

6. Professional competence and continuity of individuals

The characteristic of arbitration is the rule “independence of the parties”. Arbitration also is a continuous dispute settlement process, and dispute settlement needs specialized trade experience, in one of certain situations is also require specific experience, especially in international commercial deals. From that point, the parties voluntarily agree to refer the dispute to a person (third party) whose judgment is believed. Each party explains their case to the third party, usually one or three private part as “arbitrators.” The arbitrator listen both sides, consider the case, the sides’ arguments, and then gives a decision. Perhaps this type only exists when the arbitrators operate independently from each other, and in general, the arbitrator usually follow the case from begin to finish, so that it can be sure of democracy and objectivity in the proceedings.

Following to court proceedings, the judges of the People’s Courts at all levels are appointed according to national law, so they have not accumulated much experience in international law when dealing with all kinds of commercial disputes. In addition, in long-lasting cases, there are the judges and the other next to them resolve the case, and not ensuring the long-lasting as the arbitrator.

7. Application of provisional measures in arbitration proceedings

When it is necessary to act quickly and effectively to prevent breaches (apply the interim measures to freeze the obliger’s assets), the Court may order to coercive compensation or even revocate the property before beginning the proceedings, in order to ensuring the judgment execution,  not violating the rights and benefits of other in the contract. Besides that, court can also order third parties with its state power.

But for arbitration proceedings, at the time before the arbitral tribunal is established, the parties shall receive a provisional order through the Court. In most legal systems, once an arbitral tribunal is established, the parties can still accept a court order to prevent breaches. Typically, according to Article 7 Law on Commercial Arbitration 2010, the arbitral tribunal is also entitled to take interim measures. However, the arbitrator cannot order a third party when they do not want to participate in the proceedings.

8. Confidentiality in dispute settlement by arbitration

Arbitration sessions are closed trial and only the parties who are recieved the decision can participate. This is a great advantage of arbitration when the case relates to trade secrets and inventions or other factors that need confidentiality at the request of the parties. In the contract, the key provisions always include the secrets that would be observed in the arbitration proceedings.

Since secrecy is so important in intellectual property disputes, so that the additional confidentiality clauses can be made by the parties (in a clause of the contract) or by arbitrators (in an order), or in documents determining the authority. The content of the dispute and the identity of the parties are kept private, this will meet the need for trust in the commercial operations, which gives great meaning in competitive conditions.

With the jurisdiction of the court, the court as well as the award are public trial. Because the Court’s adjudication on the one hand are democracy, in order to make advantages for the citizens to check and monitor the activities of the Court, and the person who conducting the proceedings, discovering the errors or mistakes in the process of settling cases, protecting the rights and benefits of the State and citizens according to the provisions of law, on the other hand, through public trial, they also propagate the law to the public. As a result, the widely publicized judgments are difficult to protect trade secrets. This rules is completely different from the arbitration’s rules.

9. The cost in the dispute settlement

When requesting dispute settlement by court, the parties are not required to pay the judge’s remuneration, except for the administrative fees as prescribed by law.

Besides, the dispute settlement by arbitration, the parties shall pay in advance the remuneration, travel expenses for the arbitrator, as well as administrative fees for the Ad-hoc arbitration.

 10. Summary of advantages and disadvantages of the dispute settlement by arbitration and court

a. Advantages:

(i) Arbitration:

  • Firstly, the dispute resolution is not public trial, except for the parties have other agreement. For the disputes related to intellectual property: inventions,…, this advantage is extremely important to the parties. And, the parties may protect the reputation as well as other business secrets.
  • Secondly, the arbitration procedure is simple and fast, the parties can be proactive in time and place for dispute settlement, without going through many levels of trial. As a result, the parties can save the fee as well as the time for dispute settlement.
  • Thirdly, the arbitrator’s decision is final, so it is binding on the parties and the right to appeal in this case is invalid.
  • Fourthly, the parties are being appointed the arbitrator to establish an arbitration tribunal in order to resolve the case to help the parties choose a talented arbitrator, with a lot of experience and understanding of the dispute so that they can resolve disputes quickly and accurately.
  • Finally, the dispute settlement by arbitration is not limited in terms of territory, thus the parties can agree to select any arbitrator to resolve their disputes

(ii) Court:

  • Firstly, the court is an agency in the name of the state to settle the disputes, so the court’s judgments are guaranteed to be enforced by the power of the state. Judgment enforcement agency is a specialized agency and has sufficient state departments in order to execute legally valid judgments. Therefore, judgment enforcement is guaranteed in most cases.
  • Secondly, the settlement can go through many levels of trial, so the rules of multiple levels of trial ensures that the court’s decisions are accurate, fair, objective and comply with the law.
  • Finally, the cost for the settlement of economic disputes in courts in accordance with the law is much lower than using commercial arbitration organizations or international arbitration.

b. Disadvantages:

(i) Arbitration:

    • Firstly, the arbitral award depends on a lot of the willingness of the disputing parties. In case the party shall execute the award does not voluntarily enforce nor request the cancellation of the arbitral award, when the time limit for enforcement of the arbitral award has expired, the judgment creditors may file a request to the enforcement judgment authority. Besides, one of the disputing parties may file a request for the Court to cancel the arbitral award. As a result, the judgment debtor may find it difficult to get the other party to fulfill its obligations.
    • Secondly, the fee of settling disputes by arbitration is quite expensive, it does depending on the value of the dispute. This is also a matter to consider based on the capabilities of the parties.
    • Thirdly, the arbitration agreement is a required condition for the dispute to fall under the arbitration’s jurisdiction. Therefore, in case that one party needs to settling dispute by arbitration but cannot reach an agreement with the other party, the dispute cannot be resolved by arbitration.

(ii) Court:

    • Firstly, the parties shall be observe the regulations in litigation. The parities can not proactive in the dispute settlement same as the arbitration.
    • Secondly, Court is public trial. That makes the parties shall not be protect their trade secrets as well as the reputation can be affected.
    • Finally, the rules of multi-level trial ensures that the court’s decision is accurate and fair, but the case is prolonged and be on trial for many times with the parties experiencing disadvantages.

Noted the above matters from the beginning will help the parties choose the Court or Arbitration. And these not be limited in the case of the inconsistence of additional criteria, bring about the parties’ passivity in the dispute settlement process. As a result, enterprises should consider your current situation and select the suitable settle type.

The above is the entire analysis regarding the power to settling trade dispute between the court and the arbitral. For detailed advice, please contact LawPlus via phone: +84268277399 or email info@lawplus.vn.

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