In most commercial disputes we handle, the question “arbitration or court” was settled months before the dispute arose — in the dispute resolution clause of the contract. Article 5 of the 2010 Law on Commercial Arbitration (Law No. 54/2010/QH12, amended and supplemented by Law No. 81/2025/QH15 effective from 01/7/2025) provides that disputes may be resolved by arbitration only where the parties have an arbitration agreement; otherwise, the court is the default authority. This is therefore a strategic decision to be made while negotiating the contract, not after the dispute has occurred.
The foundational principle: arbitration needs agreement; courts are the default jurisdiction
Article 2 of the 2010 Law on Commercial Arbitration defines arbitral jurisdiction over three groups of disputes: (i) disputes arising from commercial activities; (ii) disputes where at least one party has commercial activities; and (iii) other disputes that the law provides may be resolved by arbitration. But the prerequisite is in Article 5: the parties must have an arbitration agreement, made before or after the dispute arises.
The practical consequence of this principle is in Article 6: where the parties have a valid arbitration agreement and one party files suit in court, the court must decline jurisdiction, unless the arbitration agreement is invalid or unenforceable. Conversely, if the contract is silent on dispute resolution, the court naturally has jurisdiction, and a party wishing to bring the matter to arbitration later must persuade the other side to sign a separate arbitration agreement — something rarely achievable once the relationship has broken down.
The lesson: if a business wants the option of arbitration, the arbitration clause must be carefully drafted from the outset, with all elements on the form of arbitration, the arbitration center, the number of arbitrators, the language, and the venue.
Criterion 1: Confidentiality of proceedings
This is a structural difference between the two mechanisms. Clause 4 of Article 4 of the Law on Commercial Arbitration provides that arbitral dispute resolution is conducted not in public, unless the parties agree otherwise. Article 55 further affirms that dispute resolution hearings are held in private. Combined with arbitrators’ duty of confidentiality under Article 21, information about the case — including trade secrets, pricing strategies, technology, or internal disagreements — is protected throughout the proceedings.
By contrast, public trial is a constitutional requirement for court operations. Civil, business, and commercial hearings are in principle open to the public; judgments are published and accessible to anyone. For FDI businesses operating in sensitive sectors such as technology, pharmaceuticals, energy, or finance, having disputes exposed can cause reputational harm and competitive disadvantage far exceeding the case’s own value.
Therefore, where the value of information to protect is large, arbitration is usually the superior choice.
Criterion 2: Finality of awards versus the right to appeal
Clause 5 of Article 4 and Clause 5 of Article 61 of the Law on Commercial Arbitration establish the core principle: arbitral awards are final and effective from the date of issuance. The parties have no right to appeal the award’s substance as they do against first-instance court judgments.
The only control mechanism is the right to request the court to set aside the award under Articles 68 and 69, but only within 30 days from receipt of the award and only on procedural grounds: no arbitration agreement or an invalid agreement; the tribunal’s composition or the proceedings inconsistent with the parties’ agreement or the law; the dispute outside jurisdiction; forged evidence or an arbitrator receiving material benefits; the award contrary to the fundamental principles of Vietnamese law. When hearing a set-aside application, the court does not re-examine the merits of the dispute (Clause 4 of Article 71).
Meanwhile, first-instance court judgments may be appealed or protested for appellate trial, and subsequently reviewed through cassation or retrial procedures. Consequently, court disputes can drag through multiple levels, while arbitration delivers legal certainty sooner — in exchange, the parties must accept that a substantively unfavorable award is virtually irreversible.
Criterion 3: Enforceability of awards abroad
For FDI businesses and cross-border transactions, this is often the decisive criterion. Arbitral awards benefit from the 1958 New York Convention on the recognition and enforcement of foreign arbitral awards — a multilateral treaty with over 170 member states, which Vietnam joined in 1995. Under it, an award rendered in Vietnam may in principle be recognized and enforced in any other member state without re-examining the merits, with refusal grounds limited as listed in the Convention.
By contrast, a Vietnamese court judgment to be enforced abroad must rely on bilateral mutual legal assistance treaties or the principle of reciprocity — a far sparser and less certain network than the New York Convention. Experience shows that for contracts where the counterparty or its assets are outside Vietnam, an arbitration clause is a far more practical protection tool.
Note that upon accession, Vietnam declared reservations — including applying the Convention only to disputes arising from commercial legal relationships and on a reciprocity basis for awards rendered in non-member states. Businesses need specific advice on the scope of application in each case.
Criterion 4: Who decides the dispute
Arbitration allows the parties to choose who directly decides their case. Article 20 of the Law on Commercial Arbitration sets the standards for arbitrators: full civil act capacity, a university degree, and at least 5 years of practical experience in the field studied (except special cases for highly qualified experts). In practice, the arbitrator panels of major arbitration centers gather lawyers, experts, former judges, and professors with deep expertise in each field: construction, banking, insurance, intellectual property, energy.
For technically complex disputes — e.g., EPC contract disputes, technology transfer disputes, or financial derivatives disputes — having the case decided by industry-knowledgeable persons rather than a judge handling hundreds of cases across all fields is an undeniable advantage.
However, this choice also imposes responsibility: the quality of the arbitral process depends heavily on the quality of the arbitrators the parties choose. A wrong choice — from ignorance of conflicts of interest, underestimating case-management ability, or relationship reasons — can cost the business dearly with no substantive appeal mechanism to fix it.
Criterion 5: Procedural, language, and governing-law flexibility
Commercial arbitration is built on the principle of respecting the parties’ agreement (Clause 1 of Article 4). The parties may agree on the language of proceedings — particularly important where Article 10 allows parties in disputes with foreign elements or with foreign-invested enterprises to choose the language used; on the venue (Article 11); and on the law applicable to disputes with foreign elements (Article 14).
This flexibility is especially valuable for FDI businesses: a multinational group can uniformly use English throughout the proceedings, choose a legal system its legal department understands, and fix a venue convenient for evidence collection. In Vietnamese courts, the language of proceedings is Vietnamese and the applicable law is Vietnamese law — factors that may practically disadvantage foreign investors unfamiliar with the local legal system.
Criterion 6: Time and cost
On time, the Law on Commercial Arbitration sets specific milestones: the award is issued at the hearing or no later than 30 days from the last hearing session (Clause 3 of Article 61); the respondent must submit its defense within 30 days from receiving the statement of claim (Article 35). Combined with finality, an ordinary arbitration can conclude within 6–12 months, while a business or commercial case through two court levels typically lasts 1 to 3 years.
On cost, an honest view is needed: arbitration fees (Article 34) — including arbitrator remuneration, the center’s administrative fees, expert costs — are usually higher than court fees and charges for low- or mid-value cases. But for complex, high-value cases, arbitration costs become proportionate when accounting for shortened time, confidentiality, and cross-border enforceability. The default rule is that the losing party bears arbitration fees (Clause 3 of Article 34). Also note: the limitation period for arbitration proceedings is 02 years from the time lawful rights and interests are infringed (Article 33), unless specialized laws provide otherwise.
A decision framework for FDI businesses
Combining the above criteria, businesses can self-assess through these questions:
- Are the counterparty or its assets outside Vietnam? If so, arbitration with the 1958 New York Convention is the preferred choice.
- Does the case involve trade secrets, technology, or reputation-sensitive information? If so, arbitration’s non-public nature is a decisive advantage.
- Is the dispute highly technical or specialized? If so, the right to choose knowledgeable arbitrators is a major plus for arbitration.
- Does the business need a final decision quickly to close risks on financial reports? If so, arbitration fits better.
- Is the disputed value large enough to make arbitration costs reasonable? For small cases, courts may be more economical.
- Does the business need a public precedent to deter other partners? If so, courts — with published judgments — serve this purpose better.
In our advisory practice, most significant-value FDI contracts — international sale of goods, EPC, joint ventures, technology transfers — choose arbitration. Conversely, businesses should consider courts where: the dispute is outside arbitral jurisdiction under Articles 2 and 18; coercive evidence collection or witness summons is needed; the counterparty shows signs of asset dissipation and quickly enforceable interim measures are needed; or no valid arbitration agreement exists and the other side refuses a supplementary agreement.
An update to note: Law No. 81/2025/QH15 (effective from 01/7/2025) amended Clause 3 of Article 7 of the Law on Commercial Arbitration on determining the court competent for arbitration-related activities — under which the competent court for most arbitration-support activities is the regional People’s Court.
Frequently asked questions
The signed contract has no arbitration clause; can the dispute still go to arbitration?
Yes, if the parties sign a separate arbitration agreement after the dispute arises — Article 5 of the Law on Commercial Arbitration allows arbitration agreements made before or after disputes occur. In practice, however, once the relationship has broken down, reaching a new agreement is very difficult. Arbitration clauses should therefore be in the original contract.
Can arbitral awards be appealed like court judgments?
No. Arbitral awards are final and effective from the date of issuance (Clause 5 of Article 61). The only mechanism is requesting the court to set aside the award within 30 days under Articles 68–69, but only on procedural grounds; the court does not re-examine the merits.
Is arbitration more expensive than court litigation?
Usually yes, for low- or mid-value cases, because arbitration fees include arbitrator remuneration and the center’s administrative fees. But for complex, high-value, or foreign-element cases, arbitration costs are usually proportionate when accounting for shortened time, confidentiality, and cross-border enforceability. The losing party bearing arbitration fees is the default rule (Clause 3 of Article 34).
Can an award rendered in Vietnam be enforced abroad?
Yes, thanks to the 1958 New York Convention, which Vietnam joined in 1995. Awards can be recognized and enforced in other member states without re-examining the merits. Note Vietnam’s reservations upon accession, particularly on the scope of commercial disputes and the reciprocity principle.
Which disputes cannot go to arbitration?
Under Articles 2 and 18 of the Law on Commercial Arbitration, arbitration has jurisdiction only over disputes arising from commercial activities, disputes where at least one party has commercial activities, or other disputes the law provides may be resolved by arbitration. Arbitration agreements for disputes outside this jurisdiction are invalid.
Contact FLAT LAW FIRM
FLAT LAW FIRM is a boutique business law firm specializing in foreign investment (FDI), cross-border transactions, and commercial dispute resolution in Vietnam. We advise on drafting arbitration clauses, represent clients in arbitral proceedings at domestic and foreign arbitration centers, as well as in related court procedures — from requests for interim measures to requests to set aside or recognize and enforce arbitral awards.
If your business is negotiating a contract with foreign elements or facing a commercial dispute, contact us for advice on the option best suited to your business goals and risk appetite.
Disclaimer
This article is for general information on Vietnamese commercial arbitration law at the time of publication only and does not constitute legal advice for any specific case. The choice between arbitration and courts depends on the specific circumstances of each transaction and dispute; businesses should consult a lawyer before deciding.
Useful links
- Arbitration dispute resolution — FLAT’s overview page on commercial arbitration.
- Multi-tier dispute resolution clauses — combining negotiation, mediation, and arbitration in one clause.
- Validity of arbitration agreements in Vietnam — conditions for valid arbitration agreements and invalidity cases.
- Enforcing arbitral awards in Vietnam — enforcement procedures after arbitral outcomes.
