perspective on alternative dispute resolution (ADR) mechanisms outside of courts in Vietnam, perspective on alternative dispute resolution (ADR) mechanisms outside of courts, alternative dispute resolution (ADR) mechanisms outside of courts in Vietnam, alternative dispute resolution mechanisms outside of courts in Vietnam,

Perspective on Alternative Dispute Resolution (ADR) Mechanisms outside of Courts in Vietnam

When seeking dispute resolution methods worldwide, many international businesses tend to opt for alternative methods such as mediation or commercial arbitration before resorting to court proceedings. This is because mediation and arbitration offer numerous advantages, including time and cost efficiency, maintaining amicable relationships between parties, ensuring confidentiality of disputes, etc.

These out-of-court dispute resolution methods are generally classified as Alternative Dispute Resolution (ADR). In some jurisdictions, commercial arbitration is debated as not being ADR because arbitrators and judges both have adjudicatory functions with the aim of determining the responsibilities of the parties rather than primarily seeking the most effective means for parties to quickly resolve disputes.

However, in most other jurisdictions, commercial arbitration is typically classified as one of the alternative dispute resolution methods, similar to mediation, negotiation, neutral evaluation, or newly popular hybrid methods like tripartite mediation (Mini-trial), the Arb-Med-Arb process implemented by VIAC and VMC.

In Vietnam, there are currently three common alternative dispute resolution methods: negotiation, mediation, and arbitration. Distinguishing and understanding the nature of these ADR methods in dispute resolution is crucial. Therefore, this article will focus on clarifying the characteristics of ADR methods in Vietnam, the differences from court litigation, and recommendations on the impact of using ADR instead of court litigation.

Impact of Solely Resorting to Court Litigation in Vietnam

Although the basic concept of commercial arbitration has been introduced into society since the late 19th century, in reality, due to the social context of nearly 100 years not being suitable for implementing and applying commercial arbitration mechanisms, this mechanism has not brought about significant changes in Vietnam’s legal system.

It was not until the period from 1993 onwards that a new arbitration system was supported and implemented by the state to achieve the goal of international integration, attracting foreign investment. In 1993, the Foreign Trade Arbitration Council and the Maritime Arbitration Council of Vietnam were merged into the Vietnam International Arbitration Center alongside the Vietnam Chamber of Commerce and Industry according to Decision No. 204/TTg dated March 28, 1993, by the Prime Minister. In 1995, Vietnam acceded to the New York Convention on the recognition and enforcement of foreign arbitral awards.

Due to this gap, the court system in Vietnam has maintained a dominant position for many years, becoming the sole judicial authority and method of resolving commercial disputes.

However, being in such a crucial position, when individuals and businesses need to protect their legal rights and interests, courts throughout Vietnam have gradually become overloaded.

According to statistics from legal consulting firms regularly working with courts, the average time to resolve a case in court is from 3 to 4 years. Some complex cases can take 5 to 6 years or even longer with emerging or particularly complex circumstances. Cases involving foreign elements require courts to work directly with other national administrative agencies, prolonging the process, and sometimes becoming unresolved cases.

The concerning aspect is that this situation tends to escalate as unresolved cases will affect newly arising disputes. As courts prioritize cases based on their submission order, cases submitted earlier are prioritized, except for some exceptionally serious cases that cause public outrage or social unrest.

The overload situation in the courts continues to this day but reached an alarming level in the 2016-2017 period. According to reports from Agribank, up to this point, the bank alone has sent 6,800 cases to the courts for resolution, but only 1/8 of them have been processed. Thus, it can be seen that the backlog of cases in the courts has lasted too long, seriously affecting the rights and interests of individuals, businesses, and posing risks of instability to the economy.

In addition to the prolonged processing time, resolving disputes through courts can negatively affect the reputation of individuals and businesses involved in disputes. This is because courts do not handle disputes in a confidential manner like mediation or arbitration but apply the principle of public trial as stipulated in Article 103(3) of the 2013 Constitution.

This principle is important for protecting human rights in trial activities, setting standards for fairness, transparency, and public scrutiny of the judicial system. However, it may also affect disputing parties because once a case goes to court, regardless of the outcome, their reputation is affected, especially for businesses planning IPOs, M&As, or having confidential business plans and intellectual property assets they do not want to be publicly disclosed.

Applying Alternative Dispute Resolution (ADR) Mechanisms outside of Courts in Vietnam

In the face of these difficulties, alternative dispute resolution (ADR) mechanisms outside of courts have emerged in Vietnam as an effective alternative solution, capable of compensating for the current shortcomings and challenges in the Vietnamese legal system.

In practical application, most international contracts nowadays include provisions for resolving disputes. In addition to provisions regarding litigation to protect rights through the courts, more and more contracts include provisions that, in the event of a dispute, parties must first attempt negotiation and mediation to resolve the issue.

If parties cannot resolve the dispute themselves, they need the assistance of a neutral third party through alternative dispute resolution methods outside of courts. Among ADR methods, mediation and commercial arbitration are the most commonly used in contracts.

In Vietnam, there are four common methods of resolving commercial disputes, including negotiation, mediation, arbitration, and courts. Among them, the first three methods are classified as alternative dispute resolution methods outside of courts.

Negotiation

Based on the provisions of Article 317 of the Commercial Law 2005, negotiation between parties is one of the methods of resolving commercial disputes, along with other methods such as mediation, arbitration, and litigation.

Although negotiation is a method that does not specify the application or procedural requirements, it remains one of the most basic tools for resolving disputes, stemming from human civilization.

In practice, negotiation is the most common method used in almost all disputes when conflicts are likely to arise or are in the early stages of dispute.

However, despite being widely used, negotiation often does not yield highly effective results because, in reality, few disputing parties are willing to compromise and accept partial or total loss of interests to the other party. This result also stems from the fact that one party may have difficulty accepting the other party’s perspective on the issue. For example, disputing party A may refuse to accept the proposed resolution or data provided by party B without verification or authentication from a neutral third party, especially when their rights and interests are affected.

Furthermore, since this ADR method does not have binding enforcement mechanisms after parties reach an agreement, negotiations often fail to achieve satisfactory results, leading to disputes being litigated in court or resorting to other more effective ADR mechanisms.

Commercial Mediation

According to information from the Ministry of Justice, Vietnam currently has 10 commercial mediation centers with experienced mediators in various legal fields in Vietnam.

In mediation, the mediator’s responsibility is solely to assist the parties in negotiating and finding mutual interests and solutions to the dispute. Therefore, although a third party is involved, unlike ADR through commercial arbitration, mediation minimizes the intervention of the third party in the dispute resolution outcome between the parties.

Mediation does not aim to determine right or wrong, liability, rights, and obligations of the parties based on authenticated evidence for arbitration or court decisions. In nature, mediation does not focus on determining which party is at fault or providing solutions but only helps the parties negotiate to find common interests, aiming for solutions that both parties accept and voluntarily adhere to based on goodwill.

In civil proceedings, a dispute will be resolved through mediation if the parties agree to commercial mediation. The agreement can be made before or after the dispute arises or at any time during the dispute resolution process according to Article 6 of Decree No. 22/2017/ND-CP.

The principles of conducting mediation in courts are regulated in Article 215(1) of the Civil Procedure Code 2015 No. 92/2015/QH13. Specifically, during the preparation period for first-instance trial, the court conducts mediation to facilitate the parties in reaching an agreement on case resolution, except for cases not subject to mediation or cases unable to be mediated, or cases resolved through expedited procedures.

With mediation, parties can continue to maintain goodwill after disputes, develop strategic partnerships by minimizing the impact of conflicts and disputes between the parties. Because of its importance in reducing tensions between parties without escalating conflicts, mediation is one of the foremost important mechanisms in international dispute resolution, as stipulated in the United Nations Charter and domesticated in many legal documents in Vietnam such as the Commercial Law, Civil Procedure Code, Land Law, Labor Code, etc.

Arbitration

According to statistics from the Ministry of Justice of Vietnam, there are currently around 1000 arbitrators working at 45 arbitration centers nationwide, including many foreign arbitrators with experience in handling cases involving foreign elements.

However, the majority of cases requiring arbitration in Vietnam are primarily handled by the Vietnam International Arbitration Center (VIAC), with VIAC statistics indicating that it resolves about 42% of arbitration cases in Vietnam (370 out of a total of 879 cases). In 2023 alone, VIAC received over 400 new cases with the largest dispute value reaching $270 million USD.

Other arbitration centers rarely receive cases, leading to the fact that although arbitration mechanisms have gradually become popular in Vietnam in recent years, they still only resolve about 1% of the total number of commercial disputes.

Arbitration activities in Vietnam extend beyond disputes arising from sales contracts to resolving disputes in various other fields such as insurance, information technology, construction, distribution, agency, energy, etc.

Compared to courts, the ADR mechanism of commercial arbitration has many advantages such as simple, transparent, and fair procedures through the voluntary selection of arbitrators, high security, and enhanced voluntariness, not depending on state power.

One of the main reasons commercial arbitration is the most popular ADR mechanism today is because, unlike other ADR methods, international arbitration leads to a binding award that can be enforced both domestically and internationally through instruments such as the New York Convention.

Only in specific cases will an international arbitral award be reviewed, annulled, or not recognized by national courts, typically when the award violates fundamental principles of Vietnamese law. However, in most cases, the content of the arbitral award will not be reconsidered by national courts and can be enforced after the enforcing party requests recognition from the Vietnamese court and enforcement of the award in Vietnam.

Impact of the Change

For many years, Vietnamese society has only known the court as the sole legal institution to turn to when civil disputes arise. This prolonged situation has led to cases where even when there are effective or better dispute resolution tools, people and businesses still hold the belief in resorting to the court for resolving any disputes that may arise.

In addition to this conservative mindset, the reluctance to change regarding dispute resolution institutions, the parties’ distance, and the limited use of other ADR mechanisms stem from various reasons. For example, the commercial arbitration fees in Vietnam are still relatively high compared to the general level, or concerns about the arbitration enforcement mechanism not being as strong as the courts, or one of the disputing parties not agreeing to choose mediation or arbitration, etc.

However, practical experience in applying arbitration mechanisms in commercial disputes in Vietnam shows that the mechanism for enforcing arbitral awards is now very robust, with very low chances of award alteration unless the enforcing party provides convincing evidence of procedural errors, violations, and requests for award annulment.

With the current overload in the Vietnamese court system, the trend of disputing parties turning to effective alternative dispute resolution mechanisms in terms of time will increasingly rise.

In the international market and in the near future in Vietnam, ADR mechanisms are supported and are one of the most effective dispute resolution measures because ADR, including negotiation, mediation, and arbitration, aims not to address shortcomings in the litigation system or determine the responsibility of each party, but rather to achieve a dispute resolution method that both parties are satisfied with quickly, maintaining amicable relations between the parties after the award is issued.

ASL Law is a leading full-service and independent Vietnamese law firm made up of experienced and talented lawyers. ASL Law is ranked as the top tier Law Firm in Vietnam by Legal500, Asia Law, WTR, and Asia Business Law Journal. Based in both Hanoi and Ho Chi Minh City in Vietnam, the firm’s main purpose is to provide the most practical, efficient and lawful advice to its domestic and international clients. If we can be of assistance, please email to [email protected].

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