Advantages and Disadvantages of Commercial Arbitration Compared with Courts

Advantages and Disadvantages of Commercial Arbitration Compared with Courts

Table of Contents

• Advantages of Commercial Arbitration

• Disadvantages of Commercial Arbitration

• Comparison with Court Litigation

• Factors Influencing the Choice of Dispute Resolution Methods

• Practical Experience in Choosing Between Arbitration and Courts

Abstract

In the process of economic development and international integration, commercial disputes have been increasing in both quantity and complexity. Alongside courts as a traditional dispute resolution mechanism, commercial arbitration has increasingly been chosen by business entities due to its outstanding advantages. This article analyzes the advantages and disadvantages of commercial arbitration in comparison with courts based on current Vietnamese law, thereby assessing the role of commercial arbitration within the dispute resolution system.

Keywords

Commercial arbitration; dispute resolution methods; arbitral award.

Overview of Commercial Arbitration and Courts

1. Commercial Arbitration

Commercial arbitration is a dispute resolution method agreed upon by the parties, whereby disputes are resolved by arbitrators or an arbitral tribunal in accordance with arbitration law. In Vietnam, commercial arbitration is primarily governed by the Law on Commercial Arbitration 2010.

2. Courts

Courts are judicial bodies of the State with authority to resolve disputes in accordance with legally prescribed procedures. Court judgments and decisions carry state authority and are enforced through compulsory enforcement mechanisms.

Advantages of Commercial Arbitration

1. Flexibility and Speed

Arbitration procedures are simple and less formalistic than court litigation. The time required to resolve disputes is usually shorter, enabling parties to save time and costs.

2. High Level of Confidentiality

Unlike court proceedings, which are generally public, arbitral hearings are conducted in private unless otherwise agreed by the parties. This helps protect business secrets, reputation, and corporate image.

3. Freedom to Choose Arbitrators

The parties have the right to select arbitrators with expertise and experience relevant to the dispute. This is a significant advantage over courts, where judges are assigned administratively.

4. Finality of Arbitral Awards

Arbitral awards are final and binding, not subject to appeal or review under appellate procedures, allowing disputes to be resolved quickly and ensuring stability in commercial relations.

Disadvantages of Commercial Arbitration

1. Dependence on an Arbitration Agreement

Arbitration only has jurisdiction when a valid arbitration agreement exists between the parties. In contrast, courts may accept disputes even without a prior agreement.

2. Relatively High Costs

Compared to court fees under Resolution No. 326/2016/UBTVQH14, arbitration fees are generally higher. This discourages small and medium-sized enterprises, especially in disputes of high value or those requiring foreign arbitrators.

3. Limited Enforcement Powers

Arbitration lacks coercive power. In many cases, enforcement of arbitral awards still requires assistance from state enforcement authorities.

4. Possibility of Annulment

Although arbitral awards are final, they may be set aside by courts if there are serious procedural violations or if the arbitration agreement is invalid under the law.

Comparison with Court Litigation

1. Conditions for Initiation and Acceptance of Cases

In commercial arbitration, the prerequisite for dispute resolution is the existence of a valid arbitration agreement under Articles 5 and 16 of the Law on Commercial Arbitration 2010. Without such an agreement, arbitration has no jurisdiction.

By contrast, courts have jurisdiction based on procedural law, regardless of prior agreement between the parties. Under Article 186 of the Civil Procedure Code 2015, individuals and organizations may initiate lawsuits when their lawful rights and interests are infringed.

2. Dispute Resolution Authorities

In arbitration, disputes are resolved by arbitrators or arbitral tribunals chosen by the parties or appointed by arbitration centers pursuant to Articles 40 and 41 of the Law on Commercial Arbitration 2010. Arbitrators often possess specialized expertise relevant to the dispute.

In court proceedings, disputes are adjudicated by judges and trial panels appointed and assigned by the State in accordance with the Law on Organization of People’s Courts 2014. Parties have no right to choose judges.

3. Procedures

Arbitration procedures are highly flexible. Under Article 25 of the Law on Commercial Arbitration 2010, parties may agree on the place of arbitration, language, applicable law, and procedural rules.

Court litigation follows strict procedures prescribed by the Civil Procedure Code 2015, including filing, acceptance, trial preparation, first-instance trial, appellate trial, and special review procedures.

4. Hearings

Arbitral hearings are generally conducted in private, unless otherwise agreed, in order to protect business confidentiality under Article 4 of the Law on Commercial Arbitration 2010.

Court hearings are, in principle, conducted publicly under Article 15 of the Civil Procedure Code 2015, except in special cases provided by law.

5. Decisions and Judgments

Arbitral awards are final and effective immediately upon issuance under Article 61 of the Law on Commercial Arbitration 2010 and are not subject to appeal or protest.

Court judgments and decisions may be appealed or reviewed under appellate, cassation, or reopening procedures, which may prolong dispute resolution.

6. Enforcement

Arbitral awards are enforced in accordance with the law on civil judgment enforcement. If the losing party does not voluntarily comply, the winning party must request enforcement by competent authorities.

Court judgments and decisions with legal effect are enforced through state coercive power, and courts may apply interim urgent measures.

Factors Influencing the Choice of Dispute Resolution Methods

1. Parties’ Will and Agreement

The most important factor is the parties’ autonomy and agreement. Under Articles 3 and 5 of the Law on Commercial Arbitration 2010, arbitration only has jurisdiction when a valid arbitration agreement exists.

If there is no arbitration agreement or if it is invalid, courts become the default dispute resolution mechanism under the Civil Procedure Code 2015.

2. Nature and Complexity of the Dispute

Highly specialized disputes involving finance, construction, investment, or foreign elements often favor arbitration due to expert arbitrators.

Simple, low-value disputes or those involving multiple parties are generally more suitable for court resolution.

3. Confidentiality and Reputation

Arbitration ensures confidentiality under Article 4 of the Law on Commercial Arbitration 2010, which is essential for protecting business secrets and commercial reputation.

Court proceedings are generally public, making them less suitable for disputes requiring confidentiality.

4. Time and Cost

Arbitration offers faster resolution due to flexible procedures and final awards.

However, arbitration costs are often higher than court fees under Resolution No. 326/2016/UBTVQH14, making courts more attractive for parties with limited financial resources.

5. Enforceability

Court judgments benefit from strong coercive enforcement mechanisms.

Arbitral awards, while final, may require state enforcement assistance. However, in international disputes, arbitration has an advantage due to the New York Convention 1958 on the recognition and enforcement of foreign arbitral awards.

6. International Elements and Applicable Law

In international commercial disputes, arbitration is preferred due to neutrality and flexibility in choosing applicable law, language, and venue under Articles 14 and 25 of the Law on Commercial Arbitration 2010.

Court litigation in Vietnam generally applies Vietnamese law and is constrained by territorial jurisdiction.

7. Long-term Business Relationships

For long-term commercial relationships, arbitration is often favored to minimize confrontation and preserve cooperation.

Practical Experience in Choosing Between Commercial Arbitration and Courts

1. Determining the Method at the Contract Formation Stage

Parties should clearly specify dispute resolution clauses when drafting contracts to avoid invalid or ambiguous agreements.

2. Assessing the Nature and Value of the Dispute

High-value, complex, or international disputes are more suitable for arbitration, while small and simple disputes may be better resolved by courts.

3. Considering Time and Cost

Arbitration is preferable for quick resolution, while courts are more cost-effective for financially constrained parties.

4. Evaluating Confidentiality Needs

Arbitration is suitable for disputes involving sensitive business information.

5. Assessing Enforceability

Courts offer stronger enforcement domestically, while arbitration has advantages internationally.

6. Considering Long-term Cooperation

Arbitration helps maintain business relationships by reducing adversarial confrontation.