Arbitration Agreement in a Processing (Manufacturing) Contract
1. The Role of the Arbitration Agreement in Processing (Manufacturing) Contracts
In processing (manufacturing) contracts, the arbitration agreement plays a vital role as it represents the parties’ mutual consent to resolve disputes through arbitration instead of litigation before the courts. This mechanism enables the contracting parties to settle disputes swiftly, flexibly, and confidentially, while ensuring the international enforceability of arbitral awards.
The arbitration agreement serves as the legal basis for determining the dispute resolution mechanism under the processing contract. It emphasizes the parties’ autonomy in selecting arbitrators with high technical expertise relevant to the processing sector, thereby ensuring objectivity and accuracy in the arbitral award. Moreover, the arbitration agreement contributes to maintaining business confidentiality, particularly regarding proprietary processing methods, as arbitral proceedings are conducted in private, minimizing the risk of trade secret disclosure.
Processing activities involving foreign elements in Vietnam reflect the country’s international economic integration and participation in global production chains. The growing volume of export-oriented processing, especially in sectors such as textiles and footwear with major global brands like NIKE and ADIDAS, provides opportunities for domestic enterprises to acquire advanced technologies and modern management practices. However, such activities also give rise to commercial disputes, making arbitration agreements in processing contracts an essential component to safeguard the parties’ rights and ensure efficient dispute resolution.
2. Selecting an Appropriate Arbitration Agreement for Processing Contracts
2.1. Institutional Arbitration for Processing (Manufacturing) Contracts
The selection of the dispute resolution forum in a processing (manufacturing) contract is based on the mutual agreement of the contracting parties. An arbitration agreement is an appropriate choice, which may take the form of either institutional arbitration or ad hoc arbitration.
If the parties opt for institutional arbitration, the dispute will be resolved at a specific arbitral institution—such as BBIAC (BigBoss International Arbitration Center)—which operates under established procedural rules. BBIAC provides a transparent arbitral process with a professional administrative support team, facilitating the efficient resolution of contractual disputes.
This option is particularly preferred for large-scale processing contracts involving complex technical aspects or foreign elements, as it offers procedural reliability, institutional stability, and ensures the enforceability and legitimacy of arbitral awards.
2.2. Ad Hoc Arbitration for Processing (Manufacturing) Contracts
An ad hoc arbitration agreement in a processing (manufacturing) contract is characterized by its individuality, cost-effectiveness, and suitability for simpler contractual arrangements. The arbitral tribunal is established specifically for each dispute, and the parties are free to determine their own procedural rules.
This model is advantageous for parties experienced in arbitration who possess a solid understanding of the law and relevant technical expertise, as it allows them to manage the entire arbitral process independently without the need for an administering institution—making it well-suited for medium- and small-value disputes.
However, for parties lacking arbitration experience, such flexibility may become a significant disadvantage, potentially resulting in prolonged and complicated proceedings, since ad hoc arbitration lacks a permanent institutional structure to oversee and coordinate the process.
3. Disputes in Processing Contracts and the Flexibility of Commercial Arbitration
3.1. Processing (Manufacturing) Contracts Involving Foreign Elements
In practice, processing (manufacturing) contracts involving foreign elements often give rise to complex disputes. Issues may include failure to meet product quality standards, delays in delivery due to material shortages by the processor, late payment of processing fees by the foreign partner, or unilateral termination of the contract resulting from market fluctuations.
Furthermore, such disputes frequently involve intellectual property rights—including designs, trademarks, and product models—as well as concerns over confidentiality and proprietary formulas or patterns being copied during production when Vietnamese enterprises manufacture according to drawings or formulas provided by their foreign partners.
These disputes typically extend beyond simple “sale of goods” matters and require a specialized and flexible dispute resolution mechanism—one that arbitration, rather than the courts, is better suited to provide.
3.2. The Flexibility of Commercial Arbitration
Commercial arbitration demonstrates a high degree of flexibility. The parties are free to agree on the choice of arbitral institution, the number of arbitrators, as well as the seat and language of arbitration, in accordance with the context of their contract. Arbitration also allows for the application of expedited procedures in minor disputes or the inclusion of electronic evidence and technical expert opinions in complex processing cases.
For large-scale or multi-party disputes, institutional arbitration is the preferred option, as it ensures effective case management, procedural consistency, and administrative support throughout the arbitral process.
In international processing (manufacturing) contracts, disputes often arise over issues such as product quality, intellectual property rights, delivery schedules, and payment of processing fees. These matters are typically technical in nature rather than purely commercial. Commercial arbitration effectively meets this need by allowing the parties to appoint arbitrators with expertise in the relevant processing field and by permitting the use of interim or emergency measures to protect goods or cash flows during proceedings.
Moreover, commercial mediation conducted within the arbitral process helps preserve long-term cooperative relationships between Vietnamese enterprises and their foreign partners. Thus, commercial arbitration is not only flexible but also highly practical and effective in resolving cross-border processing contract disputes.
4. Conclusion
Commercial arbitration is the most appropriate choice, as it ensures both the parties’ freedom of agreement and the requirements of speed, confidentiality, and international enforceability of arbitral awards. With its procedural flexibility, ability to grant interim measures, use of expedited proceedings, and incorporation of mediation during the arbitral process, arbitration not only safeguards the legitimate interests of enterprises but also helps maintain sustainable cooperative relationships in the field of international processing. This is a key factor enabling Vietnamese businesses to operate with greater confidence and security within the global value chain.
5. How to Resolve Disputes through the BigBoss International Arbitration Center (BBIAC)
To resolve disputes through arbitration at BBIAC, parties may include one of the following sample clauses in their contracts:
5.1. Standard Arbitration Clause
“All disputes arising out of or in connection with this contract shall be settled by arbitration at the BigBoss International Arbitration Center (BBIAC) in accordance with its Arbitration Rules.”
Optional additions:
(a) Number of arbitrators: [one or three];
(b) Seat of arbitration: [city and/or country];
(c) Governing law: [ ];*
(d) Language of arbitration: [ ].***Note: (a) and (b) apply where foreign elements are involved;
*(c) applies where at least one party is a foreign-invested enterprise.
5.2. Expedited Procedure Clause
“All disputes arising out of or in connection with this contract shall be settled by arbitration at the BigBoss International Arbitration Center (BBIAC) in accordance with its Arbitration Rules. The parties agree that the arbitration shall be conducted under the Expedited Procedure set forth in Article 37 of the BBIAC Arbitration Rules.”
Optional additions:
(a) Seat of arbitration: [city and/or country];
(b) Governing law: [ ];*
(c) Language of arbitration: [ ].**Notes as above apply.
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