Overview of International Commercial Arbitration in 2024

In the context of growing economic globalization, international commercial arbitration has become a key mechanism for resolving disputes arising from cross-border commercial relationships. With its flexibility and ability to maintain confidentiality, this method is increasingly chosen by businesses and international organizations, contributing to a safer and more transparent business environment. In this article, INTER JUSTICE provides a comprehensive overview of international commercial arbitration in 2024, including its definition, role, legal framework, and common forms.

1. Definition of International Commercial Arbitration

International commercial arbitration refers to the dispute resolution method applied to legal relations involving foreign elements, especially international commercial relationships, where the law permits settlement through arbitration. Under this method, the parties agree to submit the dispute to a designated arbitral body.

A dispute is considered international if it satisfies at least one of the following criteria outlined in Article 1.3 of the Law on Commercial Arbitration of Vietnam:

• The parties to the arbitration agreement have their places of business in different countries at the time of concluding the agreement;

• The place of arbitration or the place of performance of a substantial part of the contractual obligations lies outside the countries where the parties have their places of business;

• The subject matter of the dispute is most closely connected with a country other than the countries where the parties are located;

• The parties have expressly agreed that the arbitration agreement relates to more than one country.

2. Role of International Commercial Arbitration

According to the UNCITRAL Model Law on International Commercial Arbitration (1985), arbitration is considered international when:

• The parties have their places of business in different states at the time the arbitration agreement is concluded; or
• The place of arbitration, the place of performance of a substantial obligation, or the place most closely related to the dispute lies outside the state where the parties have their places of business; or
• The parties have expressly agreed that the subject matter of the arbitration involves more than one country.

The “commercial” nature of arbitration refers to activities such as the sale and purchase of goods or services, distribution agreements, commercial agency, construction projects, technical consultancy, licensing, investment, finance, banking, insurance, exploration and extraction contracts, joint ventures, and the transport of goods or passengers by air, sea, rail, or road.

Arbitration agreement principles:

• Independence and impartiality of arbitrators;
• Arbitrators must comply with the applicable law;
• Arbitrators must respect party autonomy;
• Single-instance resolution principle.

3. Jurisdiction of International Commercial Arbitration

Arbitration does not have inherent jurisdiction. It can only resolve disputes where the parties have agreed to arbitration. Under the 2010 Law on Commercial Arbitration of Vietnam, an arbitration agreement is the mutual consent of the parties to settle current or future disputes through arbitration.

The arbitral tribunal gains jurisdiction only upon the establishment of a valid arbitration agreement. If such agreement is void or revoked, the arbitral tribunal lacks authority. Hence, the arbitration agreement is the legal foundation for the jurisdiction of international commercial arbitration.

Significance of the arbitration agreement:

• It forms the legal basis for international commercial arbitration to resolve disputes;

• It excludes the jurisdiction of courts. Vietnamese law recognizes that once parties agree to arbitration, courts no longer have jurisdiction over the dispute.

However, courts and arbitration are complementary. Courts have powers to:

• Appointment of arbitrators;
• Change of arbitrators;
• Issue, modify, or annul interim measures;
• Set aside arbitral awards.

Jurisdiction in international commercial arbitration is not automatic and may be limited by the scope of the dispute or legal restrictions on arbitrability (e.g., family, inheritance disputes).

4. Types of International Commercial Arbitration

4.1. Ad hoc Arbitration

Ad hoc arbitration is established by the parties specifically to resolve a particular dispute and ceases to exist upon conclusion of the proceedings.

Characteristics: It does not have a fixed headquarters like permanent arbitration; it is not bound by any procedural rules and typically consists of a sole arbitrator mutually agreed upon by the parties.

Advantages: Highly streamlined and flexible; proceedings are relatively short; the parties can easily reach mutual agreements; lower costs.

Disadvantages: Heavily reliant on the cooperation and coordination of the involved parties. Moreover, due to the absence of a fixed set of procedural rules, it depends on the legal system of the place where the arbitration is conducted.

4.2. Permanent arbitration

This type of arbitration is an organized institution established to operate regularly, with a fixed office, clear charter, and its own set of procedural rules. The arbitral tribunal may consist of one arbitrator selected from a listed panel of arbitrators of the arbitration center, or three arbitrators.

5. Legal mechanisms for resolving disputes through international commercial arbitration

The governing law used in dispute resolution is the law that the arbitral tribunal applies to examine the performance of obligations by the parties during the execution of the contract. This law is referred to as the governing law of the contract.

For domestic commercial disputes, the applicable law in the contract is naturally the national law. For example, in Vietnam, this would be based on laws such as the Commercial Law, Land Law, Ordinance on Economic Contracts, etc. The issue of choosing applicable law does not arise in domestic contracts.

In international commerce, the laws of various countries may be relevant to the contractual relationship between the parties, with equal potential to govern the contract. Conflicts of laws frequently occur among these legal sources. Therefore, when bringing a dispute to arbitration, the parties must agree and unify the governing law of the contract. The sources of law applicable in international commercial arbitration include international treaties, international commercial customs, and national laws. Among them:

International treaties: According to Clause 1, Article 2 of the Law on International Treaties 2016, an international treaty is defined as a written agreement concluded in the name of the State or Government of the Socialist Republic of Vietnam with a foreign signatory, which gives rise to, modifies, or terminates the rights and obligations of the Socialist Republic of Vietnam under international law, regardless of its designation as treaty, convention, agreement, charter, accord, protocol, memorandum of understanding, note verbale, or other named instruments.

Commercial customs: According to Article 3 of the Commercial Law 2005, commercial customs are defined as practices widely recognized in commercial activities within a region, area, or trade sector, with clearly defined content accepted by the parties to determine their rights and obligations in commercial activities.

National laws: National laws refer to systems of internally coherent legal norms that are organized into legal institutions and branches, and expressed in legal documents issued by the state in accordance with prescribed procedures and formats. National laws are formulated based on the will of the respective sovereign state and are not based on mutual consent.

International commercial arbitration has played and continues to play a vital role in protecting the rights and interests of parties in international trade relations, enabling effective and swift dispute resolution. With increasingly refined principles and legal mechanisms, international commercial arbitration remains a preferred choice, contributing to the creation of a fair and sustainable trade environment amid global integration.