DOES AN INVALID CONTRACT AFFECT THE ARBITRATION AGREEMENT?

Does an Invalid Contract Affect the Validity of the Arbitration Agreement?

Consultation Request:

In arbitral proceedings, there are many cases where one party alleges that the contract between the parties is invalid (due to violation of prohibitions of law, sham transactions, mistake, or non-compliance with formal requirements, etc.). Based on this, the parties may argue that the arbitration agreement contained in the contract is also no longer valid.

The issue raised is: When the main contract is declared invalid, does the arbitration agreement remain valid? How does Vietnamese commercial arbitration law regulate this matter?

Answer:

Under the Law on Commercial Arbitration 2010 (“LCA”), an arbitration agreement is recognized as being independent from the main contract. Specifically, Article 19 of the LCA provides:

“An arbitration agreement is entirely independent from the contract. Any modification, extension, termination, invalidity, or non-performance of the contract shall not affect the validity of the arbitration agreement”.

1. Legal Regulations on the Independence of Arbitration Agreements

Pursuant to the above provision, an arbitration agreement constitutes a separate commitment of the parties and has a binding effect independently of the main contract. The invalidity of the contract does not terminate the validity of the arbitration agreement, provided that such agreement is validly established in accordance with the law.

2. Practical Application at MCAC

In practice, in dispute resolution at The Middle Commercial Arbitration Center (MCAC), Arbitral Tribunals continue to resolve disputes even where the main contract is alleged to be invalid, as long as the arbitration agreement remains effective and has been lawfully established.

Accordingly, the invalidity of a contract does not render the arbitration agreement invalid.

The principle of separability of the arbitration agreement is recognized under Vietnamese law in order to protect the parties’ autonomy and to ensure the stability and effectiveness of arbitration as a dispute resolution mechanism in commercial matters.

The article above analyzes the issue: "Does an invalid contract affect the arbitration agreement?". For further information or legal assistance regarding arbitration clauses, please contact the MCAC Secretariat:

• Hotline: 0935 925 068

• Email: contact@mcac.vn

• Read more: Distinguishing commercial mediation and commercial arbitratio.