Agreement to waive the right to seek annulment of arbitral awards – a new trend helping businesses shorten the time

In recent years, commercial arbitration has become a dispute resolution mechanism increasingly chosen by businesses as an alternative to court proceedings. Confidentiality, flexibility, specialization, and, in particular, the ability to resolve disputes efficiently are among the outstanding advantages that have made arbitration increasingly trusted by domestic and international business communities.

However, in practice, many losing parties continue to resort to court proceedings seeking the annulment of arbitral awards as a means of delaying enforcement, thereby significantly diminishing the effectiveness of arbitration as a dispute resolution mechanism.

For this reason, a new legal trend that has been adopted by many developed jurisdictions is the “Agreement to Waive the Right to Seek Annulment of Arbitral Awards”.

Nature of the Agreement to Waive the Right to Seek Annulment of Arbitral Awards

Under international arbitration law, the fundamental principle is party autonomy.

This principle allows the parties to agree on: the arbitral institution administering the dispute; the number and composition of the arbitral tribunal; the seat of arbitration; the language of the proceedings; the governing law; and the arbitration procedural rules.

Building upon this principle, many jurisdictions have further developed mechanisms allowing parties to agree to waive their right to request a court to set aside an arbitral award, thereby enhancing the finality of the award.

Simply put, such an agreement constitutes a commitment between the parties that, once the arbitral tribunal renders its award, neither party will request a court to review and annul the award, except in certain exceptional circumstances involving public policy or serious violations protected by law.

Why Are Businesses Interested in This Clause?

1. Shortening the Time Required for Dispute Resolution

One of the major reasons disputes become prolonged is that the losing party continuously employs procedural measures to delay its payment obligations.

Where the parties have agreed to waive the right to seek annulment of the arbitral award, the possibility of prolonging the dispute is significantly reduced, enabling businesses to stabilize their operations and recover outstanding debts more quickly.

2. Enhancing the Effectiveness of Award Enforcement

For high-value disputes, particularly those involving investment, construction, M&A, or international sales of goods, time equals cost.

Eliminating the risk of prolonged proceedings allows businesses to move promptly to the enforcement stage and minimizes the risk that the award debtor may become insolvent.

3. Substantially Reducing Legal Costs

Proceedings for setting aside an arbitral award often entail: legal fees, litigation costs, internal management costs, and opportunity costs arising from missed business opportunities.

Limiting post-award proceedings can therefore save businesses considerable resources.

4. Aligning with International Transactions

In cross-border transactions, foreign investors generally place great importance on certainty and predictability in dispute resolution outcomes.

Accordingly, clauses aimed at strengthening the finality of arbitral awards are increasingly being incorporated into international contracts.

What Does International Practice Show?

Many jurisdictions have recognized and permitted parties to waive the right to seek annulment of arbitral awards, subject to certain conditions.

Switzerland: Swiss law allows parties in international disputes to waive all or part of their right to seek annulment of an arbitral award, provided that the intention to waive is expressly stated in writing.

Belgium: Belgian law follows an “all-or-nothing” approach, meaning that parties either waive the right to seek annulment entirely or not at all.

France: French law permits parties to agree to waive the right to seek annulment of an arbitral award even after a dispute has arisen, provided that statutory requirements are satisfied.

These regulations demonstrate the growing international trend toward emphasizing the finality and efficiency of arbitration.

Has Vietnamese Law Recognized This Yet?

This is a particularly noteworthy development. Under recent regulations relating to the International Financial Centre in Vietnam, Vietnamese law has begun to recognize the parties’ right, in certain circumstances, to agree to waive their right to request a court to annul an arbitral award.

This development reflects Vietnam’s gradual alignment with international standards in order to establish a transparent, modern, and investor-friendly investment environment.

Nevertheless, many issues still require further clarification in practice, including: whether the waiver may be total or partial, circumstances involving public policy considerations, conditions applicable to domestic and foreign parties, and jurisdiction over the determination of the validity of such waiver agreements.

These issues will constitute important areas for further legal development in the future.

What Should Businesses Bear in Mind When Drafting Such Clauses?

A common misconception is that it is sufficient merely to state, “The arbitral award shall be final and binding upon the parties.”

However, under international practice, such wording is often insufficient to constitute a valid agreement to waive the right to seek annulment of an arbitral award.

The waiver clause must clearly and expressly reflect the parties’ intention to exclude or limit their right to request a court to set aside the award.

Failure to draft the clause accurately may result in the clause being declared invalid or failing to achieve its intended legal purpose.

LS LAW FIRM’s Perspective

As Vietnam continues its deep integration into the global economy, international commercial disputes are increasing both in number and value.

Accordingly, designing an effective dispute resolution mechanism from the outset is no longer merely an option but has become a necessity for businesses. A well-drafted arbitration clause may save businesses years of litigation and billions of Vietnamese dong in legal expenses.

Conversely, a poorly drafted clause may expose the entire strategy for protecting a company’s rights and interests to significant risks.

LS LAW FIRM regularly advises on, reviews, and drafts dispute resolution clauses for commercial, investment, construction, M&A, and international transactions, ensuring that clients are well-positioned in the event of disputes (if any) and are able to effectively enforce their lawful rights and interests.

LS LAW FIRM – Always accompany your development.