Mediation vs. Arbitration in Commercial Disputes: Which Option is More Suitable in Vietnam?

1. What is Commercial Mediation and What Are Its Pros and Cons?

According to Decree 22/2017/NĐ-CP, commercial mediation is a method of dispute resolution based on the parties’ agreement, where a neutral mediator facilitates the negotiation to help parties reach a mutual solution. The characteristics of mediation include:

• Voluntary, flexible, and highly confidential: The parties can freely agree on the venue, timing, and procedures of mediation.

• Preserves business relationships: As it is non-confrontational, mediation is suitable for parties who wish to maintain cooperation.

• Non-binding outcome: If one party does not implement the agreement, the mediation result cannot be legally enforced.

However, there are still legal limitations:

• Lack of clear standards for mediators, often defined subjectively.

• No effective mechanism to establish specialized mediation centers, leading to organizational, cost, and confidentiality challenges.

• Legal uncertainty regarding the enforceability of mediation agreements, and unresolved conflicts between mediation agreements, arbitration, or court proceedings.

• No regulations on procedural integration with arbitration, requiring parties to restart the process if mediation fails.

2. Why Is Commercial Arbitration Becoming Increasingly Popular?

According to the Law on Commercial Arbitration 2010, arbitration is a method of resolving disputes through a binding decision made by arbitrators, based on the parties’ agreement. Key advantages include:

• Speed, professionalism, and confidentiality: Arbitration procedures are typically faster and more private than court litigation.

• Legally enforceable decisions: Arbitral awards are final and can be enforced immediately.

• Choice of qualified arbitrators: Parties may choose industry experts, not just legal professionals, as arbitrators.

• Court assistance: Courts can assist with provisional measures, recognition, and enforcement of arbitral awards.

• Freedom to negotiate or mediate even during arbitration: Parties can still reach an amicable resolution.

However, arbitration also has some drawbacks:

• Higher costs than mediation or court proceedings.

• Dependence on courts for interim measures, limiting full independence in urgent situations.

• Risk of awards going against parties’ expectations, particularly if the losing party refuses to cooperate.

• Unclear jurisdiction in areas such as land disputes or void transactions, which can conflict with courts’ authority.

3. When Should You Choose Commercial Mediation?

3.1 When the priority is to preserve relationships, flexibility, and cost-saving

If the parties wish to resolve disputes while maintaining business ties, and the issue is not overly complex, mediation is an ideal first choice.

3.2 When confidentiality, flexibility, and direct interaction are important

Mediation offers flexible procedures that allow informal, tailored approaches regarding time and venue.

3.3 When parties accept the risk of non-enforcement

Because mediation is non-binding, if one party defaults, there is no legal force to compel performance—making it less suitable for high-stakes disputes.

4. When Is Arbitration a Better Option?

4.1 When a final, enforceable, and efficient legal decision is needed

For serious, high-value disputes or those involving a loss of trust, arbitration ensures a fair, binding result.

4.2 When professional, confidential, and expedited procedures are needed

Arbitration is often faster and more structured than court litigation, with expert arbitrators involved.

4.3 When both parties want a final and binding outcome

If there is no intention to reconcile or negotiate further, arbitration offers a decisive and enforceable resolution.

5. Mediation–Arbitration Integration: A New Trend in Vietnam?

Currently, Vietnam lacks official legal provisions for integrating mediation and arbitration. However, some centers such as VIAC and VMC have pioneered this model: if mediation fails, the case can be immediately escalated to arbitration without restarting the entire procedure. This practical development saves time and costs while preserving the flexibility of mediation, offering a clear fallback mechanism.

6. Conclusion

• Commercial mediation is suitable when you prefer a flexible, cost-effective solution that maintains business relationships, although it lacks legal enforceability.

• Commercial arbitration is ideal when you require a binding, enforceable decision that is backed by legal authority.

• In high-risk transactions, major disputes, or cases needing quick resolution, arbitration is the safest route.

• If you are still willing to attempt resolution before litigation, consider a mediation–arbitration hybrid model, especially if your contract or dispute agreement allows a two-step approach.

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