❓ Does the existence of an arbitration clause automatically exclude court jurisdiction?

In a recent appellate judgment concerning a credit and mortgage dispute between VPBank and individual borrowers, with the involvement of Novareal JSC, the Ho Chi Minh City People’s Court clarified the legal scope and effect of arbitration agreements in multi-party transactions. THE LAM LAW LLC – Your legal need, Our Mission would like to share as follows:

🧾 Case Overview
🔹The bank granted credit to the borrowers, secured by mortgage arrangements linked to a real estate project.
🔹An arbitration agreement existed between the bank and the project developer, but not with the borrowers.
🔹The first-instance judgment was set aside in its entirety, and the case was remanded due to serious procedural violations.

🔍 Key Legal Reasoning of the Court
1. Arbitration agreements have relative effect
The Court reaffirmed a fundamental principle:
🔹An arbitration agreement binds only the parties who have expressly consented to it.
🔹As the borrowers were not signatories to the arbitration agreement, there was no legal basis to compel arbitration or exclude court jurisdiction.

2. No implied extension to non-signatories
The Court rejected arguments that arbitration should apply merely because related transactions:
🔹Were connected to the same project; and
🔹Included an arbitration clause in one agreement.
📌 Arbitration agreements cannot be presumed or extended by implication, even in closely connected commercial structures.

3. Jurisdiction based on the nature of the dispute
The Court focused on substance rather than form:
🔹The core dispute concerned repayment obligations under a credit agreement;
🔹Project-related arrangements were ancillary and did not alter jurisdiction.

📌 Key Takeaways
▪️ Arbitration clauses do not automatically exclude court jurisdiction where key parties are non-signatories.
▪️ In multi-party financing structures, dispute resolution clauses must be carefully aligned across all relevant agreements.
▪️ Vietnamese courts determine jurisdiction based on the legal nature of the dispute, not merely the transactional context.

📎 Reference – Appellate Judgment

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