Why Arbitration? Why Singapore?

When two contracting parties of a cross-border contract have a disagreement, important decisions have to be made when resolving the dispute. Two of the most important decisions are determining the method of dispute resolution to apply and identifying the country which laws should govern the dispute. This article takes a look at the advantages of arbitration as the method of dispute resolution and the benefits of arbitration in Singapore.

With the growth of international trade and commerce, more and more disputes arise from cross-border transactions involving 'foreign' parties, and the traditionally accepted forum for resolving disputes, namely litigation through the courts, has become a less satisfactory means of dispute resolution in these circumstances. Businessmen have found that litigating disputes in the national courts of other parties can be an unfamiliar and a difficult, time consuming and costly process with, not always, a satisfactory outcome. These factors, coupled with the social, cultural and political factors which can affect the resolution of a dispute in a particular jurisdiction, together with the perception that litigation gives the home party an advantage, have led to parties seeking alternative methods of dispute resolution.

One such alternative available to parties is arbitration. This is a private method of dispute resolution used when parties agree to refer their disputes to an impartial tribunal consisting of one or more arbitrators. Parties normally agree to arbitration by means of an arbitration clause in a contract made by them before a dispute has arisen, although it can also be agreed to after a dispute has arisen.

Why Arbitration?

The advantages of arbitration are readily apparent and well known to practitioners. In short, the attraction of arbitration is that it enables the parties to adopt a procedural framework which incorporates a mix of procedures and legal practices that both parties are comfortable with. This is of particular importance where parties are from different cultural, legal and linguistic backgrounds and are geographically far apart. Arbitration, in these cases, represents a compromise forum.

The advantages arbitration has over litigation in the courts can be summarised as follows:

1. Arbitration enables parties to keep their dispute private. The hearing will take place in private at a neutral venue and the final award is not available to third parties. Unlike litigation, where the claim form is a public document, the hearing does not take place in the formal surroundings of a courtroom and, generally, a party cannot use publicity to bolster its case or force a settlement.
2. In arbitration, the parties can choose their own arbitration rules or select their own procedures. It is important, therefore, that when negotiating a contract, the parties take time to consider how any arbitration is going to be run. Several bodies and institutions have produced what are generally fair and commercially acceptable rules for conducting arbitrations - for example, the International Chamber of Commerce ('ICC') and United Nations Commission on International Trade Law ('UNCITRAL'). Parties do not, therefore, need to spend hours drafting their own arbitration rules and yet more hours negotiating them: parties may instead choose to adopt these ready-made sets of rules, or alternatively, an amended version of them. In litigation, however, the court rules will dictate the procedure and frequently they are inflexible and cannot be avoided.
3. The obligation to disclose documents can be narrower in arbitration than in court and this can have favourable costs consequences. However, parties should beware of agreeing to relax the rules of procedure on evidence to the extent that it allows opponents to avoid disclosing important documents. Discovery is an essential part of the dispute resolution process, a process which often depends on the integrity of the parties and their legal representatives. When that integrity is lacking, the arbitrators need to be particularly vigilant as they do not have the same draconian powers to deal with the situation as a judge.
4. In arbitration, the parties can agree on the number of arbitrators (usually one or three) and can also appoint arbitrators. Therefore, they may appoint, as arbitrator, experts in the area of dispute having skill and experience not found in the ordinary courts and who are sometimes better able to view the dispute in its commercial setting.
5. In arbitration there is usually finality after the award is given with limited scope for appeal. However, at least in some countries, a court judgment can be the subject of successive appeals and the appeal process can last for years.
6. Arbitration is generally considered to be less costly than litigation, despite the fact that the parties do have to pay the arbitrators' fees.
7. One of the principle advantages of arbitration is the general ease of enforcement of an arbitration award, thanks to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. The Convention states at article 1: 'This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought.' And at article 3 it provides: 'Each Contracting State shall recognise arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon'. Article V of the New York Convention provides that the recognition or enforcement of a Convention award may be refused only if the party against whom the award is invoked can prove the existence of one or more of a number of specific defences. The effect of the Convention is that it lays down a system for the judicial recognition and enforcement of arbitral awards obtained in one country - that is a party to the Convention - in other countries, that are also parties to the Convention, with no challenge to the merits of the award being available. Given that the New York Convention has now been signed by over 120 countries, including most of the significant commercial trading nations, the result is that arbitration awards receive greater recognition internationally than many national court judgments. Therefore, where parties agree to conduct an arbitration in a neutral country, a check should be made to ensure that any award can be enforced in a country or countries where the other party has assets.

Given the advantages that arbitration has to offer, it has become an increasingly popular way of resolving disputes and achieving a final and binding decision outside the courts. More and more parties, particularly when entering cross-border transactions, are inserting arbitration clauses in their contracts.

Why Singapore?

Once parties have decided upon arbitration as a means of resolving their disputes, the next step is to choose the place or the 'seat' of the arbitration. This may well be one of the most important decisions which the parties will make as not all 'seats' are the same. The general position is that the law governing the arbitration (which is called the curial law) is the law of the place where the arbitration is physically held (which is called the 'seat' of the arbitration). It follows that great care should be taken in choosing the place where the arbitration is to be held because that will determine the law which will govern the conduct of the arbitration.

It is important to distinguish between the law governing the arbitration and the law governing the contract that is being arbitrated. It is quite common that two different sets of laws govern the contract and the arbitration. The difference between the two is this: the law governing the contract being arbitrated is the law of the substance of the dispute. It is the law which determines the rights and liabilities of the parties to the contract. One example of an issue to be determined by the substantive law of the contract would be the question of whether a party is in breach of the contract.

The law governing the arbitration is the law of the procedure of the arbitration. It is the law which determines the manner in which the rights and liabilities of the parties will be determined. One example of an issue determined by the procedural law would be the extent to which the courts of the place of arbitration can interfere in the arbitration.

Where a contract is governed by English law, the tendency is to select London as the 'seat' of arbitration. However, the increasing volume of trade and business involving at least one Asian country has led to a growing need for the speedy and reliable resolution of commercial disputes in the region, and Singapore is now recognised as an excellent seat within the region for the resolution of these disputes for the following reasons:

1. Singapore has adopted the UNCITRAL Model Law to apply to international arbitrations. UNCITRAL was established by the United Nations in 1966, its purpose being the harmonisation of international trade law. UNCITRAL sought the adoption, by trading nations, of a common series of rules for the conduct of international arbitrations and, to this end, agreed to a Model Law which was officially adopted by the United Nations in June 1985. It applies to 'international commercial arbitrations' which are widely defined in the Model Law and sets out: (a) the basic requirements; (b) the form of the arbitration agreement; (c) the composition of the arbitration tribunal; (d) the jurisdiction of the tribunal; (e) procedural rules; (f) the award; and (g) recognition and enforcement of the award. It provides for: (a) party autonomy in respect of all aspects of the arbitration, subject to default procedures where no agreement has been reached by the parties; (b) the right of the parties and the arbitrators not to apply the domestic law of the forum to the procedural aspects of the arbitration (article 19); and (c) the limited role for local courts, whose functions are restricted to: (i) the appointment of arbitrators in default of agreement; (ii) the hearing of challenges to arbitrators; (iii) the replacement of arbitrators unable or unwilling to act; (iv) the determination of preliminary issues as to the jurisdiction of the arbitrators on appeal from their decision on the point; (v) assistance with obtaining evidence; and (vi) the setting aside of awards on narrow grounds (articles 6, 27 and 34). The practical effect is that arbitrations in Singapore are conducted in a legal environment that minimises judicial interference.
2. Singapore has support facilities to assist the smooth and efficient running of arbitrations. In July 1991, the Singapore International Arbitration Centre ('SIAC'), a non profit-making organisation, was set up. The SIAC administers most of its cases under its own rules of arbitration although it is able to administer arbitrations under any other rules agreed to by the parties. The SIAC aims to provide facilities for:
   (a) international and domestic commercial arbitration and conciliation; (b) promote arbitration and conciliation as alternatives to litigation for the settlement of commercial disputes; and (c) develop a pool of arbitrators and experts in the law and practice of international arbitration and conciliation. The SIAC provides support and administrative services which include settling fees of arbitrators, providing accommodation for hearings, arranging dates for meetings between the tribunal and parties' representatives and acting as a registry of pleadings, documents and correspondence. The SIAC will also assist parties in arranging the recognition and enforcement of awards in countries which are party to the New York Convention.
3. Singapore is widely recognised by parties trading in the region as a place for conducting arbitrations that is both neutral and geographically convenient in relation to the parties to the dispute. This is reflected in the growing number of cases the SIAC has received since it was first set up, with the number of cases referred to it annually increasing from 7 (in 1992) to 37 (in 1995) and 43 (in 1997) to 67 (in 1999).

In short, as well as having implemented the appropriate international conventions, such as the New York Convention, and adopting the UNCITRAL Model Law, Singapore has taken steps to ensure practical support for international arbitrations conducted here, with the result that it is regarded, both legally and commercially, as a preferred forum for resolving trade disputes.

Guy Spooner & Amanda Moseley
Norton Rose, Singapore