The resolution of international commercial disputes is not often a clear-cut affair. It is rarely as straightforward as simply approaching a judge for a decision, and instead often involves a variety of dispute resolution mechanisms such as litigation, mediation and arbitration.
Litigation in essence involves going to court and petitioning a judge to rule on the dispute. Arbitration, on the other hand, is a private dispute resolution mechanism which parties opt into. Parties have plenty of flexibility in determining the structure of an arbitration and can, for example, select the arbitrators who will decide the dispute. Although litigation and arbitration are mutually exclusive, litigation is often used to support arbitration, such as by obtaining freezing injunctions or court-ordered stays of court proceedings commenced in breach of arbitration agreements.
Given the uncertain outcome, and the time and costs involved in litigation or arbitration proceedings, there is growing recognition that it may not always be in the parties’ best interests to pursue litigation and arbitration proceedings all the way to judgment or award. Parties therefore increasingly rely on mediation to attempt to settle all or part of a dispute. Mediation is a structured negotiation process whereby a neutral third party (ie the mediator) facilitates discussion between disputing parties. Unlike a judge or arbitrator, a mediator does not issue a binding decision on the parties.
Singapore has established itself as a global dispute resolution hub, with an emphasis on litigation, mediation and arbitration. In this article, we explore the benefits of arbitration, and the factors which have led to Singapore’s popularity as an arbitral seat.
The most commonly touted benefits of arbitration are confidentiality, enforceability, flexibility, neutrality and efficiency.
International commercial arbitration is private and confidential, unlike court litigation which is generally open to the public. Arbitration therefore enables parties to maintain the confidentiality of their commercial arrangements or the fact that disputes have arisen between them. This assists in minimising the adverse impact on the parties’ reputations and is particularly important where high profile projects or parties, trade secrets or sensitive information are concerned.
The New York Convention creates a framework for the cross-border recognition and enforcement of arbitral awards in over 170 signatory states. It does so by placing an obligation on signatory states to recognise and enforce arbitral awards, stipulating very limited grounds which the courts of signatory states can rely on to refuse to enforce arbitral awards, such as a failure to observe due process in the conduct of the arbitration. Crucially, the courts in the enforcing state are not entitled to refuse enforcement simply because they disagree with the tribunal’s decision. This ease of enforceability distinguishes arbitration from litigation as there is no equivalent to the New York Convention for court judgments, which are therefore subject to disparate enforcement mechanisms in different jurisdictions.
Most of the major economies and global financial hubs, including Japan, Singapore, Hong Kong, the United States and the United Kingdom, are signatories to the New York Convention.
A common complaint about court litigation is the formality and inflexibility of courts’ procedural rules. Unlike litigation, arbitration gives parties the flexibility to tailor their dispute resolution process to suit the specific dispute at hand. Parties can choose the arbitrator(s) who will determine their dispute and the language of the proceedings, as well as stipulating if they want their dispute resolved within a specific timeline. If they consider that a trial hearing is unnecessary, they can agree to have their dispute determined on documents alone. If used properly, this flexibility enables parties to avoid unnecessary time and costs in simply going through the motions of a typical litigation process.
An area of concern for many foreign investors is the perceived lack of impartiality or expertise by the local judiciary in the recipient country. Foreign investors therefore often require the inclusion of arbitration clauses to ensure adequate safeguards for minimum standards of fairness and justice. Such arbitration clauses tend to stipulate that any disputes which arise shall be resolved by arbitration in a neutral seat such as Singapore, London, Hong Kong, Paris or New York. Such seats are well regarded for their efficacy as arbitral seats, and are rarely objectionable to local counterparties, particularly where they have some geographical or cultural proximity to the relevant jurisdiction. The inbuilt ability to select arbitrator(s) also provides foreign investors with comfort that their disputes will be determined by experienced individuals who respect the rule of law.
Arbitrating parties are free to choose the arbitrator(s) for their dispute. This is crucial not just to ensure that the dispute is decided by someone who respects the rule of law, but also to encourage the efficient disposal of disputes because parties can select arbitrator(s) who have the necessary experience, technical expertise and proven track record.
Unlike court judges, arbitrators do not have to be legally trained. They simply have to satisfy any criteria stipulated by the parties in the arbitration agreement. This can be beneficial particularly where the disputes involve highly complex technical issues such as design and quantum. By way of illustration, if a party to a construction dispute nominates an engineer to the arbitral tribunal, the tribunal may not need to rely at all or as much on conflicting expert evidence adduced by the parties.
Why Choose Singapore As Your Arbitral Seat?
The seat of an arbitration is crucial, since the law of the seat governs procedural matters such as the supportive role of the courts and the grounds for challenging any awards. A pro-arbitration judiciary would be quick to stay litigation commenced in breach of an arbitration agreement, and slow to set aside awards in arbitrations seated in that jurisdiction. This will naturally make that country more popular as a seat for arbitration, since it demonstrates respect for the parties’ autonomy to choose arbitration as the dispute resolution mechanism for their disputes.
There is a general global trend towards increasing judicial support for arbitration. Singapore in particular has become an increasingly popular arbitral seat over the past two decades. As evidenced by reputable surveys, Singapore is now not merely a regional player, but is widely regarded as one of the key global arbitral seats. In 2022, Singapore was ranked the second most popular seat after London for energy-related international commercial arbitrations, ahead of Paris, Hong Kong, Dubai and New York. In 2021, Singapore tied with London as the most preferred seat for international commercial arbitrations.
For the reasons explained below, there are a confluence of factors which contribute towards Singapore’s attractiveness as an arbitral seat.
Supportive Government And Judiciary
One of the key drivers for Singapore’s success as an arbitral seat is the strong support from its government and local judiciary.
The government has adopted a tripartite approach to dispute resolution by supporting court-based litigation, arbitration and mediation services. To this end, various dispute resolution institutions have been set up to provide disputants with access to high quality services and expertise, namely the Singapore International Commercial Court (SICC), the Singapore International Arbitration Centre (SIAC) and the Singapore International Mediation Centre (SIMC).
Singapore is also party to the key conventions aimed at facilitating the easy passporting of court judgments, arbitral awards and mediated settlement agreements across geographical boundaries. In particular, the New York Convention and the Singapore Convention on Mediation establish frameworks for the effective cross-border recognition and enforcement of arbitral awards and mediated settlement agreements.
Singapore’s judiciary has consistently adopted a pro-arbitration stance since the introduction of the International Arbitration Act 1994 (IAA) over 25 years ago. The courts regularly uphold the enforceability of arbitration agreements and rarely set aside arbitral awards. Singapore’s courts are also well-regarded internationally for their deep legal expertise and respect for the rule of law. Their decisions are regularly cited with approval in foreign judgments, including in England and Australia. Furthermore, the judges of the SICC comprise legal practitioners who are qualified in multiple jurisdictions.
Arbitration-friendly Legal Framework
The conduct of international commercial arbitrations in Singapore is governed by the IAA, which adopts the Model Law. The IAA also gives effect to the New York Convention framework for the cross-border recognition and enforcement of arbitral awards. The adoption of the Model Law and New York Convention means that Singapore’s arbitral laws align with international best practices and will be familiar to parties from other jurisdictions.
The IAA sets out an arbitration-friendly framework. Once an award is issued in a Singapore seated arbitration, it can only be set aside by the Singapore courts on limited exhaustive grounds, broadly summarised as failure to comply with due process, breach of natural justice, exceeding the tribunal’s jurisdiction, and breach of public policy.
Singapore regularly reviews the IAA to ensure that it remains relevant and caters to the evolving needs of the market. The last set of amendments to the IAA came into force from 1 December 2020, and introduced a default mode for appointing three member tribunals in multi-party arbitrations where no procedure has been agreed, and the express recognition of the powers of the tribunal and court to enforce confidentiality obligations. A potential amendment to allow parties to appeal awards on a question of law was considered but not progressed for the time being. Interestingly, English law currently permits appeal of awards on questions of law, and the UK Law Commission is considering whether to remove this right of appeal.
Singapore has also introduced ancillary laws to incentivise parties to arbitrate in Singapore, such as by permitting third party funding in respect of international arbitration proceedings and certain related court proceedings. Furthermore, since 4 May 2022, lawyers have been permitted to enter into conditional fee agreements (CFAs) with their clients such that a part or the whole of their fees becomes payable only in specified circumstances.
Well-regarded Arbitral Institutions
A number of reputable arbitral institutions have a presence in Singapore, but the most notable institution is of course the SIAC. Apart from the SIAC, the International Court of Arbitration of the International Chamber of Commerce (ICC), the Permanent Court of Arbitration (PCA), the World Intellectual Property Organisation Arbitration and Mediation Centre (WIPO AMC), and the American Arbitration Association-International Centre for Dispute Resolution (AAA-ICDR) have offices in Singapore.
The SIAC does not just cater to regional disputes. Its top users in 2022 included parties from India, the United States, China, South Korea, the United Kingdom and Australia. Furthermore, the survey report published in May 2021 by Queen Mary University of London ranked the SIAC as the most preferred arbitral institution in APAC, second only to the International Chamber of Commerce (ICC) globally.
Like Singapore, the SIAC is at the forefront of developing best practices for international arbitration. It was one of the first arbitral institutions to introduce the concept of emergency arbitrators and expedited procedures in 2010. Both of these procedures have since been adopted in the rules of many other arbitral institutions. The SIAC was also one of the first arbitral institutions to introduce early dismissal rules and rules dealing with multi-party and multi-contract disputes (such as by introducing joinder and consolidation rules). Innovative measures such as these serve to incorporate the perceived benefits of court litigation into arbitration proceedings, thereby providing parties with the best of both worlds.
Deep Legal Expertise
Like many other Commonwealth countries, Singapore has an established common law system derived from English law. Given its nature as an international commercial hub, Singapore is home to myriad international firms, and with that, lawyers qualified in various jurisdictions covering the major economies globally. Foreign lawyers are permitted to practice arbitration work in Singapore, which incentivises parties to seat their arbitrations in Singapore despite the lack of any other connecting factors to Singapore.
Finally, Singapore benefits from its strategic geographical location at the crossroads of major economies and transportation routes, making it a global hub for trade and shipping. This is useful in the context of arbitration because Singapore is a convenient location for parties to meet and conduct their arbitrations, particularly if they or the underlying projects are based in Asia. The diverse, multicultural nature of Singapore’s population also means that there are minimal language or cultural barriers for parties choosing to conduct their arbitrations in Singapore.
1 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958).
2 Queen Mary University of London and Pinsent Masons, ‘Future of International Energy Arbitration Survey Report’ (20 January 2023).
3 Queen Mary University of London and White & Case, ‘2021 International Arbitration Survey: Adapting arbitration to a changing world’ (May 2021).
4 United Nations Convention on International Settlement Agreements Resulting from Mediation (New York, 2018).
5 UNCITRAL Model Law on International Commercial Arbitration (1985), with certain amendments as adopted in 2006.
6 Civil Law (Third-Party Funding) Regulations 2017 and Civil Law (Amendment) Act 2017.
7 Legal Profession (Conditional Fee Agreement) Regulations 2022.
8 SIAC Annual Report 2022.
9 Queen Mary University of London and White & Case, ‘2021 International Arbitration Survey: Adapting arbitration to a changing world’ (May 2021).
Joyce Fong is a disputes resolution lawyer at Reed Smith, Singapore, specialising in international arbitration. Having practised in Singapore since 2013, Joyce has worked on disputes with connections to countries in the Asia Pacific region, particularly India.