What businesses should know about arbitration

MIS Asia published today a blog post that I prepared on “What businesses should know about arbitration”. This has also been picked up by Computerworld Singapore, Computerworld Malaysia and CIO Asia. I have set out the full text below for the benefit of those following this blog:

This week, Singapore plays host to the biggest arbitration roadshow this year when the 21st International Council for Commercial Arbitration (ICCA) Congress rolls into town.

Ten years ago, few businesses in Asia would have even heard of arbitration let alone considered using it as a method to resolve their disputes. I now see arbitration clauses being written into contracts and parties referring their disputes to arbitration on a far more regular basis. The Singapore International Arbitration Centre (SIAC) handled almost twice as many new cases in 2011 (188) as it did in 2009 (99). The trend is set to continue as international businesses already familiar with arbitration start to channel more and more of their investments into Asia and Singapore. In theory at least, this should translate to a greater awareness within the business community here of what arbitration is and the benefits of using it to resolve commercial disputes.

And yet, when I speak to business owners, CEOs, CFOs and even in-house legal counsel about arbitration, I find that while they may have heard the term or even included arbitration clauses into their own contracts, most of them know very little about what it really is.

1. Arbitration should not be confused with Mediation

There’s a good reason why I’ve started this list by explaining what arbitration is not – I find that nine out of 10 business people that I speak to about arbitration tend to confuse it with mediation, or they think that it involves some form of hush-hush settlement negotiations. Make no mistake – arbitration is not the same thing as mediation, nor is it a settlement negotiation.

2. Arbitrations result in binding awards

Arbitration is an established and effective method of dispute resolution that parties can choose to resolve their commercial disputes.

Parties who choose to arbitrate their dispute submit their legal arguments and evidence to an arbitral tribunal in accordance with a pre-agreed set of arbitration rules, e.g. the SIAC Rules. Parties then participate in an arbitration hearing after which the tribunal decides the outcome of the dispute. The tribunal’s decision is issued to the parties in the form of a written award. Parties in an arbitration can (and often do) try to settle their dispute right up to the day before the tribunal’s award is issued. But if there is no settlement and the tribunal issues an award, the parties involved in the arbitration are bound by that award.

3. Arbitral awards are enforceable virtually worldwide

This is perhaps one of the most significant advantages that arbitration has over court litigation. There are usually procedural difficulties in trying to enforce a local court judgment against a party based abroad. However, under the New York Convention of 1958 which more than 140 countries have signed up to, arbitration awards issued in a contracting state can generally be enforced in any other contracting state without too much difficulty. In Asia, countries such as Vietnam, South Korea, Japan, Thailand, Malaysia, Laos, India, China, Philippines, Indonesia and of course Singapore have all signed up to the New York Convention of 1958.

4. Arbitrations are confidential

The entire arbitration process, including the award, is kept private and confidential. This appeals to most businesses that I speak to because it means they don’t have to deal with the public finding out embarrassing details about how employee X or decision maker Y got things so wrong. Arbitration guarantees that there will be no mud-slinging in public and no media activity surrounding the dispute.

5. Arbitration offers parties far more control and flexibility than litigation

Probably the biggest advantage that arbitration has over litigation is that parties in an arbitration have control over important factors affecting both time and costs. So for example, parties can agree:

1.      How many arbitrators they want to have on the tribunal (three arbitrators will almost always be more expensive than one arbitrator)

2.      The qualifications of the tribunal members

3.      How quickly they want to conduct the arbitration

4.      What sort of rules they want to govern the arbitration, including rules relating to disclosure of evidence

5.      Where to conduct the hearing

Court litigation simply does not offer parties such flexibility and control.

What this also means is that arbitration allows parties to avoid some of the pitfalls involved in court litigation, particularly in countries or jurisdictions with notoriously inefficient or unreliable court systems. When the alternative in some jurisdictions (especially some Asian countries) is that parties have to wait 10 to 20 years before their dispute is resolved in court and possibly longer for any appeals to be heard, it is easy to see why more and more businesses would prefer to take their disputes out of the hands of local courts and refer them to arbitration instead.

About Jonathan Choo

Singapore international arbitration lawyer with a practical approach to dispute resolution, Partner at Olswang Asia.
This entry was posted in Arbitration, Asean, Uncategorized and tagged , , , , , , . Bookmark the permalink.

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