Singapore is a bustling commercial hub with plenty of business activity. As a result, commercial disputes involving Singapore law are also common, and they typically relate to the parties’ rights and obligations under contractual agreements, intellectual property, payment terms, and restrictive covenants.
More often than not, parties who face contentious issues with their counterparties tend to only seek legal counsel after disputes arise. At 28 Falcon Law, we often remind our clients of the importance of having their contracts reviewed by a lawyer before signing, so as to minimise the likelihood of dispute, and have also published an article about the advantageous of doing so here. For clients who may be budget-conscious and would prefer to do so themselves, we have also published an article here to guide them on the best practices to adhere to when drafting and reviewing their own contracts.
For disputes where legal counsel is retained, their key role is to examine the facts and legal position relating to the disputes and advise businesses on the appropriate course of action to take to resolve such disputes. Naturally, the dispute resolution mechanism to resolve these disputes would also be discussed and suggested by legal counsel.
Whilst there are many other forms of dispute resolution mechanisms, such as negotiation, mediation, and settlement, the focus of this article is to compare two central means of dispute resolution: arbitration and litigation.
This article explores the key similarities and differences between arbitration and litigation in resolving commercial disputes in Singapore, examining the legal frameworks, procedural distinctions, and comparing the benefits and drawbacks of each method. We hope to provide a comprehensive understanding to assist businesses in their selection of one over the other, depending on the nature of the dispute and the objectives of the parties involved.
If there are any suggestions and/or legal queries, please feel free to contact the author, Waltson Tan, at: waltson.tan@28falconlaw.com
(a) Arbitration
Arbitration is a form of alternative dispute resolution (ADR) where the parties involved in a dispute agree to submit their case to arbitrators, who then make a binding decision on the matter. The procedural rules are typically less formal than in litigation, and arbitration is often chosen by businesses for its perceived advantages in terms of flexibility, privacy, and efficiency.
The key features of arbitration are as follows:
(i) Voluntary Process: While arbitration can be mandated by a contractual agreement, it can also be a consensual process. Prior to commencing proceedings, parties will come to a consensus when choosing the panel of arbitrators to oversee their dispute. Arbitrators are often chosen for reasons such as their expertise in the subject matter of the dispute, efficiency in proceedings, interpretative preferences etc.
(ii) Preliminary Hearing: Arbitrators may conduct a preliminary hearing to discuss procedural matters, including the proposed timeline, the rules to be followed, and any other issues such as the place of arbitration.
(iii) Arbitration Hearing: The hearing itself is typically less formal than a court trial. The parties present evidence and arguments, and the arbitrator(s) issues a ruling after considering the facts and legal issues involved.
(iv) Binding Decision: Enforcing arbitral awards is relatively straightforward, particularly if the arbitration is concluded in a jurisdiction that is a signatory to the New York Convention, which facilitates the enforcement of arbitral awards in over 160 countries. This global recognition makes arbitration a powerful tool for resolving international disputes. For businesses with global operations, the international enforceability of arbitral awards can be a significant advantage.
(v) Confidential: Arbitration proceedings are private, and the panels’ decisions are typically not published in the press, with sections 12(1)(j) and 12A(2) of the International Arbitration Act 1994 (IAA) empowering the arbitral tribunal and High Court respectively to enforce confidentiality obligations. This makes arbitration particularly attractive for companies that prioritise the protection of trade secrets, business strategies, and other sensitive information. In some cases, confidentiality can help preserve business relationships that may otherwise be strained if the case is heard in a public courtroom.
(vi) Limited Grounds for Appeal: The finality of arbitral awards is a major advantage of arbitration. Under the IAA, an arbitral award can only be challenged on very limited grounds, including:
(A) Lack of Jurisdiction: If the arbitral tribunal exceeds the scope of its jurisdiction.
(B) Violation of Natural Justice: If the right to fair trial of any party has been violated, and one party did not have a fair opportunity to present their case.
(C) Public Policy Violations: If the award conflicts with any public policy of the country where it is being enforced.
Although this limited scope for appeal is often seen as a benefit as it avoids the prolonged delays and the uncertainty associated with multiple levels of appeal in litigation, it can also be a disadvantage if a party forms the view that the arbitrator made an error in law or fact.
(b) Litigation
With Singapore’s legal system based upon English common law, litigation in Singapore is primarily governed by the Singapore Courts with the Singapore Civil Procedure Code (CPC) outlining the legal procedures for filing claims, presenting evidence, conducting hearings, and appealing judgments. In commercial matters, the High Court hears cases exceeding S$250,000, while claims of a smaller amount are usually heard by the State Courts. With the recent updates to the Rules of Court in 2021 intended to ‘modernise the litigation process, enhance the efficiency and speed of adjudication, and maintain costs at reasonable levels’, the legal system remains regarded as one of the most sophisticated and business-friendly in Asia, with litigation being a fair and efficient method for businesses to resolve disputes.
The key features of litigation are as follows:
(i) Public Process: Court proceedings are generally public, and the judgments are typically published. Although this may be unfavourable for businesses which prefer to keep sensitive information relating to the dispute private, the public nature of litigation can, however, be beneficial in certain circumstances. For example, businesses may prefer the open court process if the dispute involves a broader public interest or allows them to assert a legal principle.
(ii) Structured Process: Litigation follows a prescribed set of rules governed by the Rules of Court. The parties thus have less flexibility to alter the process compared to arbitration. Litigation is typically a multi-stage, formal process involving the following steps:
(A) Pleadings: The plaintiff initiates a lawsuit by filing an originating claim attaching a statement of claim, which outlines the facts, legal basis of the claim, and relief sought. The defendant responds with a defence, possibly raising counterclaims.
(B) Pre-trial Conference: A pre-trial hearing is typically scheduled to discuss procedural matters, possible settlement, and issues that can be resolved before trial. If no agreed resolution is made, the case proceeds to trial.
(C) Discovery and Disclosure: Both parties exchange documents relevant to the determination of the case. This process is highly regulated by the Rules of Court, and can involve the mandatory disclosure of a large volume of evidence.
(D) Trial: A full hearing where both sides present their case, which may include the calling of witnesses. A judge, who is typically a legal expert, considers both the facts and the applicable laws before making a ruling.
(E) Judgment: After the trial, the judge issues a formal judgment that resolves the dispute. This judgment is legally binding and enforceable in Singapore courts.
Litigation thus tends to be more formal, often requiring more time and resources, especially in complex cases.
(iii) Appeal Process in Litigation: Another key feature of litigation is the appeal process. A party that is dissatisfied with the judgment of a lower court may appeal to a higher court (e.g. from the State Courts to the High Court, or from the High Court to the Court of Appeal). Appeals are based on legal grounds, such as errors of law, misinterpretation of facts, or procedural irregularities. The appeals process, however, can extend the overall duration of a dispute, which may not always be desirable for businesses that prefer a quicker resolution.
(a) The Advantages of Arbitration
(i) Confidentiality: As mentioned, arbitration is typically a private process, making it ideal for businesses concerned with keeping sensitive information out of the public domain.
(ii) Enforceability of Awards: Arbitral awards are internationally enforceable under the New York Convention. This makes arbitration particularly advantageous for cross-border disputes, where enforcement of a court judgment in another jurisdiction can be challenging.
(iii) Expert Arbitrators: Arbitration allows the parties to choose arbitrators with expertise in the specific subject matter of the dispute. This is especially beneficial in complex industries such as finance, construction, or intellectual property.
(iv) Speed and Flexibility: Arbitration typically resolve disputes more quickly than litigation because the process is more streamlined, and the arbitrator has greater flexibility in managing the case. This is particularly important for businesses that need to resolve disputes quickly to avoid disruptions.
(v) Finality of Decision: Once an arbitral award is issued, it is final and binding, with limited grounds for appeal. This can provide certainty and closure to the parties involved in a dispute.
(vi) Neutral Forum: Arbitration allows parties from different jurisdictions to select a neutral venue for dispute resolution, reducing concerns about home-country bias that may exist in litigation.
(b) The Challenges of Arbitration
(i) Cost: While arbitration is often perceived as faster and more efficient, it can still be expensive due to arbitrator fees, institutional costs, and other administrative expenses.
(ii) Limited Appeal: The limited grounds for appeal in arbitration can be a disadvantage if a party is unhappy with the decision. In contrast, litigation offers more opportunities for appeal.
(iii) Enforcement Challenges: While arbitration awards are generally enforceable, issues can arise when the parties are located in jurisdictions that do not recognise international arbitration awards.
(c) The Advantages of Litigation
(i) Transparency and Precedent: Court proceedings are public, and the judgments are available to the public. This transparency can be beneficial for businesses that wish to establish legal precedents or resolve issues that may affect the broader market or industry.
(ii) Ability to Appeal: One of the most significant advantages of litigation is the ability to appeal a court decision. In arbitration, the grounds for appeal are very limited, but in litigation, parties have the option to appeal to a higher court if they are dissatisfied with the judgment.
(iii) Judicial Oversight: Courts provide a higher degree of oversight, which can help ensure fairness in the proceedings. Judges are perceived to be impartial and make decisions based on the law, which can provide greater confidence and certainty.
(iv) Enforceability of Judgments: Singapore judgments are enforceable in many jurisdictions under reciprocal enforcement treaties or through the Hague Convention on Choice of Court Agreements, providing businesses with greater certainty for enforcement of decisions across borders.
(v) Less Costly: Unlike arbitration, where parties must pay for the arbitrators’ time and expertise, litigation generally involves lower upfront costs, especially in the early stages.
(vi) Structured Process: The highly structured nature of litigation, governed by the Rules of Court, provides clear guidance on the process, making it slightly easier for businesses unfamiliar with dispute resolution to navigate.
(d) Challenges of Litigation
(i) Time-Consuming: Litigation can be significantly slower than arbitration, particularly for complex cases. The court process involves numerous procedural steps, such as pleadings, discovery, and hearings, which can take up to several years to conclude.
(ii) Cost: While arbitration can be expensive, litigation in Singapore is not inexpensive either, especially for high-value disputes that require extensive legal representation. The costs associated with expert witnesses, court fees, and legal counsel can snowball very quickly.
(iii) Publicity: As mentioned earlier, litigation is a public process, and court judgments are typically published. This can be detrimental for businesses that prefer to keep the details of a dispute confidential.
(iv) Limited Flexibility: Litigation is governed by formal rules and procedures, leaving little room for flexibility in terms of process. The parties cannot choose the judge, and there is little room for tailoring the proceedings to the specifics of the case.
(a) Cost Considerations: While both arbitration and litigation can be expensive, arbitration is often perceived as more costly due to the fees associated with arbitrators and institutional costs. However, the possibility of faster resolution in arbitration can lead to cost savings in the long term if it minimises business disruption. Litigation, on the other hand, may be more affordable in the early stages but may become more expensive as the process drags on.
(b) Speed and Efficiency: Arbitration is typically faster than litigation. The flexibility in arbitration procedures, along with the ability to select expert arbitrators, often results in a more streamlined process. Litigation, by contrast, can take longer due to the more formal procedural requirements and potential delays in court schedules.
(c) Confidentiality vs. Transparency: Confidentiality is one of the key advantages of arbitration, making it attractive for businesses that wish to protect sensitive information. Litigation, being a public process, may expose business practices or sensitive trade secrets to public scrutiny, which can be a significant disadvantage for some companies.
(d) Expertise and Neutrality: Arbitration allows parties to select arbitrators with specific expertise in the subject matter of the dispute, which can lead to more informed decision-making. Litigation typically involves judges who may not have specialised knowledge of the industry or field in question.
(e) Appeal and Judicial Oversight: Litigation offers more opportunities for appeal, providing a higher degree of judicial oversight. In arbitration, the grounds for appeal are limited, and the decision is usually final.
In conclusion, both arbitration and litigation have their advantages and challenges when it comes to resolving business disputes in Singapore. The choice between arbitration and litigation will depend on a variety of factors, including the nature of the dispute, the importance of confidentiality, the need for speed, and the desire for judicial oversight. For businesses involved in international or complex commercial disputes, arbitration may offer a more flexible and efficient process, while litigation may be the better option for parties seeking public awareness. Ultimately, businesses should carefully consider their specific needs and objectives before choosing the dispute resolution mechanism that best suits their circumstances.
Waltson Tan Director +65 8079 0028 waltson.tan@28falconlaw.com |
Office address: 101A Upper Cross Street #13-11, People’s Park Centre Singapore 058358 |