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Should my contract have an arbitration clause?

Should my contract have an arbitration clause?

Should my contract have an arbitration clause? 仲裁是否适合你?

The world has been globalised for a very long time, and at some point businesses can expect to cross borders. In the course of negotiations, businesses may find that they cannot agree which court will have jurisdiction over any dispute between them for a variety of reasons - for example, one side may have little knowledge of or confidence in the legal system of the proposed court. One common solution proposed is to have any disputes be resolved by arbitration, but does it suit you?

Arbitration is essentially private court proceedings, with parties' consent as the fundamental basis. That means parties are free to choose the seat of the arbitration, the substantive and procedural law, the language of the arbitrator and even who the arbitrator will be. Many Commonwealth jurisdictions such as Singapore have a fairly arbitration-friendly policy, where the court will be slow to declare an arbitration clause in a contract invalid just because it had some defects or pointed to a non-existent arbitration institution, so parties can have confidence that the other side will not be allowed to back out of arbitration easily.

Many large and listed companies also prefer arbitration because the proceedings are confidential. Unlike a court trial which is usually open to the public and the media, arbitration proceedings usually have to be kept behind closed doors, and this provides the added benefit of managing public perception, by preventing one side from airing dirty laundry in public or allowing third parties to witness the proceedings.

Further, countries which are party to New York Convention usually have limits on appealing against the arbitrator's award. This allows parties to be sure that the arbitrator's decision will likely be final, unless there were some fundamental errors such as failing to hear both sides, and prevents a disgruntled party from attempting a second bite at the cherry by going to court.

Despite these features, there are 2 areas where arbitration may be undesirable:

I. Cost

Arbitration tends to be costly because on top of the professional fees payable to your lawyers, you would need to pay the institution to administer the arbitration, as well as the arbitrator as well. Some institutions charge a percentage of your claim, and if the other party mounts a counterclaim, that increases the administration fees as well. If you pick an arbitrator for his knowledge and experience in a highly technical field, that naturally leads to a higher fee. So the ability to tailor the proceedings to suit your preferences will come at a higher cost.

A common procedural principle is that the losing party will pay the legal costs of the winning party. Courts usually have greater control on cost recovery, but in arbitration the losing party will usually pay a much higher sum in legal costs for the same amount in dispute, at least by a factor of 3. This makes arbitration risky, especially for disputes which are not clear-cut.

On top of that, while litigation and arbitration proceedings require similar types of preparatory work before the tribunal hears the matter, in arbitration the initial stages of pleadings (the parties' factual positions) and discovery (the disclosure of documents relevant to either party's factual positions) tend to be compressed into a single stage. That means that the lawyers are asked to do the same work in a shorter period of time, and naturally they will seek higher compensation, especially in cases where the documents are voluminous.

II. Adversarial nature

Since arbitration is largely litigation made private, it retains the adversarial nature of litigation. Both sides have to make their positions clear, are allowed to compel each other for disclosure of documents relevant to their own case and have the opportunity to question and discredit the other party's witnesses. In such proceedings, one can expect the relationship to sour, if it is not already stale.

One way to mitigate the problem is to also include a mediation or arb-med-arb clause in the agreement to allow for parties to take a step back at agreed junctures to attempt an amicable resolution through mediation. This will soften the tone of the dispute, and also give both sides an opportunity to assess whether they are better off settling the dispute before it goes for hearing before the tribunal.

It is important to know what contractual commitments you have gotten into, before you sign it. Arbitration can be a huge commitment and requires a careful consideration of the time, cost and relationship with the other party. One man's meat is another man's poison, so be careful that arbitration does not compromise your business interests.

Considering inserting an arbitration clause into your contract but have reservations? Contact me via email (boongan@lawfirm.com.sg) or LinkedIn (Boon Gan Ng) to get some help.

在商业界全球化的过程当中,双方会碰到纠纷管辖权的问题。无论对某个法律系统不熟悉,或步信任某国家的法院,会使双方无法同意纠纷解决的地点。一个常见的方案就是以仲裁作为纠纷解决方式,但必须考虑各方的需求、状况。

仲裁简单说就是私人诉讼程序,以双方许可作为基本原则,双方能通过合约定下仲裁地、管制法律、程序规则,甚至能委任仲裁员。许多联邦国家,例如新加坡,已立下维护仲裁的法律,法院也不会轻易判仲裁条例因某些细节不妥(例如双方指定不存在的仲裁团体)而仲裁条例无效。这样,双方都能保证对方不能轻易推出或拒绝仲裁程序。

许多大型、上市公司为了保密而选择仲裁。与公开的法院程序、审讯相比,仲裁的程序必须严格保密,这能避免家丑往外杨,阻止任何一方把纠纷的细节透露给大众或媒体。同时,签署纽约公约的国家会有限制上诉仲裁判书的法律。除非仲裁员触犯了基本原则(例如不周全地考虑一方的证据),纠纷将最终以仲裁解决。

虽然仲裁的利益不少,但有些方面可能对一方不利:

I. 费用

虽然仲裁能比较迅速地解决纠纷,但总共的费用会比较昂贵。不仅是律师费,双方还必须共同承担仲裁团体的行政费用,也必须支付仲裁员的专业费用。有些仲裁团体以双方的赔偿数目作为根据而收费,而且对方的反告赔偿数目也另外算。要挑选专科仲裁员,就必须交更多的仲裁员费用,所以仲裁的费用多数根据双方的要求。

通常,失败的一方必须赔偿胜方一部分的法律费用。法院对费用赔偿会有比较严格的限制,一方律师刺激当事人立刻诉讼,但仲裁并没有类似的限制,造成仲裁的费用赔偿比普通费用非常高达至少3倍。如果纠纷持久,对双方造成更大的金融风险。

虽然诉讼与仲裁的准备阶段相似,但仲裁的准备工作阶段比较紧缩。在审讯初期,双方必须提出立场,过后交换有关文件。在诉讼程序,这两项工作分为两个阶段,但在仲裁程序里,这两阶段二合为一,因此律师必须在同个期间完成更多准备工作,自然会提高费用。

II. 对抗性关系

仲裁既然类似诉讼,也保持了诉讼的对抗性。双方不但必须澄清立场,也能逼对方透露对自己有利的文件,也有机会拷问对方的证人。如果双方的关系还未破裂,仲裁有可能使关系迅速恶化。为了防止关系恶化,有些合约会包括庭外和解条例,提供纠纷暂停的机会。在双方尝试商谈、和解时,同时能重新考虑仲裁是否是维护利益的最佳选择。

签署合约之前, 必须彻底了解其中的权力、义务。仲裁虽然迅速,也允许双方特别设计,但还是牵涉到费用与关系的重要问题。仲裁并不一定适合每一家企业的商业利益,所以应当慎重。

是否在起草合约而考虑加入仲裁条例?若需要咨询,不妨通过电邮(boongan@lawfirm.com.sg) 或 LinkedIn (Boon Gan Ng) 与我联系。

Need Help With A Legal Dispute? 需要关于解决纠纷的法律咨询?

If you have any questions relating to business dispute prevention or how to settle a business dispute in Singapore, feel free to email or drop me a LinkedIn message. I will do my best to respond within 24 hours.

Or leave a message here (your personal particulars will not be shared with third parties without your permission).

若有关于商业纠纷防范、和解方案的疑问,可通过电邮或LinkedIn联系。我会尽量在24小时之内回复。

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Need Help With A Legal Dispute? 需要关于解决纠纷的法律咨询?