For small and medium enterprises (SMEs) in Singapore, legal disputes can be time-consuming, expensive, and disruptive. In many cases, arbitration offers a more efficient, private, and business-friendly alternative to traditional court litigation.
Arbitration is a form of alternative dispute resolution (ADR) where a neutral third party, known as an arbitrator, hears evidence from both sides and makes a binding decision. Unlike court proceedings, arbitration is usually confidential and more flexible.
1. Cost Efficiency
Court cases can drain resources quickly—lawyer fees, administrative costs, and lost productivity add up. Arbitration is generally faster and more predictable in cost.
● Lower legal fees
● Fewer procedural delays
● Potential for capped fees or streamlined processes
2. Time Savings
Litigation in Singapore courts can take years. Arbitration timelines are typically shorter, especially with institutional rules that encourage fast-track procedures.
● Average arbitration: 6-12 months
● Court case: 18 months to several years
● No lengthy appeals process
3. Confidentiality
Court hearings are public. Arbitration is private. This can be crucial for SMEs wishing to protect trade secrets, client lists, or sensitive financial data.
● Protect business reputation
● Keep negotiations and outcomes confidential
4. Industry Expertise
Arbitrators can be chosen for their experience in specific industries, unlike judges who are generalists. This results in better-informed decisions.
● Relevant commercial knowledge
● Faster understanding of technical issues
5. Greater Flexibility
Unlike courts, arbitration offers more control over the process. SMEs can choose the arbitrator, location, language, and even the rules that apply.
● Tailored procedures
● Remote hearings are possible
6. Enforceability
Arbitral awards are enforceable in over 170 countries under the New York Convention. This is especially useful for SMEs involved in international trade.
● Cross-border enforcement
● Minimal court involvement
"It’s only for big corporations"
Wrong. Many SMEs use arbitration because it offers a level playing field and predictability.
"It’s too expensive"
While complex arbitrations can be costly, the overall costs are sometimes lower than litigation, especially when considering time saved.
"Arbitrators are biased"
Arbitrators must remain neutral and disclose any conflicts of interest. Parties also have a say in who is appointed.
For SMEs in Singapore, preparing for potential disputes before they arise is not just wise—it’s essential. One of the most practical steps is to incorporate an arbitration clause into your commercial contracts. This clause serves as a pre-agreed roadmap for resolving disputes efficiently and privately, without defaulting to lengthy court proceedings.
By including arbitration clauses, SMEs can signal professionalism, reduce legal uncertainty, and protect business relationships. It also demonstrates a proactive approach to conflict resolution, which can be attractive to partners and investors alike.
Key Elements of a Strong Arbitration Clause
A well-drafted arbitration clause should be clear, specific, and customised to your business needs. Consider including the following components:
● Seat of Arbitration
This refers to the legal jurisdiction that will govern the arbitration process. Choosing Singapore as the seat ensures access to a pro-arbitration legal framework, world-class facilities, and an experienced judiciary that supports arbitration awards.
● Applicable Rules
Decide which procedural rules will govern the arbitration. Common choices include:
○ SIAC Rules – Offered by the Singapore International Arbitration Centre, known for efficiency and international recognition.
○ UNCITRAL Rules – A widely adopted set of international arbitration rules, ideal for cross-border disputes.
● Language of Arbitration
Specify the language in which the proceedings will be conducted. This avoids confusion and ensures both parties are prepared from the start.
● Number of Arbitrators
Typically, parties can opt for one or three arbitrators. A single arbitrator may suffice for simpler disputes, while three may be preferable for more complex or high-stakes matters.
Method of Appointing Arbitrators
Outline how arbitrators will be chosen—whether by mutual agreement, institutional appointment (e.g., SIAC), or a default procedure.
Scope of Arbitration
Define what types of disputes the clause covers (e.g., contract breaches, commercial disagreements, etc.).
Interim Measures
Consider allowing arbitrators to grant urgent interim relief if needed, such as freezing assets or preserving evidence.
Governing Law
While the seat determines procedural law, you can also specify the substantive law that governs the contract (e.g., Singapore law).
Whether you're just exploring arbitration or ready to implement it, we're here to guide you every step of the way. Contact us today!
1. Is arbitration legally binding in Singapore?
Yes. Arbitral awards are binding and enforceable under the Arbitration Act and the International Arbitration Act.
2. Can I still go to court if arbitration fails?
Generally, arbitration is final. However, you can approach the courts to enforce or challenge an award in limited circumstances.
3. What if the other party refuses to arbitrate?
If there is an arbitration clause in the contract, courts will usually stay the proceedings and refer the matter to arbitration.
4. Can I represent myself in arbitration?
Yes, but having legal counsel significantly increases your chances of a successful outcome.
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