Negotiation, Mediation or Arbitration? ADR Options to Resolve Your Business Dispute

Singapore is well-positioned as a global dispute resolution hub, and transnational contracts – especially regional ones – have increasingly favoured Singapore as the preferred venue for dispute resolution, and Singapore law as the governing law.

Although parties still use traditional methods of dispute resolution such as litigation, Alternative Dispute Resolution (ADR) methods have become increasingly common in commercial contracts for various reasons.

What is Alternative Dispute Resolution (ADR)?

In a nutshell, ADR refers to mechanisms for resolving disputes and conflicts without pursuing litigation (i.e., going to court). The most common types of ADR mechanisms in Singapore are negotiation, mediation and arbitration (described more fully below). These types of ADR mechanisms cover a range of effective methods for addressing disputes outside of the traditional court process.

Businesses may prefer ADR methods due to the respective features of ADR, usually involving flexibility, confidentiality, collaboration, problem-solving, and maintaining positive business relationships between the disputing parties. Some of these advantages can be especially attractive to businesses. For example, when a dispute arises over allegations of a buyer’s late payment and a supplier’s defective goods, confidentiality can prevent potentially damaging publicity and follow-on speculation. This confidentiality can come from the agreed-upon rules of mediation or arbitration, or by the parties holding confidential direct negotiations.

Moreover, for businesses in long-term relationships, ADR gives greater control over outcomes – parties are not limited to traditional remedies such as damages, and they can make future arrangements to deal with current problems, e.g., the supplier can offer discounts on future sales instead of a lump sum compensation, while the buyer can be locked into an exclusivity clause for a longer period.

By fully understanding the different types of ADR options available, businesses can potentially save time and money by resolving disputes amicably, and preserve longer-term interests in maintaining goodwill and valuable relationships.

How Might an ADR Mechanism be ‘Triggered’?

The short answer is that parties typically agree to use ADR if a dispute arises – and this agreement can be made before or after the dispute.

The most common way of agreeing in advance is by having appropriate ADR clauses written into business contracts/agreements. These can be a simple clause, e.g., requiring parties to go to mediation before going to court. Sometimes, it can be a sophisticated series of escalation procedures, including requiring negotiation before mediation, or mediation before arbitration, and so on.

ADR clauses allowing/requiring mediation or arbitration also typically spell out the “seat”, i.e., the physical venue of the ADR and which specific set of ADR rules apply. All these are written into the contract and get triggered when a dispute arises. The ADR clause might even set out which types of disputes can trigger ADR, e.g., disputes over high-volume / routine transactions below a certain dollar value.

Even without an ADR clause in the parties’ existing agreement and after a dispute has arisen, parties usually can agree to use ADR.

What are the Different ADR Mechanisms Currently Available in Singapore?

The main types of ADR mechanisms currently available in Singapore are:

• Negotiation;
• Mediation; and
• Arbitration.

These are listed in ascending order of formality, confrontation and potential cost.

Negotiation

This is the pre-eminent form of alternative dispute resolution, and is usually the mechanism of first resort. Parties can resolve disputes by confidentially discussing with each other without a neutral party deciding the case for them. Negotiation can also start or continue at nearly all stages of other dispute resolution methods – even after litigation, parties can be directed by the courts to negotiate over consequential issues such as legal costs.

Advantages of negotiation

Cost savings 

Negotiation is potentially the most cost-saving form of dispute resolution, especially if no outside resources (such as legal advisors or technical experts) are required. For example, before a dispute crystallises, a business may already find itself negotiating directly with another as part of regular business communications, with no extra time or money involved.

More sophisticated businesses can go so far as to jointly appoint neutral third parties to give non-binding evaluations, expert opinions, or other types of assistance for various stages and issues to help achieve a negotiated settlement. However, the more complex or sophisticated the dispute, the more businesses should consider engaging lawyers to help with negotiations. While these are additional cost items, they still exclude the formalised institutional costs of other types of ADR, such as mediation fees.

Flexibility 

Additionally, negotiation is flexible in some unique ways – parties jointly set their own timelines, and control their own procedures.

The process of negotiation is that parties propose and settle on a mutually acceptable solution.  For example, in a dispute over whether a buyer owes a certain type of payment to its supplier, the parties may agree to a once-off payment for that one time only, and vary their contract to exclude such payments henceforth.  Negotiation therefore affords more flexibility than suing in court, especially when it comes to being creative and collaborative in finding a mutually acceptable resolution.

Outcome of negotiation

The typical outcome of a negotiation – a full and final settlement – is essentially yet another contract between the parties. It is legally binding on the parties as a contract between them, just like any underlying agreement the parties had before. There is no third party imposing any binding decision or agreement on either party.

Cases best suited for negotiation

Typically, the best business case for negotiation is where:

• All parties are deeply interested in preserving the existing relationship (especially if they have unequal bargaining powers – i.e., one side has an advantage over the other in terms of money or time);
• The parties desire confidentiality;
• Speed is a premium; and
• All parties do not wish to spend much more resources (be it time, money or other assets) to address the dispute.

This can happen often when the parties have a complex, long-term master agreement covering numerous business verticals, and the dispute relates to only one small part of the bigger overall commercial relationship, e.g., a low-value purchase order.

Disadvantages of negotiation

As for its disadvantages, the converse is true: negotiation can be a trap if your bargaining position is weak.  The same flexibility and informality that makes negotiation attractive can be used against you, if the other party can waste resources slowing you down by quarrelling over numerous minor details, only to terminate the negotiations at any time (usually after you have been seriously exhausted). Since negotiations are direct and not controlled by a third party like a judge, parties are not forced to exercise good faith or any trustworthiness other than what they bring with themselves to the bargaining table.

Overall, negotiation is potentially the least costly form of ADR, although the timeframe is inherently open-ended.

Mediation

Mediation is usually the next stage if negotiation fails, and is often described as “facilitated negotiation”. This is where the parties use a neutral third party – i.e. a mediator – to help them reach a mutually acceptable solution.

Key differences in advantages/disadvantages between mediation and negotiation

The advantages of mediation are largely similar to negotiation, including confidentiality, speed and flexibility. However, there is now a neutral third party helping the parties.

The other significant differences from negotiation include:

• Formalised costs, e.g., you are more likely to have to engage lawyers for a mediation, and you definitely have to pay fees. For example, the Singapore Mediation Centre charges non-refundable filing fees, and their mediation fee varies by the size of the dispute, ranging from below $100 per hour per party for disputed sums below $20,000, up to five-figure amounts per party per day for the largest disputed sums.  Despite this, mediation can still be an inexpensive option considering mediation sessions typically target a maximum of 4 hours, instead of days or months.
• Formalised (but short) timelines, including timelines for urgent notices.
• Formalised procedures – parties have to submit a request for mediation to an organisation such as the Singapore Mediation Centre, including deadlines for submitting case summaries and appointed meetings with the mediator. Even the process of parties agreeing upon a mediator can be formalised.

Cases best suited for mediation

Typically, mediation is suitable for parties who are willing to negotiate, but lack some of the business savvy or know-how in dispute resolution, especially for complex matters that may be too tricky to resolve quickly by direct negotiation. This is where a mediator’s value comes in, helping the parties to tease out the key issues in the dispute, evaluate the available options, and help draw up a mutually acceptable settlement agreement. This aspect of the mediator’s work can even be said to improve relations between the parties by breaking down communication barriers. Mediation can also be suggested (or even ordered) by the courts.

Outcome of mediation

Like negotiation, the typical outcome of mediation is the settlement agreement, i.e., another contract. It is therefore also susceptible to the same disadvantages, such as abuse by a party that is untrustworthy, or has a much stronger bargaining position.

Arbitration

This is the costliest and most confrontational of the classic forms of ADR, and may even be more expensive than litigation. Its greatest advantages are confidentiality and an enforceable outcome.

Although arbitration is available in Singapore in its typical form, there is now a hybrid procedure in the Singapore International Commercial Court (SICC), designed to provide a new form of dispute resolution that incorporates many of arbitration’s advantages, while eliminating some of arbitration’s biggest disadvantages (e.g., rising costs, over-formalisation, lack of consistency, inability to join third parties).

Cases best suited for arbitration and advantages of arbitration

Confidentiality and anonymity 

Arbitration is best suited for high-value disputes above S$500,000 where confidentiality – including not appearing in litigation searches – is so valuable that the parties are willing to invest huge amounts of time and money.

The formalities can be more complex than mediation – including different options for the parties to agree on how to fill a three-panel arbitral tribunal – but this comes with the greatest advantage of all, which is continued anonymity even when the matter goes to court for enforcement.

Shorter enforcement process

Court enforcement is built into arbitration law, so the outcome is an arbitral award that is legally binding on both parties. This makes the enforcement process much shorter, unlike a negotiation where the outcome – a settlement agreement – is in theory really just another contract. This is because enforcing a settlement agreement requires launching a lawsuit from scratch to obtain a court judgment, and then potentially having to start separate enforcement proceedings. With arbitration, the main lawsuit process can be skipped.

Apart from the cost, arbitration may be the best form of ADR if the dispute is international in nature.  If you have won a court case but the other party is located overseas, you will have to enforce the court judgment in the foreign country through that country’s courts. However, enforcing an international arbitral award in that country can be much easier than enforcing a court judgment, due to many countries being parties to the New York Convention (a treaty on recognising and enforcing international arbitral awards).

Finally, parties to arbitration in Singapore can tap into a much wider pool of legal expertise and representation, because they can be represented by arbitrators qualified in other jurisdictions, and not just in Singapore, when it comes to arbitration proceedings.

Disadvantages of arbitration

Businesses should be aware that any friendly business relationship runs the risk of being permanently ended by arbitration because this is the most adversarial and confrontational type of ADR mechanism, so the course of arbitration proceedings has the potential to damage the goodwill between parties. Also, arbitration is more costly than mediation, with much higher corresponding fees.

More importantly, both arbitration and SICC proceedings (and related mediation arising from these proceedings) are now open to the prospect of third-party funding. This is where an unrelated third party finances one party to a dispute, in exchange for a cut of that party’s award. This can radically change the bargaining positions of the parties, so businesses should be aware of their own relative positions on securing such funding – preferably before any disputes arise from a contract with a compulsory arbitration clause.

Not Everything is Suitable for ADR, but Does This Mean Litigation is the Answer?

There will always be cases where a dispute is either inherently unsuitable for ADR, or cannot succeed due to the behaviour of one or more parties. For example:

• Bad faith, i.e., breaching a settlement agreement. This is clear disrespect for the outcome of ADR, and contempt for goodwill. The aggrieved party can potentially seek legal advice on suing to enforce the settlement agreement.
• In the absence of a compulsory ADR clause in the underlying contract, a party may be reluctant to participate in ADR (or simply drag their feet to prolong the dispute). Litigation may be more effective to force that party into a resolution, and end some stalling tactics.
• Unequal bargaining positions can make ADR – especially mediation and arbitration – highly one-sided and undesirable.

The above must be balanced against the advantages of ADR – for example, the loss of confidentiality. Unless there are sufficiently strong reasons to seal a court file, a party’s name would turn up in a litigation search or the lawsuit may even be publicised in the media. Whether this is good or bad publicity can be very subjective to each business.

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Litigation and ADR are ultimately different models of dispute resolution, and ADR can be as viable an option as going to court. Which type of dispute resolution is best, however, depends on numerous factors. Businesses have to weigh not just the pros and cons of these different types, but also their own internal situation, e.g., their appetite for confrontation, for publicity, and for learning the practical tips needed to maximise returns from the different types of dispute resolution mechanisms.

Knowing the various methods for dispute resolution in Singapore is important for optimal settlement of your business disputes. If in doubt, it is always advisable to consult a lawyer to best weigh the options available to you.