Dispute Clauses in Singapore PE/VC: Managing Risks

Singapore is a financial and business hub in Asia, attracting significant Private Equity (PE) and Venture Capital (VC) transactions. Singapore has ranked top in the World Bank’s New Business Ready 2024 Report, suggesting the ease of doing business in the country. It has also emerged as an international dispute resolution hub, with cross-border transactions being resolved through arbitration and mediation. Beyond its economic standing, robust institutions like the Singapore International Arbitration Centre (SIAC), Singapore International Commercial Court (SICC) and Singapore International Mediation Centre (SIMC) have made Singapore a preferred venue for resolving cross-border disputes. Parties opt for Singapore as the seat to resolve disputes, preferring out-of-court conflict resolution.

Importance of Dispute Resolution Clauses

In private equity and venture capital transactions involving cross-border elements, dispute resolution clauses are more than boilerplate clauses, as they directly influence the cost, enforceability, and ultimately the outcome of the dispute. These clauses mainly set out the forum, governing law, and procedural framework for resolving conflicts among investors, founders, and other stakeholders. As these transactions involve stakeholders and assets from multiple jurisdictions, determining the law to be applied in dispute resolution is crucial.

Cross-border transactions invariably involve complexities such as divergent legal systems, varying procedures, dispersed assets across locations, and conflicting regulatory compliances. Thus, well-crafted dispute resolution clauses are important, as they minimise dispute costs, hasten resolution and impact effective enforcement, anticipate the risks, streamline the process, and ensure that the resolution mechanism is aligned with desired commercial objectives.

Cross-border Risks in Dispute Resolution

Following are some of the risks that parties must consider in dispute resolution clauses:

• Choice of law
  The parties must make a choice of law suitable to govern and determine the contractual rights and obligations. The governing law, as determined, would be applied in the effective dispute resolution. Ambiguity in the governing law brings with it the risk of another jurisdiction’s law being applied, affecting the desired outcome.
  
  In Anupam Mittal v. Westbridge, the Singapore Court of Appeal clarified that the court should first assess arbitrability under the law of the arbitration agreement and then consider the law of the seat (Singapore) to determine subject matter arbitrability, highlighting the significance of choice of law. Thus, for an arbitration proceeding, both the law of the arbitration agreement and the law of the seat must allow the arbitrability of the subject matter.
  
  The dispute resolution clause has to specify the governing law of the arbitration agreement, and the parties have to confirm that both the chosen law and the law of the seat permit arbitration of the subject matter to avoid any risk in dispute resolution.
  
  
• Jurisdiction or Forum Selection
  With Singapore as the seat for dispute resolution, the parties must also consider the appropriate forum for the dispute to be resolved. There are institutions like the Singapore International Arbitration Centre (SIAC), the Singapore International Commercial Court (SICC) and the Singapore International Mediation Centre (SIMC), which have their procedural aspects impacting the real outcome. SIAC offers internationally recognised arbitration services through the International Arbitration Act (IAA), SICC is specialised in complex cross-border litigation, and SIMC facilitates mediation for international commercial disputes. So, the parties must also decide on the forum and the procedural aspects governing that forum to avoid parallel proceedings and inconsistent outcomes. The parties have the option to choose arbitration, mediation and litigation for dispute resolution.

• Enforcement of Judgement or Award
  Many parties fail to consider the point that the forum chosen must also be competent to enforce the award or the judgements; otherwise, the entire proceedings become futile. The arbitral awards given by SIAC are enforceable in more than 170 states that are part of the New York Convention. However, the decrees or judgements given by the courts in Singapore will be only enforceable in the counterparty’s jurisdiction if such country has reciprocal enforcement. The Indian government has designated Singapore as a ‘reciprocating territory’, enabling enforcement of judgements of Singapore courts by the Indian courts. Thus, dispute resolution clauses must also consider the enforcement challenges or risks while determining the forum.

• Scope of Arbitration Clauses
  Many joint venture-related cases are often heard and decided by arbitration. According to the 2024 SIAC Annual report, 93% of the cases decided were international in nature, involving parties from various jurisdictions. However, the scope of arbitration clauses must be carefully considered in cases involving multiple related disputes. If all the matters are not governed by the same agreement having the arbitration clause, uncertainty as to what claims are to be decided through arbitration or in court could occur.

In Crystal-Moveon Technologies Pte Ltd v Moveon Technologies Pte Ltd, the dispute arose from the Equipment Transfer Agreement (ETA) dealing with the transfer of equipment, while the AH equipment claim was based on an agreement made over email. The High Court has taken a generous approach in interpreting arbitration clauses, providing that disputes fall under an arbitration clause until proven otherwise, and held that the AH equipment claims fell within the scope of the arbitration agreement. However, the court has also held that the subject matter of ETA did not extend to equipment other than AH equipment, and thus, the arbitration agreement did not apply to other equipment claims. Therefore, this case highlights the requirement of carefully considering the scope of arbitration clauses.

Singapore’s Advantage as a Seat for Dispute Resolution

Singapore has an advanced legal structure resolving international commercial disputes with specialised institutions. Through arbitration, mediation and litigation, Singapore has demonstrated itself to be an ideal destination for stakeholders for dispute resolution in cross-border transactions. Due to its neutrality and readiness to handle cross-border disputes, Singapore has been favoured over other jurisdictions. Parties choose Singapore as the seat without restricting their choice of the substantive law, which plays a critical role in complex cross-border PE/VC transactions. Further, the arbitration laws are aligned with the UNCITRAL model law. Both the Arbitration Act and IAA provide autonomy to the parties to make their choice of law and arbitration procedures.

With institutions like SIAC, SIMC and SICC, it provides a specialised and comprehensive ecosystem for dealing with commercial disputes. The enforceability of the outcomes is also crucial, and Singapore provides enforceability and finality to the decisions. While the dispute resolution in the West increases the costs, Singapore is preferred for its cost efficiency without undermining the quality of services. Thus, Singapore’s legal structure, specialised institutions, neutral framework, enforceability, cost efficiency, and geographical advantage make it a preferred seat for dispute resolution that meets the needs of the parties in complex cross-border transactions.

Conclusion

In essence, dispute resolution clauses play a crucial role in cross-border transactions, especially private equity and venture capital transactions. Singapore, as a leading business hub, has also established itself as a neutral venue for dispute resolution. The specialised institutions and their legal framework have further increased the interest of parties to choose Singapore as the seat. However, considering the risks in dispute resolution clauses in these cross-border transactions can majorly impact the costs and desired outcomes.

• Sanjay Sethiya is the Founding Partner at Law Square, Advocates & Solicitors.
• Kandukuri Lakshmi Priya is an intern at Law Square and a 4th year student, Alliance University, Bangalore.