A dispute resolution clause decides where and how a contract dispute will be resolved before anyone has a dispute. For most Singapore SMEs the realistic choices are the Singapore courts, arbitration, or a staged “multi-tier” clause that requires negotiation and mediation before either. Courts suit local counterparties and smaller claims. Arbitration suits overseas counterparties because awards are enforceable in many countries. A mediate-first clause suits long relationships. Whichever you pick, the wording must be clear, workable and consistent across all your contract documents, or the clause itself becomes the first thing you fight about.
Why should an SME care about the dispute clause?
If a contract says nothing, a dispute will normally end up in court, and if the parties are in different countries there may first be an argument about which country’s courts. A clear clause avoids that argument. It also fixes in advance matters that affect cost and leverage: whether proceedings are public or private, whether there is a right of appeal, whether a judgment or award can be enforced where the other side has assets, and whether the parties must try to settle first.
The clause is usually read last and negotiated least. It is worth five minutes at the drafting stage because it is very hard to change once a dispute has started and the other side sees an advantage in the existing wording.
What are the main options?
| Option | How it works | Best suited to | Watch out for |
|---|---|---|---|
| Singapore courts | Claims are filed in the State Courts or the High Court under the Rules of Court 2021. The Magistrate’s Court hears claims up to S$60,000, the District Court up to S$250,000, and larger claims go to the General Division of the High Court. | Local counterparties, debt recovery, smaller claims | Hearings are generally public; a Singapore judgment may be harder to enforce overseas |
| Arbitration | A private tribunal decides the dispute and issues a binding award. Domestic arbitrations are governed by the Arbitration Act 2001 and international ones by the International Arbitration Act 1994. | Overseas counterparties, technical disputes, confidentiality | Very limited appeal; tribunal and institution fees are paid by the parties |
| Mediation | A neutral mediator helps the parties negotiate. Nothing is binding unless they sign a settlement. | Ongoing relationships, a first step before court or arbitration | Needs a fallback forum if mediation fails |
| Multi-tier clause | Negotiation, then mediation, then court or arbitration, in a fixed order | Long-term supply, service and joint venture contracts | Steps must be clear and time-limited or they cause delay and jurisdiction arguments |
For a detailed comparison of arbitration and litigation, including institutional procedures and cost, read our guide to arbitration vs litigation in Singapore. This article focuses on how to choose and word the clause itself.
How do you choose the right forum for a particular contract?
Start with three practical questions.
- Where are the other side’s assets? If a customer only has assets in Singapore, a Singapore court judgment can be enforced here directly. If its assets are overseas, an arbitral award is usually easier to enforce, because Singapore and most trading nations are parties to the New York Convention on the recognition and enforcement of foreign arbitral awards.
- How large are likely claims? For an unpaid invoice of a few thousand dollars, court, and in particular the simplified process for lower-value claims, will usually be cheaper than arbitration, where the parties pay the tribunal and institution.
- Does the relationship matter after the dispute? For a key supplier or a distributor, a mediation step can preserve the relationship and is often where commercial disputes actually settle.
Choosing the forum is separate from choosing the governing law. A contract can be governed by Singapore law and still provide for arbitration, or for the exclusive jurisdiction of the Singapore courts. Our article on governing law and jurisdiction clauses covers that choice and the difference between exclusive and non-exclusive jurisdiction.
How do you draft a multi-tier (negotiate, mediate, then decide) clause?
A multi-tier clause sets a ladder of steps. Singapore courts will enforce pre-conditions of this kind if they are clear and mandatory. In International Research Corp PLC v Lufthansa Systems Asia Pacific Pte Ltd [2013] SGCA 55, the Court of Appeal treated a multi-tiered clause as setting out mandatory steps that had to be followed before arbitration could be commenced. That cuts both ways: a well-drafted ladder will be enforced, and a party that skips a step may find its claim delayed or challenged.
A workable ladder usually covers:
- Trigger: a written notice of dispute, describing the issue, sent to a named role or address.
- Negotiation: a meeting of senior representatives with authority to settle, within a fixed number of days.
- Mediation: if not settled within a fixed period, mediation under a named institution’s rules, for example the Singapore International Mediation Centre (SIMC) or the Singapore Mediation Centre, with a deadline to appoint the mediator.
- End point: a clear statement that if the dispute is not settled within a fixed number of days after the mediation request, either party may start arbitration or court proceedings.
- Carve-out: a right to seek urgent interim relief, such as an injunction, at any time without completing the earlier steps.
Avoid vague wording such as “the parties shall try to resolve disputes amicably” without any procedure or time limit. It is difficult to tell when the step is complete, which gives a reluctant party room to argue that proceedings were started too early. Also remember that negotiation and mediation do not by themselves stop limitation periods running. If a claim is close to its time limit, a written standstill agreement or protective proceedings may be needed.
Even without a mediation clause, parties to Singapore court proceedings have a duty under the Rules of Court 2021 to consider amicable resolution before and during proceedings, as explained in our article on mediation before litigation.
What happens to a settlement reached at mediation?
A mediated settlement is a contract. If one side does not honour it, the other generally has to sue on it. Singapore law offers two shortcuts. Under section 12 of the Mediation Act 2017, a settlement from a qualifying mediation can, on application, be recorded as an order of court and enforced as one, subject to the conditions in that section, including a time limit for applying. For international commercial settlements, the Singapore Convention on Mediation Act 2020 gives effect to the Singapore Convention on Mediation and allows qualifying settlement agreements to be recorded as High Court orders. Your clause can say that any settlement must be in writing and signed by authorised representatives, which makes later enforcement simpler.
What must an arbitration clause contain?
If you choose arbitration, the clause should state at least:
- Scope: broad wording such as disputes “arising out of or in connection with” the contract, including questions about its existence, validity or termination.
- Seat: the legal place of arbitration, for example Singapore. The seat decides which courts supervise the arbitration and which arbitration statute applies.
- Institution and rules: for example arbitration administered by the Singapore International Arbitration Centre (SIAC) under its rules in force when the arbitration starts. Using an institution’s published model clause, adapted with your lawyer, reduces the risk of defects.
- Number of arbitrators: one is usually more economical for SME disputes; three may suit larger contracts.
- Language of the arbitration.
- Governing law of the contract, stated separately.
Whether the Arbitration Act 2001 or the International Arbitration Act 1994 applies turns largely on whether the arbitration is “international”. Under section 5 of the International Arbitration Act 1994, the international regime does not apply to a non-international arbitration unless the parties agree in writing that it should. Two Singapore companies contracting for performance in Singapore will usually fall under the Arbitration Act 2001 unless they opt in. The two regimes differ in some respects, such as the extent of court involvement, so this choice is worth discussing with your lawyer.
What is a “pathological” clause, and how do you avoid one?
A pathological clause is one with defects that disrupt the dispute process. Singapore courts try to give effect to a clear intention to arbitrate. In Insigma Technology Co Ltd v Alstom Technology Ltd [2009] SGCA 24, the Court of Appeal upheld a clause that combined one institution with another institution’s rules. But rescuing a defective clause takes time and legal fees that a small company would rather not spend. Common defects include:
- Naming an institution that does not exist, or naming it wrongly.
- Saying disputes “may” go to arbitration without making clear whether either party can insist on it.
- Providing for both arbitration and exclusive court jurisdiction without explaining how they fit together.
- Different dispute clauses in the master agreement, purchase orders and standard terms. Our article on a supplier’s later contract note that adds arbitration explains how this happens in practice.
- Naming a specific individual as the only arbitrator, who may be unavailable when a dispute arises.
- Escalation steps with no time limits or no clear end point.
How do costs and confidentiality differ?
In both court and arbitration the losing party is commonly ordered to pay part of the winner’s costs, but rarely all of them. In arbitration the parties also pay the arbitrators and any institution. Court hearings and judgments are generally public, while arbitration is generally private and the parties can add an express confidentiality obligation. If confidentiality matters, for example because pricing or trade secrets may be disclosed, say so expressly in the clause rather than relying on the general position.
What if the other side sues in court despite an arbitration clause?
A party to a valid arbitration agreement can usually apply to the court to stay the court proceedings in favour of arbitration, but it must act promptly and must not take steps in the court action that suggest it accepts the court’s jurisdiction. Our guide to a stay of court proceedings in favour of arbitration explains the timing.
A drafting checklist
- Decide the forum for each contract type by reference to where counterparties are, typical claim size and the relationship.
- State the governing law separately from the forum.
- If using a multi-tier clause, fix the trigger notice, each step, each time limit and the end point.
- Preserve the right to seek urgent interim relief at any time.
- For arbitration, state the seat, institution and rules, number of arbitrators and language.
- Add an express confidentiality term if it matters.
- Use the same clause, word for word, in the master agreement, standard terms and order forms, and state which document prevails.
- Have the final wording reviewed by a lawyer, especially for international contracts.
Example
Example: A Singapore food manufacturer supplies a distributor in Malaysia under a three-year agreement and buys packaging from a Singapore supplier on standard terms. For the distribution agreement, it chooses Singapore law, senior management negotiation for 21 days, mediation, and then SIAC arbitration seated in Singapore with a sole arbitrator, because any award may need to be enforced in Malaysia. For the packaging contract, where both parties are in Singapore and claims are likely to be small, it keeps Singapore law and the exclusive jurisdiction of the Singapore courts. It then checks that its purchase order template does not contain a different clause that might override either choice.
Frequently asked questions
Is arbitration always better than going to court?
No. For small local disputes the courts are usually cheaper and the procedure for lower-value claims is designed to be proportionate. Arbitration earns its cost mainly where enforcement overseas, confidentiality or specialist decision-makers matter.
Can we agree a dispute clause after the dispute has started?
Yes, if both parties agree in writing. In practice it is harder to agree once each side has a view on which forum favours it.
Is a mediation clause legally binding?
A clear and mandatory mediation step can be enforced as a pre-condition to proceedings. The mediator, however, cannot impose a result; only a signed settlement binds the parties.
Do we need a lawyer to write the clause?
For standard domestic contracts many businesses adapt an institution’s model clause. For international contracts, joint ventures or high-value deals, have a lawyer review the clause together with the governing law and limitation of liability terms.
Can a Singapore judgment be enforced overseas?
Sometimes, depending on the country and any reciprocal arrangements. Enforcement of foreign arbitral awards is generally more predictable because of the New York Convention, which is one reason businesses dealing across borders choose arbitration.
Need help with a dispute resolution clause?
If your company, or you as a director or shareholder, is dealing with choosing or relying on a dispute resolution clause, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will help you understand the documents and deadlines. Where your matter needs a lawyer, we will refer you to a firm on our panel of Singapore law firms that regularly handles commercial contracts and dispute resolution. Raffles Corporate Services is a corporate services provider, not a law firm, and this article is general information, not legal advice.
The Raffles Corporate Services Editorial Team, Raffles Corporate Services