International Business Review


Arbitrating an Industry
The World of Dispute Resolution for SMEs

09 December 2015

In the fine print of any contract these days, we can often find clauses that require companies to settle their disputes in out-of-court proceedings known as arbitrations. The most commonly used method of alternative dispute resolution, it has made multinational corporations infamous for being an exclusive channel that only the wealthiest can afford the long, drawn out costs of paying for individual, specialised arbitrators all while maintaining their privacy from the press and having hearings be scheduled around the availabilities of the corporate leaders involved. 

According to a recent survey by consumer watchdog group Public Citizen, the cost of initiating arbitration is significantly higher than the cost of filing a lawsuit, US$6,650 to US$11,625 to initiate a claim to arbitrate a consumer claim worth US$80,000 versus US$221 to file that action in a particular county court. Yet this is just the tip of the iceberg, with the fees for the panel of arbitrators and administrative costs skyrocketing, the process of arbitration becomes exclusionary with other companies like SMEs that are unable to settle their disputes through the same speedy, private procedures. 

The Arbitration Process

But the times in Malaysia are changing, and SMEs can look to the future of Malaysia as a primary dispute resolution centre for small- and medium-sized disputes. With the rise of many SMEs incorporating arbitration clauses in their domestic and international agreements, dispute resolution centres need to recognise that these companies have very different needs when it comes to the arbitration process. They require these procedures to be more affordable because these corporations are unable to cushion the blow from having to pay over US$100,000 for claims alone. And while arbitration courts have been praised for faster litigation and more flexible court hearings, these disputes tend to go on for months and years at a time because corporations can keep scheduling hearings around their own schedules, removing the pressure to finish this dispute as quickly and efficiently as possible. This is time that young, growing businesses do not have and more resolution centres are beginning to realise this, tailoring their approach to making it more convenient for SMEs. 

There are also more insidious factors that work against smaller companies when faced with the problem of having to resolve their disputes through an arbitration with a much larger multinational corporation. There's the thought of an uneven playing field where larger businesses can manipulate arbitration clauses to work in their favour when they choose more experienced arbitrators who can work to their gain. This process often goes unchallenged by an employee who has less power and control during the proceedings as well as having shallower pockets to dig into. This begs the question of whether these arbitrators can be objective. Usually the lawyer is chosen by an agency from a pool list and the favourites of this pool get assigned more cases. Many of these national arbitration groups that lack neutrality actively market their services to companies that issue credit cards or sell goods to consumers, where arbitrators can clearly become more biased in favour of the group that appoints them. Even the privacy that corporations are accorded during arbitration hearings can translate to a lack of transparency because these decisions are not public-accessible and more likely to make the process more tainted, especially because arbitration decisions are so infrequently viewed in court. Every problem faced during an arbitration process is multiplied tenfold when smaller and more powerless SMEs don't have the means to defend themselves or go through more court proceedings to settle disputes previously perceived as tainted. 

Making Arbitration Easier

Recognising all the problems that plague SMEs during the arbitration process, Malaysia has created a solution that caters to the growing demands of the global business community by looking out for their smaller enterprises, ensuring that a fair settlement for all businesses is a right, not a privilege. The Kuala Lumpur Regional Centre for Arbitration (KLRCA) has become the first regional centre established by the Asian-African Legal Consultative Organisation (AALCO) to provide support as a neutral and independent venue for conducting domestic and international proceedings in Asia. The non-profit, non-governmental and independant international body was also the first centre in the world to adopt the UNCITRAL Rules for Arbitration, rules that govern all aspects of the arbitration process in order to help resolve disputes. These Rules provide a model arbitration clause for contracts, set procedures for arbitrators, procedures for the conduct of proceedings and requirements about the form, effect and interpretation of an arbitration award.

KLRCA’s i-Arbitration Rules, for example, were created for the arbitration of disputes arising from commercial transaction premised on Islamic principles, covering all aspects of their regular arbitral process while incorporating reference procedures to a Shariah Advisory Council or Shariah expert whenever the tribunal relates to any of their principles. 

These solutions that are specifically customised to SMEs and smaller businesses include fees that are fixed with a structure 20% less than other arbitral institutions, a panel of over 700 experienced domestic and international arbitrators and the speed at which awards are given, within three months from date of final submission. Even the appointment of the arbitrator is made within 48 hours of receipt of all necessary documents. Possibly one of the best things about this to an SME businessperson is how arbitrations usually cost less than court cases because the hearings are briefer and the preparation work less demanding compared to litigation. 

The promise of improved systems of arbitration is a boon for the SMEs of Malaysia. Not only will they be delivered the option of a more just hearing, but companies with less power and control will be seen as equal under the eyes of the law. This prospect is so inherently important to small and growing enterprises because of its time efficiency and minimisation of cost. Revolutionising the world of arbitration and dispute resolution among companies offers a better future to new businesses who can now enter the corporate world without fear of losing out to bigger businesses or having to forego work in order to continue the lengthy and drawn out court proceedings of today.  

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