In fewer than 20 years Singapore has transformed from a fledgling arbitration jurisdiction into a world-class trailblazer. Freshfields' Lucy Reed, Mark Mangan and Darius Chan explore the secrets of its success

The rise of Singapore as a global centre for international arbitration is now beyond dispute. It has modern arbitration laws, state-of-the-art facilities, a supportive government and judiciary, a world-class centre for the administration of international arbitration, and a burgeoning case-load to match its impressive arbitration infrastructure.

Singapore was recently named the most popular Asian seat for international arbitration ahead of its more established northern neighbours.

In less than two decades Singapore has gone from a fledgling jurisdiction to a regional – and some would say international – pace setter, with other places for arbitration seeking to decipher and emulate its formula for success. We have identified below a number of factors that explain Singapore's meteoric rise.

Growth in regional trade and investment

The rapid growth in the economic power of China is well known. In 1990, the US accounted for a quarter of the world's gross domestic product (GDP), whereas China was responsible for just 4%. Today, America's share is less than 20%, while China's has expanded to 15%.

China is not the only regional economic heavyweight. According to The Economist, five of the top 10 contributors to world economic growth since 2002 have come from Asia. In addition to China, the economies of India, Japan, Indonesia and South Korea have all grown significantly in recent years. And Australia has had 21 years of uninterrupted economic growth.

The 10 countries that make up the Association of Southeast Asian Nations (ASEAN) now have a combined population of more than 600 million and an aggregate economy worth some US$1.8trn (£1.1trn), and continue to grow at a rate of 6% per year notwithstanding the global downturn.

Singapore itself punches well above its weight for a city-state of only 5.3 million people. Its economy expanded by an astonishing 14.8% in 2010. It has the highest GDP per capita of anywhere in the world.

And with the rise in regional trade and investment has come an increase in Asia-related cross-border commercial disputes. Given the complexity of resolving such disputes in national courts, and the perception that domestic courts may not give a fair hearing to foreign investors, a large proportion of such disputes are resolved by international arbitration. Singapore and Hong Kong have emerged as the clear regional front runners as venues for such arbitrations.

Common law heritage

As a former British colony that gained independence in 1965, Singapore inherited a common law legal system. Singapore law therefore bears all the hallmarks of the English common law familiar to companies (and their lawyers) operating in the international sphere.

Not only are Singaporean legal principles relating to commercial dealings predictable and consistent with those found in other common law jurisdictions, they are expressed in a language that is widely understood.

While Malay is the official national language, the main medium of instruction in Singaporean schools has been English since 1987. The resulting high level of English literacy, coupled with all legislation and case law being written in English, facilitates the conduct of business generally and international arbitrations in particular.
 
Neutrality and transparency

Singapore has a reputation for neutrality. Located just above the equator, it straddles the northern and southern hemispheres and links the East to the West.

It is, however, beholden to no one country. Commercial parties are therefore right to expect that the Singaporean Government and judiciary will not allow geo-political concerns to affect the resolution of international commercial disputes within its borders.

Singapore also scores well in transparency surveys. Transparency International's Corruption Perceptions Index 2011 ranks it the least corrupt country in Asia and the fifth least corrupt in the world. Justice cannot be bought in Singapore.

Government support

The Singapore Government was one of the first to recognise that arbitration was good for business; not just individual businesses, but the economy as a whole. By some estimates it is a billion-dollar industry.

The government initially adopted an arbitration framework based on generally accepted standards, including the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the UNCITRAL Model Law om International Commercial Arbitration. With that as the starting point, the government has since shown a willingness to adapt its arbitration laws to the evolving needs of the business community (at a rate much faster than its peers).

In 2009, for example, in response to court rulings that the existing legislation did not permit the granting of interim relief in aid of foreign arbitrations, the Singapore legislature introduced amendments to the International Arbitration Act which expressly granted the Singapore High Court such powers.

Legislative amendments were made this year to support the emergency arbitrator procedure that has featured in the latest rules of several leading arbitral institutions.

Further, the government realised that an inward-looking local arbitral institution was inconsistent with its goal of transforming Singapore into a global centre for arbitration.

So in 2008 the government took steps to internationalise the Singapore International Arbitration Centre (SIAC).

Australia's professor Michael Pryles was recruited to chair the SIAC board of directors. Of the 12 members of the current board, 10 are from outside Singapore.

Therefore, the local view, while important, represents only a minority on the SIAC board. SIAC also boasts a multi-national full-time secretariat with separate counsel dedicated to China and India, as well as a multi-national council of advisors.

In addition, the government introduced tax incentives in 2007 to encourage law firms to hold arbitration hearings in Singapore. Law practices enjoy a 50% tax exemption for up to five years on their qualifying income exceeding a base amount for international arbitration cases with hearings in Singapore. 

The government also relaxed its regulations on foreign lawyers. Since 2004, foreign lawyers have been able to participate in Singapore arbitration proceedings, including in cases involving Singapore law. In 2007, this was expanded to allow the participation of foreign law firms whenever arbitration proceedings were contemplated.

In 2010, the government financed the transformation of a former colonial government building into Maxwell Chambers, the world's first fully integrated international arbitration complex.

Maxwell Chambers houses state-of-the-art hearing facilities and break-out rooms, offices for arbitrators and arbitration counsel, and branch offices of many of the world's leading arbitral institutions. 

It is also the home of SIAC. All the services needed for an arbitration are effectively under one roof.

The government recently announced its intention to create a centre of excellence for the teaching of international arbitration. The Singapore International Arbitration Academy will open its doors to practitioner students on 26 November 2012.
 
Judicial support

The Singapore judiciary does not appear to view arbitration as an existential threat, as is perceived to be the case in some jurisdictions. On the contrary, Singaporean judges have earned a reputation for being pro-arbitration.

That has been helped by the government's decision to appoint specific judges to hear arbitration-related cases, therefore developing a depth of experience in those charged with supervising arbitrations in Singapore.

The new Chief Justice of Singapore, Sundaresh Menon, is a former international arbitration practitioner, and has demonstrated a keen awareness of the needs of the international arbitration community.

The judiciary's pro-arbitration attitude was demonstrated in the 2009 case of Insigma Technology Co Ltd v Alstom Technology Ltd. There, the Singapore Court of Appeal enforced an arbitration agreement – which in some jurisdictions might have been considered to be pathological – which required one arbitral institution (SIAC) to administer an arbitration governed by the rules of another (the ICC).

Institutional support

Recognising the unique qualities that make Singapore well-suited for international arbitration, major international arbitral institutions have flocked to its shores.

They include the ICC, the International Centre for Dispute Resolution (ICDR), the International Centre for the Settlement of Investment Disputes (ICSID), the Permanent Court of Arbitration (PCA), the London Court of International Arbitration (LCIA), the World Intellectual Property Organisation (WIPO), and the Chartered Institute of Arbitrators. These institutions have all set up camp at Maxwell Chambers.

Ease of doing business

Finally, Singapore is well-connected. Singapore's Changi Airport is a major transport hub, with 96 airlines flying to 205 cities around the world. Singapore is easily accessible from most parts of Asia.

Singapore is also technologically well-advanced. The World Economic Forum Global Information Technology Reports have for the past three years ranked Singapore second behind only Sweden in implementing modern communications technology. There is also minimal red tape, with the country ranking first in the 2011 World Bank's

Ease of Doing Business Index. Singapore is also stable and secure, with one of the lowest crime rates in the world. It is generally considered to be politically stable. The country also has low taxes, with corporate tax at 17%, a maximum income tax rate of 20% and no capital gains tax.

These factors not only bode well for Singapore as a place for resolving international disputes, they have led to an increasing number of companies, particularly in energy and finance, setting up operations in Singapore. Those companies, in turn, are pushing for Singapore to be the agreed place of arbitration in their contracts.

The only way is up

The users of international arbitration have responded to the Singaporean Government's efforts. A 2008 ICC report ranked Singapore the top city in Asia for ICC arbitrations and one of the five most popular venues worldwide.

A 2010 survey by the School of International Arbitration at Queen Mary, University of London placed Singapore as the most popular Asian seat for arbitration.

Its popularity is confirmed by statistics. Between 2000 and 2011, the caseload of SIAC more than doubled from 58 to 188 new cases filed each year. In the first quarter of 2012, 118 new cases were filed with SIAC compared to 59 in the same period last year.

The amounts in dispute are also rising. The value of new claims referred to SIAC in the first quarter of 2012 has already exceeded the value of all claims in 2011.

Indian takeaway

India is a particularly strong growth market for Singapore arbitration, with China and Indonesia not far behind. Indeed, India is now the largest source of new foreign filings at SIAC.

That is expected to continue with purely domestic disputes between Indian companies now being arbitrated in Singapore rather than in India, where there is greater scope for court interference and resulting delays and costs.

With excellent arbitration infrastructure in place, and with word of its virtues spreading to new territories, there is every reason to expect the number of international disputes being resolved in Singapore will continue to grow.

Lucy Reed (pictured, top) is a partner, Mark Mangan (pictured, middle) is a senior associate and Darius Chan (pictured, bottom) is an associate at Freshfields Bruckhaus Deringer.