The Preventive Approach to Contractual Risks

An important factor to consider when engaging in commercial transactions is the contractual management of these operations, particularly the prevention of disputes that might arise in conflict resolution within Southeast Asia. Not because these disputes are inevitable—since most, with a minimum of flexibility and control, usually can be avoided—but because these operations, like any other human activities, are not exempt from generating them. If to this potential risk we add another, such as the fact that these disputes sometimes must be resolved in a foreign country, then the need for prevention I just mentioned becomes even greater, especially in such sensitive matters as those related to the interpretation, execution, or fulfillment of the agreed stipulations, which are key to the success or failure of the operations in question.

Within this context, preventive law imposes the obligation to act with due diligence, care, and foresight to minimize legal problems and maximize business results. This involves not only establishing contractual structures that reduce the possibility of disputes but also resorting to alternative methods to judicial proceedings that can resolve conflicts more quickly and effectively. In the specific case of Southeast Asian countries, although their substantive and procedural laws are often inspired by those of their former colonial powers—such as the Philippines (Spain), Indonesia (Netherlands), Malaysia (Great Britain), or Vietnam (France)—ignorance of their content and uncertainty about their application by local courts can be decisive factors when opting for these alternative routes over judicial ones.

Alternative Methods of Dispute Resolution

For these reasons, the use of alternative dispute resolution methods outside the courts (ADR) is increasingly common, such as mediation, expert determination, or arbitration.

• Mediation: In this case, the parties either agree voluntarily or comply with a mediation submission clause to involve a mediator or mediation institution. This entity initiates a structured process and ensures that both parties have the necessary information and advice. Although mediation has some drawbacks, such as limited enforceability, its advantages—speed, flexibility, and party control over the resolution process—far outweigh these. This is evidenced by mediation being the most used method in the construction industry.
• Expert Determination: For this method, it is crucial that the expert has verified academic qualifications, professional experience, or technical expertise; that the parties provide all relevant information and evidence on the dispute; and that the expert’s conduct follows usual ethical standards and is as objective as possible. This procedure ends with the expert’s decision and is simpler than mediation, less formal than arbitration (with no binding rules), and generally less costly than either mediation or arbitration—unless the expert is appointed by an institution, which entails fees for both the expert and the administering institution.
• Arbitration: The most well-known and widely used method in commercial operations, especially international ones. Whether ad hoc or administered arbitration, based on law or equity, arbitration remains prevalent despite the growing use of other ADR methods. Through an arbitration clause or submission agreement, parties agree to submit disputes to one or more arbitrators (always an odd number) and commit to executing the resulting award. Except in specific cases, this generally excludes recourse to judicial proceedings, unlike mediation or expert determination.

Choosing the Most Appropriate Method

Selecting the most suitable method can determine whether a contractual dispute is resolved successfully or ends in failure. Although all share common features—speed, efficiency, flexibility, confidentiality, and cost reduction—each has its pros and cons:

• For simpler disputes aligned with their nature, mediation is most appropriate.
• For more complex disputes, expert determination or arbitration may be preferable.
• Cost-wise, mediation is usually less expensive than expert determination, which is in turn less costly than arbitration—especially international arbitration.

In international arbitration, costs can become significant due to arbitrators’ fees, administrative fees of arbitration institutions (if applicable), legal fees of parties and experts (if any), transcription services, interpreters, among others. This raises the inevitable question: who pays? The answer depends on the governing rules. For example:

• Under UNCITRAL Arbitration Rules, costs are borne by the losing party or parties.
• Under ICC Arbitration Rules, the arbitral tribunal may decide on cost allocation at its discretion based on relevant circumstances.

Southeast Asian Mediation and Arbitration Institutions

Justice administration in Southeast Asian countries generally faces challenges similar to other parts of the world—transparency, impartiality, and efficiency are often imperfect but improving. Despite this, foreign investment continues to grow due to strategic location, market size, political stability, economic growth, and attractive tax frameworks. However, investment security requires protection through international agreements or specific dispute resolution mechanisms like those mentioned above.

Hence, specialized institutions for mediation or arbitration have proliferated regionally and nationally. Some notable regional institutions include:

• Asia Mediation Centre (AMC).
• Asia International Arbitration Center (AIAC).
• Asia Pacific International Arbitration Center (APIAC).

National institutions include:

• Singapore Mediation Centre (SMC).
• Singapore International Arbitration Center (SIAC).
• Thailand Arbitration Center (THAC).
• Philippine Dispute Resolution Center (PDRC).
• Vietnam International Arbitration Center (VIAC).
• Center for Arbitration and Mediation Indonesia (PAMI).

Antonio Viñal
Lawyer
AVCO Legal (with offices in Malaysia and the Philippines)
madrid@avco.legal