Practical Steps to Resolve Shareholder Disputes Without Going to Court

The average man’s perception of the courtroom is an austere room where the judge presides over the case from above, with lawyers using every advantage possible to trap opposing parties and witnesses to persuade the judge to rule in their client’s favour. Occasionally there is an emotional outburst or plot twist which shocks the public sitting in the gallery. But at the end of the day, justice is served and the winner walks away happy with the outcome (unless his lawyers deliver a large bill for their services the next day).

Most people expect to be able to take a back seat in the litigation by hiring a lawyer. While this might be true in the early stages, inevitably the litigation lawyer will have to go back to their client to get new instructions and clarify new issues that arise in the course of court proceedings. Further, the parties involved will have to take the stand and subject themselves to aggressive questions or awkward silence during cross-examination. In Singapore, shareholder dispute litigation tends to take a few years to resolve, with legal costs easily exceeding $100,000 – and even if you win, the court’s costs orders may not result in a full reimbursement.

The main takeaway of this article should be that if you would like to avoid unwanted publicity and scrutiny as a result of going through trial in open court, you should consider other ways of resolving disputes with your fellow shareholders. In this article, we highlight 3 common alternatives and why we usually recommend a particular method.

Private Negotiation

This method is common when parties or their lawyers try to conserve their resources and attempt to resolve matters privately. By meeting at the premises of one party or on neutral ground, parties try to focus on the commercial aspects of their relationship rather than the finer legal points, and if the discussion pans out, parties can sign a settlement agreement and move on to more productive endeavours.

Typically, this requires 2 key elements: lawyers who are trained to negotiate and able to put aside their litigation instincts, and clients who are still willing to face and talk with each other. Otherwise, the whole private negotiation may end up in a stalemate as the lawyers butt heads over their clients’ respective positions, and the parties keep talking at or past each other.

Arbitration

Arbitration is also an adversarial process where parties take positions, try to prove it and the arbitrator rules in favour of one side. The advantage of arbitration is that the proceedings are confidential and can even be screened off in court documents. However, parties may pay higher fees depending on the administering institution and the applicable rules, and sometimes arbitration can grind to a halt due to restraining court orders

Small and medium enterprises tend to want to avoid arbitration once they find out or have experienced the higher cost. Unless there is a clear cross-border element to the relationship and parties want to avoid submitting the dispute to particular courts, or they want to avoid negative publicity, arbitration is usually not the ideal dispute resolution method.

Mediation

The key element in mediation is the presence of a neutral facilitator, who provides a safe space for parties to talk about underlying concerns and helps them to communicate proposals to each other. The mediator also functions as a reality check for parties who see continuing court proceedings as their better alternative. While having legal experience is an important advantage, sometimes the mediator can be someone who has the necessary industrial knowledge or experience to help parties understand whethr their positions are realistic.

In our experience, mediation is suitable for situations where parties have both a commercial and personal relationship, but that relationship has broken down to the extent that they are no longer able to communicate effectively with each other. While mediation costs more than private settlement efforts due to mediator appointment and venue booking costs, such costs are still a small fraction of the total outlay required to complete litigation or arbitration, and the entire process can be completed within a few months if parties are able to find an earlier commonly available date.

Of course, while it is possible to get shareholders to try these alternative dispute resolution methods after the dispute has arisen, it is much easier to divert them away from litigation if there is a prior agreement on the primary method. This also avoids a peripheral dispute on whether a party can be forced to spend time out of court. 

This is a collaboration article with VanillaLaw LLC.

For more information on structuring your dispute resolution methods, please reach out to Boon Gan of VanillaLaw LLC at [email protected] or via WhatsApp at (+65) 8620 8629.