Under the "frenzy" of Singapore's Web3, the "concerns" that cannot be ignored

Written by: Xiaoza Team

In the fierce global competition for Web3, Singapore is playing an increasingly important role with its active participation in Web3 technology innovation and crypto compliance processes. As early as November 2021, the Singapore FinTech Festival (SFF), themed around Web3.0, gathered global experts to discuss how Web3.0 and key technological advancements would drive the future of financial services.

In June this year, the Monetary Authority of Singapore (MAS) released the "Purpose Bound Money Technical Whitepaper," which is the first guidance document related to digital currency following the consultation documents on digital asset regulation and stablecoin development. Following a series of official policies and documents, Singapore has recently hosted numerous events related to Web3, such as the recently concluded first Metaverse and Web 3.0 Summit, Meta Era Summit, on September 12, and the ongoing Singapore Token2049 Week 2023.

Under the influence of these signals, many Web3 crypto asset projects have shifted their focus to Singapore or Hong Kong, attempting to advance the Web3 process abroad and realize their grand ambitions. In these locations, considering that the service targets of Web3 often come from all over the world (and of course, there are many domestic users), people are more inclined to choose international arbitration to handle related disputes rather than litigation. As a result, a wave of agreements incorporating arbitration clauses to address conflicts with end users has emerged, all of which have chosen international arbitration institutions in Hong Kong or Singapore as the governing bodies. Many business owners have since felt at ease, believing that despite the high costs of arbitration, its confidentiality and efficiency can often save entrepreneurs significant costs.

However, the Xiaoza team reminds everyone that even though it is all international arbitration, there are still many pitfalls that need to be understood in advance. This article will take the "Singapore International Arbitration Centre Arbitration Rules" (6th Edition, August 1, 2016) as an example to provide a brief analysis of how arbitration clauses should be written.

Invalid Contract ≠ Invalid Arbitration Clause

‍‍‍‍Due to the fact that many Web3 crypto asset projects in our country carry certain criminal legal risks, and there are indeed many cases where civil lawsuits are suspended due to suspected criminal offenses, many friends may have a cognitive misunderstanding regarding the validity of arbitration clauses in agreements, namely, that their contracts are likely to be deemed invalid due to suspected criminal activity, and if the contract is deemed invalid, then the arbitration clause will also be deemed invalid, making the choice of where to arbitrate and which law to apply inconsequential.

But in fact, there are two errors in the above understanding.

First, suspicion of a crime is not a reason for contract invalidity. Generally speaking, suspicion of a crime in our country is most likely to result in the suspension of civil litigation proceedings, but suspension does not mean a negative evaluation of the civil contract itself; that is, suspension does not equate to invalidity. It simply means that due to the existence of a criminal case, the civil litigation process needs to be postponed to prioritize the resolution of the criminal case before addressing the civil case. In fact, the reason for contract invalidity, whether in our country or abroad, fundamentally lies in the fact that key clauses in the contract involve matters prohibited by laws and regulations, which leads to the contract being deemed invalid according to relevant laws (such as the Civil Code). Therefore, suspicion of a crime is not the reason; rather, violation of relevant mandatory provisions is.

Second, contract invalidity is not related to arbitration clause invalidity. The validity of an arbitration clause is assessed independently. According to Article 28.2 of the "New Arbitration Rules," "an arbitration agreement that forms part of a contract shall be treated as a separate agreement independent of other provisions of the contract. The tribunal's determination of contract invalidity does not legally render the arbitration agreement invalid, and the tribunal shall not lose jurisdiction over the case simply because a party claims that the contract does not exist or is invalid." This means that as long as the arbitration clause itself is clearly and accurately defined, it will independently take effect regardless of the validity of the contract itself. This is the independence of the arbitration clause, which is typically adopted and recognized by the arbitration rules of other arbitration institutions as well as national laws and regulations.

In summary, as long as our arbitration clause is clearly defined, even if the contract itself has defects or is even invalid, or may be suspected of illegal activities, it will not render the arbitration clause invalid, and the parties can still initiate arbitration at the corresponding arbitration institution based on the arbitration clause.

Who Can Represent Enterprises in Arbitration?

Thus, after confirming the validity of the arbitration clause, a key question arises: who has the authority to represent enterprises in arbitration? Here, the Xiaoza team has learned that many Web3 enterprises have been misled into believing that only well-known lawyers can act as representatives in arbitration, which exacerbates their already tight financial situation. Arbitration is already expensive, and adding a high-profile lawyer only increases costs.

However, this is not the case; it is not necessary for a representative of the party to be a high-profile lawyer. According to Article 23.1 of the "New Arbitration Rules," "practicing lawyers or any other authorized persons may represent a party in arbitration. The registrar and/or the tribunal may require the party representative to submit proof of authorization from the party." Clearly, according to this provision, in addition to local practicing lawyers being able to represent parties in arbitration, as long as enterprises have provided formal authorization, anyone can represent the enterprise in the arbitration process. Of course, necessary and complete proof of authorization is essential. Therefore, it is not necessary to have a high-profile lawyer; anyone with experience in arbitration can be a suitable choice for friends.

Other Small Tips

(1) Prepare Expert Witnesses in Advance

Since our crypto asset projects often involve certain technicalities that may be difficult for arbitrators to understand, the presence of expert witnesses may be necessary. According to Article 25.1 of the "New Arbitration Rules," "before the hearing, the tribunal has the right to require the parties to notify the tribunal of the identity of the witnesses (including expert witnesses) they intend to arrange to appear, the matters on which they will testify, and their relevance to the dispute." Therefore, to address potential disputes, project parties can prepare expert witnesses in advance to prevent issues. Of course, expert witnesses also need to be prepared to testify; otherwise, if they are required to appear by the tribunal or if the opposing party requests their appearance and the tribunal agrees, failing to testify may affect the probative value of their testimony. In this regard, Article 25.4 of the "New Arbitration Rules" clearly states, "If a witness fails to appear, the tribunal may freely assess the probative value of their written testimony and may disregard or completely exclude their written testimony."

(2) Clearly Agree on the Arbitration Venue, Language, and Governing Law in Advance

For arbitration clauses, the most important aspects are the arbitration venue, arbitration language, and governing law. Clearly determining these three items in advance can significantly reduce the burden on enterprises and provide them with certain advantages during the arbitration process. Otherwise, if these are not clearly agreed upon in advance, the subsequent arbitration process may pose certain obstacles to the enterprise's participation in arbitration.

If the arbitration clause does not specify the arbitration venue, according to Articles 21.1 and 21.2 of the "New Arbitration Rules," the tribunal will have the discretion to choose the arbitration venue, which is beyond the control of the enterprise. If the arbitration clause does not specify the language to be used in the arbitration proceedings, according to Articles 22.1 and 22.2 of the "New Arbitration Rules," the language will also be determined by the tribunal. Additionally, if documents submitted by the parties are in a language other than the determined language, the registrar or tribunal has the right to require the parties to provide translations, which may increase costs to some extent. If the enterprise does not specify the governing law, according to Article 31.1 of the "New Arbitration Rules," the choice will also be left to the tribunal, which may result in the tribunal selecting a law unfavorable to one party as the governing law.

Therefore, how to set the arbitration venue, arbitration language, and governing law is also a subject worth considering.

In Conclusion

As the scale of crypto asset projects expanding abroad continues to grow, international arbitration will become the mainstream method for resolving disputes. The Xiaoza team sincerely hopes that friends in the crypto asset community will treat arbitration agreements with caution, reduce disputes, and invest more energy into building a more完善的制度体系, thereby creating a better future.