Resolving Fintech Disputes through ADR

Contributed by Vincent Kor & Chiara Accornero

The accelerating adoption and deployment of technologies like cloud computing, data analytics and machine learning are rapidly transforming the finance industry. Financial technology (fintech) is generating numerous opportunities for young tech startups and established industry stalwarts to offer innovative services in various areas such as retail investment, general insurance, digital payments and fund transfers.

As an international finance hub, Singapore continues to be amongst the top three destinations for fintech investments within the Asia-Pacific. It was recently reported that fintech investments in Singapore crossed S$1 billion during the first nine months of 2019 – a 69% increase from the same period in 2018.

With over 600 startups operating here, Singapore’s expanding fintech sector is also expected to create an additional 1000 jobs per year. However, such hyper-growth coupled with the increasing sophistication of the underlying transactions, the number and diversity of parties involved, also increases the possibilities for disputes to arise.

Some possible areas for fintech disputes include data usage, intellectual property (IP) ownership, technology licensing, self-executing or smart contracts. Parties to such disputes may be based in multiple jurisdictions and may include financial institutions like banks, credit card issuers, insurance companies as well as technology service operators such as digital platform and software providers.

The subject matter involved in fintech disputes may often be specific, which makes legal and technical expertise essential for resolving such disputes. The issues in fintech disputes also tend to involve commercially valuable information and trade secrets.

In addition, given the relatively compressed lifecycles of fintech products, avoiding costly and lengthy public litigation is of prime interest for disputing parties. These considerations are leading many fintech investors towards a strategy of using alternative dispute resolution (ADR) mechanisms as a means of resolving disputes and safeguarding the value of their business relationships as well as financial investments.

Advantages of mediation and arbitration

Mediation and arbitration are the two principal forms of ADR. Mediation is an informal process where parties request the mediator to assist them to settle their dispute. The mediator facilitates the settlement process by helping the parties to identify their interests, narrow the issues and work towards a negotiated agreement to resolve the dispute. In contrast to mediation, arbitration is a more formal process where parties submit their dispute to one or more arbitrators who would render an arbitral award final and binding on the parties.

Mediation and arbitration have certain features which, if well managed, can result in significant cost and time savings, making them a more affordable and accessible avenue for resolving fintech disputes. These advantages include:

• Single procedure: mediation and arbitration allow parties to resolve in a single forum, thereby avoiding the expense and complexity of multi-jurisdictional litigation, as well as the risk of inconsistent results.

• Party autonomy: unlike court-based litigation, the private nature of mediation and arbitration allows parties to exercise greater control over the dispute resolution process and outcome. Parties can select the most suitable mediator or arbitrator, place and language of the proceedings to resolve their disputes.

• Time and cost: mediation and arbitration allow parties to save significant costs that the parties would otherwise incur in multi-jurisdictional court proceedings. Mediation and arbitration also provide for shorter timelines which parties can further adapt.

• Expertise: in mediation and arbitration, parties can select their mediator or arbitrator, and thus can choose a mediator or arbitrator with expertise and familiar with the relevant legal, technical or business area, including fintech.

• Confidentiality: except where otherwise required by law, mediation and arbitration are confidential, allowing parties to keep the proceedings and any results confidential. Confidential dispute resolution may help parties to focus on the merits of their dispute without fear of adverse publicity. This is particularly relevant where commercial reputations and sensitive information or trade secrets are involved.

• Preserving business relationships: where procedures such as mediation are used, parties are assisted to balance their interests in pursuing the dispute against the value of preserving their commercial relationship. For example, 70% of the mediations administered by the WIPO Arbitration and Mediation Center (WIPO Center) have resulted in settlement by the parties. Even in arbitration, some 40% of WIPO cases are settled by the parties before any formal decision was issued.

• Enforceability: in arbitration, arbitral awards are binding upon the parties and enforceable internationally as a consequence of the New York Convention (United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards of 1958), which provides for the recognition of arbitral awards on par with domestic court judgments and facilitates the enforcement of awards across borders in signatory states. In mediation, the Singapore Mediation Convention (aka. United Nations Convention on International Settlement Agreements Resulting from Mediation adopted by the UN in December 2018 and opened in Singapore for signature by member nations in August 2019) similarly provides for the cross-border enforcement of mediated settlement agreements amongst signatory states.

The Singapore Mediation Convention continues to boost Singapore’s reputation as a trusted international hub for commercial dispute resolution. ADR in Singapore is strongly supported by various global and reputable dispute resolution institutions such as the WIPO Center which has a regional office in Singapore since 2010. With an international panel of mediators and arbitrators with expertise in IP and technology including fintech, the WIPO Center’s mediation and arbitration rules also address specific needs in these disputes, such as provisions on confidentiality and technical evidence. In recent years, the WIPO Center has handled a number of fintech disputes and one such dispute which was successfully resolved is described below.

A Banking Software Dispute

A bank and a technology company concluded an agreement on the provision of data processing services. It was agreed that the technology company was to be the exclusive provider for the bank’s affiliates in certain countries. The agreement provided that any dispute would be resolved under the WIPO Expedited Arbitration Rules and that the sole arbitrator will be selected from a panel of persons having IT experience.

A few years after the conclusion of their agreement, the technology company alleged that the bank had violated the agreement by using data processing services offered by other third parties in the countries covered by the agreement. When the parties failed to settle the dispute amongst themselves, WIPO expedited arbitration proceedings were commenced.

Following the filing of the request for arbitration, the parties selected an arbitrator with expertise in IT and data processing services from a list of candidates proposed by the WIPO Center. The sole arbitrator held a private two-day hearing and rendered a final award just three months after the request for arbitration was filed.

Conclusion

Fintech is transforming every segment of the finance industry and bringing new product innovations to consumers. Aside from investing effort, time and resources in growing their business models, fintech investors and operators would be well advised to consider having appropriate dispute resolution strategies in place to effectively manage and resolve disputes which may readily arise from their complex activities. With its distinctive features, ADR provides the means for the effective resolution of fintech disputes.

Vincent Kor is the General Counsel of the Government Technology Agency where he heads its Legal Division.

Chiara Accornero is the Representative of the WIPO Arbitration and Mediation Centre in Singapore.