Christopher Bloch, Associate Counsel, SIAC; Akanksha Bhagat, Associate Counsel, SIAC

With 2016 being significant for arbitration in Singapore, 2017 is already shaping up to be another important year following the passing of the Civil Law (Amendment) Bill 2016 by the Singapore Parliament on 10 January 2017. Having come into force from 1 March 2017, the new legislation liberalizes the city-state’s legal regime by creating a framework to allow for third-party funding in certain areas of dispute resolution, including international arbitration and mediation.

The Rise of Third-Party Funding Across the Asia-Pacific Region

It is not news that jurisdictions in the Asia-Pacific region have begun supporting the use of third-party funding arrangements. In fact, the development of a third-party funding market in Australia has been ongoing for the last 25 years, and the discussions in Singapore and Hong Kong have been taking place for several years now. However, such arrangements have remained historically unenforceable due to the common law torts of champerty and maintenance, which make a person sharing in the proceeds of a lawsuit or supporting/promoting another’s suit for their personal gain punishable, respectively.

The benefits that third-party funding brings to businesses across the globe are fairly uniform, ranging from allowing impecunious parties and small-to-medium-sized businesses with limited funds and/or legal “war chests” better access to justice to permitting larger businesses to free up their balance sheets and shift the sometimes burdensome costs and risks associated with dispute resolution. Despite these benefits, however, third-party funding arrangements have been unavailable across much of Asia.

Consequently, with third-party funding only just being introduced in these jurisdictions, there is a need to determine the manner in and degree to which it will be regulated, which is as yet unclear. The issues commonly associated with and debated in relation to third-party funding will be issues in Asia as well (for example, conflict of interest, disclosure and confidentiality), and it remains to be seen how local legislation and regulation will attempt to deal with them.

Additionally, third-party funding in Singapore is only being extended to international mediation and arbitration, with funding remaining unavailable in the domestic litigation context (although as noted by the Singapore High Court in 2015 in Re Vanguard Energy Pte Ltd [2015] SGHC 156, litigation funding may be available in certain insolvency cases, under the appropriate circumstances) and a clear prohibition on legal advisors having any economic interest in the third-party funding. It is therefore narrower than the offering in certain other jurisdictions, such as Australia, where third party funders are even being permitted to invest in law firms.

The Ever-Evolving Singapore

It has become trite commentary that Singapore has emerged as a preeminent global seat for international arbitration. With high trade flows both into and out of Asia leading to an increase in the number and complexity of cross-border commercial disputes, Singapore’s excellent infrastructure and geographical connectivity have made it a global “hub of trade” and center for arbitration.

Combined with a judiciary that provides maximum support and minimal intervention in arbitral proceedings and world-renowned hearing facilities at Maxwell Chambers, Singapore has committed to staying at the leading edge of international arbitration. To carry on this commitment, and recognizing that third-party funding arrangements have become more prevalent in the international arbitration arena, the Singapore Ministry of Law submitted the Civil Law (Amendment) Bill 2016 to the Parliament, following a period of public consultation, for its first reading in November 2016.

The proposed bill sought to:

  1. abolish the common law torts of champerty and maintenance in Singapore;
  2. provide that third-party funding arrangements are no longer against public policy in certain prescribed categories of proceedings (to be defined in subsidiary legislation following enactment);
  3. specify that third-party funding may only be provided by entities that meet certain criteria set out in subsidiary legislation; and
  4. make a related amendment to Singapore’s Legal Profession Act to clarify that lawyers may introduce or refer funders to their clients, so long as they do not receive any direct financial benefit from such introduction or referral, and can act for their clients in relation to third-party funding contracts.

On 10 January 2017, the Singapore Parliament conducted a second reading of the bill and passed the Civil Law (Amendment) Bill 38/2016 which becomes enforceable upon publication in Singapore’s Government Gazette. While this is a major step in the advance of Singapore as a leading hub of international dispute resolution, the community will continue to watch for the Ministry of Law to release the regulations necessary to fully flesh out the third-party funding framework. As specified in the law:

The Minister [of Law] may make regulations necessary or convenient to be prescribed for carrying out or giving effect to this section, including –

  • prescribing the qualifications and other requirements that a Third-Party Funder must satisfy or comply with to be a qualifying Third-Party Funder;
  • prescribing the class or classes or description of dispute resolution proceedings to which this section applies; and
  • governing the provision and manner of third-party funding including the requirements that the Third-Party Funder and the funded party must comply with.

 

Moving forward, readers should watch as Singapore begins to release the subsidiary legislation and regulations envisaged by the initial law, to give a shape to the developing framework. As Singapore’s Senior Minister of State for Law, Indranee Rajah SC, stated during her speech before the Singapore Parliament on 10 January 2017: “[t]he Ministry of Law is working with arbitration institutions and practitioners to initiate the production of such ‘soft laws’”. Once crafted, these regulations and “soft laws will help to shape how funding works in practice in the jurisdiction.

What It Could Mean for Arbitration in the Region

As Singapore moves forward in shaping its framework to deal with third-party funding, Hong Kong is also on the path to amending its laws to allow for third-party funding arrangements. With these two centers of arbitration taking this step, the region is set to further benefit from the opening of the industry as the volume of work is expected to increase.

Since the appetite for third-party funding has grown in Southeast Asia, it would not be surprising if more jurisdictions were to follow suit by liberalizing their legal regimes to allow for third-party funding arrangements. This is especially true for those jurisdictions keen to develop themselves as centers of dispute resolution. As this trend continues, it would seem inevitable that there will be a visibly wider appetite for funding throughout the Asian region.

Further, as investment arbitration has continued its steady rise around the globe and with the advent of third-party funding in the jurisdiction, Singapore has now become well-positioned to attract investor-state disputes. Without the availability of third-party funding, the reality is that some investors (and even certain States) would be unable to bring (or defend, as the case may be) treaty claims.

The quantum of arbitration work that the region will see is likely to increase both as a result of the increased access to justice that permitting third-party funding will allow for, and the fact that the competitiveness of Singapore and Hong Kong as arbitral seats will continue its upward trajectory as a result of these amendments. Drawing on Australia’s experience introducing third-party funding (where related regulation and legislation were varied and amended for almost three years between 2009 and 2012), it is likely that the legal regime in both Singapore and Hong Kong will similarly undergo a period of fine-tuning in their respective regulatory frameworks based on actual use and experience of third-party funding in each jurisdiction. Practitioners should aim to keep abreast of the developments to ensure they are up-to-date on how their clients can best utilize the tools available in the region.

 

(Post updated on 10 March 2017)

The Third-Party Funding Framework: The Ever-Evolving Singapore

Leave a Reply

Your email address will not be published. Required fields are marked *