Singapore to permit third party funding of international arbitrations

Singapore is poised to become the first jurisdiction in Asia to introduce legislation permitting the use of third party funding in support of international arbitrations and related proceedings.‎ This follows the passing of the Civil Law (Amendment) Bill by the Singapore Parliament on 10 January 2017. 

In this OnPoint briefing, we explain what third party funding is and how it can soon be utilised to reduce the risks and costs involved in resolving cross-border disputes in Singapore‎. 

Background 

Third party funding is an arrangement by which a funder agrees to finance the legal expenses of a party pursuing a claim. In return, the funder receives a share of the damages awarded if the claim succeeds. The funder receives nothing if the claim is unsuccessful. 

Traditionally, third party funding was illegal in common law jurisdictions by virtue of the torts of maintenance and champerty. Maintenance refers to the improper provision of financial support by a third party to a legal action in which it has no legitimate interest. Champerty is a form of maintenance where a non-party to a dispute finances a legal action in return for a share of the proceeds of the claim. The Singapore Court of Appeal in Otech Pakistan Pvt Ltd v Clough Engineering Ltd and another [2007] 1 SLR 989 confirmed that the common law tort of champerty applies to arbitrations held in Singapore. 

Abolishment of restrictions on third party funding 

The Civil Law (Amendment) Bill (the Bill) abolishes the common law tort of maintenance and champerty in relation to certain prescribed areas. Specifically, third party funding will soon be permitted under Singapore law in: 

• international arbitrations; 
• Singapore court proceedings arising from international arbitrations, including applications for a stay of court proceedings and proceedings in connection with the enforcement of an international arbitration award; and
• mediations arising in connection with international arbitration proceedings. 

The Bill makes clear that third party funding will continue to be illegal for domestic arbitrations, litigation and mediation unrelated to international arbitrations, and proceedings before the Singapore International Commercial Court. 

Regulation of third party funders 

Qualifying criteria for funders will include the need to have sufficient capital and access to funds to meet the expected costs of the disputes they want to fund in Singapore. 

A funder which ceases to be a qualifying third party funder or fails to satisfy one or more of the prescribed criteria will not be able to enforce its funding agreements. As clarified by the Senior Minister of State for Law during the second reading of the Bill in Parliament, this will mean that a disqualified funder will not be able to enforce its contractual rights against the funded party and thus will not be entitled to a share of any damages awarded in the event of a successful claim. It would appear, however, that the funded party will still be able to enforce the contract as against the funder (ie require it to continue to fund the case) even though the funder could not participate in the spoils of any victory. 

Regulation of lawyers 

Lawyers subject to Singapore law will be permitted to act for their clients in all matters relating to legal third party funding contracts. Thus, lawyers will be able to introduce third party funders to their clients, draft and advise on the terms of third party funding contracts, and act in proceedings which are the subject of a legal third party funding contract. 

The Senior Minister of State for Law indicated during the second reading of the Bill in Parliament that lawyers will have a duty to disclose the existence of any third party funding obtained by their clients. The precise scope of the duty to disclose remains to be seen, but could potentially extend to the disclosure of the identity of the funder and the amount being funded. 

Future regulations 

It is anticipated that subsidiary legislation and regulations will be introduced to supplement the provisions of the Bill. 

Conclusion 

Many of our clients, and no doubt those of others, have in recent times been increasingly interested in the use of third party funding to help manage the costs and risks of arbitration. Some have even selected alternative jurisdictions to Singapore for resolving their international commercial disputes in an effort to gain access to this important risk management tool. By introducing this legislation, the Singapore government has once again demonstrated that it is sensitive and responsive to the needs of the international arbitration community. The new legislation is timely and will help Singapore keep pace with other leading seats for international arbitration.