Tick for litigation funding for arbitrations in Singapore

16th January 2017

On 10 January 2017, the parliament of Singapore passed the Civil Law Amendment Bill and Civil Law (Third Party Funding) Regulations 2016 which together allow third-party funders to finance international commercial arbitration on particular terms. Previously, the laws of champerty and maintenance prevented parties who had no interest in an arbitration from funding it (see Otech Pakistan Pvt Ltd v Clough Engineering Ltd & Anor [2007] 1 SLR(R) 989). But the Civil Law Amendment Bill abolishes these torts and as such, there is now a framework for third-party funding in Singapore.

The legislative changes in Singapore seek to regulate third party funding as it may only be provided in “prescribed proceedings” and by a “qualifying third party funder”.  Currently, the regulations only include in “prescribed proceedings” international arbitration proceedings (and ancillary proceedings) but there is scope for this to be expanded to other types of proceedings in the future.

Funding of prescribed proceedings may only be provided by “a qualifying third party funder” who is someone who:

  • carries on the principal business, in Singapore or elsewhere, of the funding of the costs of dispute resolution proceedings to which it is not a party;
  • has access to funds immediately within its control, including within a parent corporation or the third party funder’s subsidiary, sufficient to fund the dispute resolution proceedings in Singapore; and
  • those funds must be invested, pursuant to a third-party funding contract, to enable a funded party to meet the costs (including pre-action costs) of prescribed dispute resolution proceedings.

If these conditions are not met, the third party funder will not be permitted to enforce its rights under the litigation funding contract. It is clear that the legislature of Singapore is seeking to limit the funding of arbitrations to funders who have sufficient capital to fund a claim.

The Act also amends Singapore’s Legal Profession Act to permit a solicitor to introduce or refer a third party funder to the solicitor’s client “… so long as the solicitor does not receive any direct financial benefit from the introduction or referral”, to advise or draft a third-party funding contract, or negotiate the contract on behalf of a client, and to act on behalf of the solicitor’s client in any dispute arising out of the third-party funding contract.

Senior Minister of State for Law in Singapore Indranee Rajah said of the new law: “It will offer businesses an additional financing and risk management tool when engaged in the relevant categories of proceedings. This includes the financing of valid claims which they may otherwise not pursue due to financial constraints.”

In our view, these changes will not only benefit parties with financial constraints but also parties to international arbitration with significant means who see the benefit of third party funding as a financing tool or, as an opportunity to bring on board a party with substantial expertise in the management of large scale arbitration or the tracing and recovery of assets, thereby adding value to the arbitration process.

These legislative changes seek to make litigation funding for arbitration accessible in Singapore. As has been widely commented on, Singapore is in competition with Hong Kong for the status as the preferred seat for international arbitrations in the Asia- Pacific region and removing obstacles to third party funding is central to the promotion of Singapore as a leader in the international arbitration field. Hong Kong has similar changes afoot with a bill having been drafted late last year which will also remove any obstacles to the third party funding of international arbitrations seated in Hong Kong. The changes also signal a first step towards a broader acceptance of third party funding in Singapore with the Senior Minister of State for Law stating that “We want to have [third party funding] tested in a limited sphere …  If the framework words well, as, and when appropriate, the prescribed categories of proceedings may be expanded”.

LCM welcomes the acceptance by Singapore of third party funding in international arbitrations. Please get in touch with one of our Investment Managers if you have a claim which requires third party funding.

Sydney

Level 12, The Chifley Tower,
2 Chifley Square
Sydney NSW 2000
T 02 8098 1390

Melbourne

Level 30, Collins Place
35 Collins Street,
Melbourne VIC 3000
T 03 9900 6270

Adelaide

Level 30,
91 King William Street
Adelaide SA 5000
T 08 7129 8137

Brisbane

Level 36,
71 Eagle Street

Brisbane QLD 4000
T 07 3121 3277