THIRD-PART Y FUNDING IN HONG KONG AND SINGAPORE SAPNA How did you develop an interest in third-party funding and become involved in the industry? RUTH My interest in third-party funding grew while I was working in London, although I never had the opportunity to work on a funded case while I was there. When I arrived in Hong Kong to join the Hong Kong International Arbitration Centre (HKIAC) in early 2013, one of the first things I was asked to do was to put together a briefing note on the advantages and disadvantages of funding from an arbitration perspective. This was some time ago, shortly before the Law Reform Commission working group was set up to look at funding in arbitration in Hong Kong. Through that process I learnt a lot and gained a more in depth understanding of what funding was, and realised that it was something on the radar for Hong Kong. In terms of actually moving into the field, I had known Susan Dunn, one of the earliest developers of third-party funding and Head of the investment team at Harbour, for several years. Harbour had funded a number of cases in the Asia Pacific region, despite not having a presence here, so it made strategic sense to open an office in the region. When Susan asked if I would be interested in opening that office and being Harbour’s representative for Asia Pacific, it seemed like a unique and exciting opportunity so I said yes. Developments surrounding third-party funding in the region are so interesting at the moment, in Hong Kong and Singapore in particular, it’s a fantastic field to be working in. SAPNA Speaking of Hong Kong and Singapore, what is the future of third-party funding in both jurisdictions? In Hong Kong there has been a consultation paper of the “ Third-Party Funding for Arbitration Sub-Committee of the Law Reform Commission” report which Simon and I and many other arbitration practitioners in Asia are familiar with. But in Singapore the Ministry of Law hasn’t been issuing reports to update us on what’s going on. I think we all believe that there are things happening behind the scenes and I don’t think anyone disputes that it is something they are looking at very closely, but I am hoping you might have a better idea as to where the future is going in Singapore. RUTH Unfortunately, I’m unlikely to have any more specific Information than you do. The Ministry of Law did do a consultation back in 2014, but it wasn’t the sort of a public consultation that Hong Kong is currently going through. Selected individuals were asked to provide views and Harbour had the opportunity to respond. As I understand it, I don’t think we have had any formal feedback or indication of what can be expected as a result of that process, other than publically available information. My own personal view is that third-party funding will probably be allowed in arbitration in Singapore eventually. I’m not sure of the timing, it may be that developments in Hong Kong will stir action in Singapore, which might push to get there first, or it may prefer to take a ‘wait and see’ approach. SAPNA I guess they are quite cautious. Champerty is still a concept which there is a lot of resistance to in Singapore. Simon, do you have any thoughts on the Singapore vs Hong Kong debate surrounding when will third-party funding come in?SIMON I do, but I have a question for Ruth. In Singapore, using the Otech Pakistan Pvt v Clough Engineering case in 20071 as an example, our understanding is that there has been quite entrenched resistance to the concept. In that case, the Court of Appeal in 2007 found that “it would be artificial to differentiate between litigation and arbitration proceedings and say that champerty applies to one because it is conducted in a public forum and not to the other because it is conducted in private”. On the other hand, in Hong Kong, the Law Reform Sub-committee currently recommends that third-party funding should be permitted in arbitration taking place in Hong Kong. Why do you think Singapore may move more quickly than Hong Kong? RUTH It’s possibly a combination of things. When the Otech Pakistan Pvt Ltd v Clough Engineering Ltd decision was made, funding was even less developed than it is now. It’s a fairly nascent industry and funding only comes up in relatively few cases compared to the overall number of cases that go on. But the understanding of what funding is and how it works has evolved significantly since 2007. This is coupled with the desire of Singapore to position itself as a hub for dispute resolution, which has also evolved since 2007. The combination of both factors have possibly led to an evolution in decision making regarding champerty, and the outcome might be different to what it was in 2007. In addition, with funding being used in jurisdictions like Australia and more recently the UK, there is more information available to demonstrate that the fears associated with allowing funding aren’t really going to materialise in the way I think they suspected. SAPNA I do share your view and I feel it is inevitable in some sense - it’s really a question of when. I also share your view that Singapore really likes to be a market leader and they can put in place regulation, quite quickly, if they want to. 20 years ago, champerty was a dirty word in England too, but over that time things have evolved and institutions like Harbour have paved the way and really tried to be very transparent and engage with the community. I feel we have a long way to go in Singapore in a much shorter time and I am just not sure how quickly they are going to be able to reach the same stage of not thinking that there is something quite sinister about third-party funding. I definitely feel that, as you say, things have changed a lot in the last few years, and people are more open to the idea but there is still this hesitance and champerty is felt to be intrinsically bad. That is my gut instinct. RUTH I agree. I think one of the reasons for that is that generally the cases that come up in the public sphere, that deal with maintenance and champerty, tend to be the very worst examples, often cases of lawyers really exploiting and taking advantage of their clients. However, that’s not the same realm as cases being considered by commercial funders like Harbour; where there are generally sophisticated companies and advisers involved, so there is simply not the same dynamic. Harbour is not looking to fund consumer type cases; we are looking at very large commercial cases. It will take time for people to understand that. FUNDING THE CL AIM: HOW DO FUNDERS DIFFER? SAPNA I hadn’t appreciated that there were so many litigation funders around with different focus areas and different ways of funding. How does your business differ from other providers in the market and what are the benefits of the various types of funders? RUTH There are lots of different models that funders use. Some are publicly listed; some are backed by high net worth individuals whilst others have particular lines of credit available to them. Harbour is different again, we have closed end funds, with the capital raised available for investment. One of the benefits of this model, and not being listed, is that we don’t have an eye on our share price all the time which can affect the manner and the speed with which we make decisions. Different funders will focus on cases of different types, sizes and jurisdictions. We focus on large commercial claims with a value of GBP 10 million or above. There are other funders who focus on cases with a smaller claim value, but we found that they don’t work for us, or the claimant, economically. Another advantage of Harbour’s model is that we have capital immediately available for investment. Other funders may act more like brokers, such that it is only when they hear of a good case they then try to find money to fund it. If they can’t find the money it may delay or stall the process altogether. The availability of Harbour’s funds is a differential and means we can respond quickly in terms of our decision making. A further advantage of Harbour’s model is that we spend the capital we have in a way that gives claimants comfort that they will have funding available throughout the life of their claim. We do this by ring-fencing within our funds the money that we agree to fund. We don’t leverage our capital; we only spend the money once. Other funders might leverage the monies they have, which can leave claimants in a more precarious position. SIMON How does ring-fencing actually work? Do you make a note to the accounts and actually set aside the budgeted fees of forward costs? RUTH Effectively, if we complete our due diligence on a case inquiry and it is the recommendation from the investment committee that we fund, we will agree a detailed budget with the firm who is acting on the case. Whether it’s arbitration or litigation, you can get a pretty good idea of the basic skeleton and add some extras for contingencies. This means that at the point we enter into the funding agreement, we have a specific budget agreed along with the total amount of funding to be provided. We ear mark the money for the budget of that particular case within the fund. One of the goals we have at Harbour is to decrease the differential between anticipated budget and what is actually spent. This foreseeability is useful for everyone involved, including the claimant and their lawyers, as well as the funder. INTERNATIONAL ARBITRATION 1/3LY 1 Otech Pakistan Pvt Ltd v Clough Engineering Ltd  1 SLR 989SAPNA Lawyers sometimes assume corporate clients want them to be as lean as possible with fee estimates. However, the trend is that clients are saying ‘don’t give me a bare bones fee estimate with lots of caveats saying that it doesn’t include this or that contingency. Give me a realistic budget and err on the more generous side rather than the leaner side’. I guess it is the same for you. RUTH Our interest in that respect is exactly the same as the Claimant’s as we step into their shoes in terms of payment. The ratio of the budget versus the claim value is a key metric for us in determining whether a case is a good investment. SAPNA Yes. RUTH People are often surprised that we don’t want the lowest budget possible. We recognise that to have good people working on these cases you need to pay a decent amount of money. We don’t want to pay for inefficiencies, or extra work that is not necessary, but we have no problem with paying for good work. Firms will come to us with their expected budget and we will say ‘what about this, what about that. You should make it a bit more’ to make sure we have a real reflection of the likely costs. SAPNA When you’re deciding to take a case on at the beginning, do you outsource any of your decision making, either on the investment side or the legal side? RUTH We do rely on others to provide us with relevant information but we don’t outsource any of the decision making. When we initially receive an enquiry myself, or one of our investment teammembers, will make an initial assessment to determine whether the case is one that we should be looking into. If it is, we will enter into a non-disclosure agreement with the claimant so that we can receive documents relating to the case. If it still looks like a good proposition after reading the documents, we will present it to the investment committee. So in all circumstances both the investment team member and investment committee has to be satisfied that a case is a good investment if we are to enter into a funding agreement. SAPNA And are you engaged in any portfolio relationships with law firms or clients? RUTH We don’t currently have any portfolio arrangements with firms. I don’t know if we’ve been asked to look at that before. I certainly haven’t in the short time that the office in Hong Kong has been open. At Harbour, we are quite openminded and will look at most opportunities to see if there is something that we can do, but I’m not sure whether we would enter into a portfolio arrangement with a firm. We have to make it work from an economic point of view, for our investors. We are also looking at funding a portfolio of claims for companies, and one development we have seen recently is banks coming to us with a portfolio of claims for us to look at. SAPNA Have you ever funded a Respondent? If so, how does it work? RUTH We generally don’t fund respondents unless there is a monetary counter claim, but I know others do. We are currently thinking about how we could make it work. SAPNA There must be a way, but it’s not as straight forward as funding a Claimant. RUTH You’re right, it’s not straight forward. When someone is facing a claim against them it is harder to define success. When the claim is in motion a Respondent may be very willing to sign up to our terms, but if it is successfully defeated, there is nothing coming in for us to take our portion from and the party may try to re-negotiate what we are actually are entitled to. However, as I mentioned, we can fund a counterclaim for a Respondent if we think it is viable. I am involved in a situation like that at the moment. IN CONVERSATION WITH RUTH STACKPOOL-MOORE 15DISCLOSURE , CONFLICTS AND SECURIT Y FOR COSTS: THE THREE FAC TORS CURRENTLY IN THE SPOT L IGHT SAPNA One of the topics which is discussed a lot at conferences is disclosure. It’s one of the things that worries those who are opposed to third-party funding. They seem to be worried about the risks of the non-disclosure of third-party funding. What are your views on the issue? A related topic is security for costs. What are your views to share on disclosure and the related issue of security for costs? RUTH Disclosure, conflicts and security for costs are certainly three important issues. With disclosure, there are two points. First, we don’t mind disclosure of our involvement and in, many circumstances actually encourage it from a strategic point of view. However, we don’t agree with the disclosure of the terms of the funding. We think that that is unnecessary. Funding is a commercial transaction that is being entered into between the funder and sophisticated commercial parties. Why should the Respondent be put in an advantageous position by knowing what resources are available to the funded party? Second, we want to avoid any conflicts of interest associated with our involvement because we do not want to jeopardise the enforceability of the award. We are very diligent about ensuring, to the extent we are able to, that no kind of conflict arises. In relation to security for costs and adverse costs, it’s a different kettle of fish. If you do make a security for costs order a guaranteed outcome when a funder is involved, it will make funding more expensive for claimants. The amount that we charge is partly based on how much we fund, so if security for costs are automatically awarded in funded cases then the cost of securing funding will increase. That’s unfair to claimants,- why should it be more difficult and/or more expensive for them to access funding? Security for costs should be assessed on the basis of usual principles, even where a funder is involved. A relatively neat solution to the issue is to clarify whether funders are accountable for the adverse costs at the end. If this is the case, then you remove the need for the provision of security. SAPNA In Hong Kong, I believe they are consulting now on the types of conditions that should be attached to this concept of arbitration funding. This includes disclosure, partly because of the fear that a third-party funder may get away without paying any costs if they are not disclosed even if they succeed! Simon, have you heard people talking in Hong Kong about it being perhaps something that should be part of the new regulations? SIMON I certainly think so. Hong Kong usually approaches these issues fairly conservatively, particularly in the champertous context, so I can’t see there not being some controls around it. It is almost inevitable that disclosure of the identity of the funder will be mandatory so that they can be chased if there is an adverse outcome is almost inevitable. I think it’s going to be an essential part of the cautious approval of third-party funding. SAPNA Which other jurisdictions are you active in? RUTH In the Asia Pacific region, we are most active in Australia, where we have funded nine cases, and New Zealand. In the insolvency context, we have funded some cases in Hong Kong and we are quite far down the road in looking at funding cases in Singapore. We are also looking for possibilities to fund in other jurisdictions in the region where the idea of funding is currently less developed. SAPNA Did you begin with insolvency cases in Hong Kong? RUTH Yes we did, but we are now looking beyond this and are looking at what is available on a case by case basis within Asia more broadly. Many of the civil law jurisdictions don’t have any equivalent prohibition on funding.CONTRIBUTORS OF THIS EXCHANGE. . . RUTH STACKPOOL-MOORE, DIRECTOR OF LITIGATION FUNDING / HEAD OF HARBOUR HONG KONG Ruth is a dual Australian and UK qualified lawyer with extensive experience in dispute resolution. She joined Harbour Litigation Funding from the Hong Kong International Arbitration Centre, one of Asia’s leading global arbitral institutions, where as Managing Counsel she led the arbitration team and managed the Centre as Acting Secretary-General during the second half of 2014. Ruth has wide-ranging insight into the diverse and growing number of cases being handled in the Asia Pacific region and has strong connections to its dispute resolution community. She is a frequent speaker, and has published a variety of articles, on arbitration-related issues, and has travelled worldwide in connection with the promotion of arbitration and other forms of dispute resolution. Ruth has experience in private practice having previously specialised in international commercial arbitration and litigation with Debevoise & Plimpton in London, Orrick Herrington & Sutcliffe in Paris and Coudert Brothers in Paris and Sydney. She has advised clients on a wide range of proceedings conducted under many of the most recognised sets of institutional arbitration rules and ad hoc proceedings, as well as associated national court matters in civil and common law jurisdictions. Ruth spearheads Harbour’s continuing growth in the Asia Pacific region. SIMON MCCONNELL, PARTNER AT CLYDE & CO Simon has significant expertise in insurance and reinsurance matters, particularly in trade-credit cover, professional indemnity, directors and officers claims, financial institutions blanket bond cover, and fraud cases. Simon’s practice extends across the Asia Pacific region. Simon has extensive experience in commercial litigation disputes, particularly in the financial services industry and real estate sector. Apart from contractual disputes, fraud and shareholder disputes, he specialises in regulatory matters and investigations, and currently acts for a number of financial and securities industry clients in confidential regulatory matters in Hong Kong and regionally. This includes acting in regulatory and employment matters for regulated entities, and handling contentious ‘team moves’ and restrictive covenants, enforcement and injunctive relief. Simon’s real estate expertise focuses on acting for commercial and retail tenants for a variety of corporates, financial institutions and retailers in the Hong Kong property market. Simon is ranked in Chambers (Hong Kong) in Band 1 of contentious insurance lawyers. Chambers states: “Simon McConnell’s top-tier ranking is acknowledged by many sources, with one enthusing: ‘He’s head and shoulders above the rest for complex claims’”. Simon is also ranked by The Legal 500 (Asia Pacific) as a leading insurance practitioner. It notes that “Clyde & Co has a growing reputation for regulatory matters and investigations. Simon McConnell has a fine reputation”. SAPNA JHANGIANI, LEGAL DIRECTOR AT CLYDE & CO Sapna is called to the Bar of England and Wales, and spent several years in practice at the Independent Bar in London before joining Clyde & Co’s Dubai office in 2006. She relocated to Singapore in 2011. In her career she has managed commercial disputes spanning a wide range of industries and governed by different institutional rules such as those of the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), Singapore International Arbitration Centre (SIAC), Singapore Centre for Maritime Arbitration (SCMA), and Dubai International Arbitration Centre (DIAC). She has substantial advocacy experience and has represented clients in trials and preliminary applications before arbitral tribunals, the UK Civil Courts (including the Supreme Court), and the Courts of the Dubai International Financial Centre (DIFC). In addition, Sapna has several appointments as an arbitrator and is a Fellow of the Chartered Institute of Arbitrators and the Singapore Institute of Arbitrators. She has been described in Chambers & Partners as producing “wonderful work with a creative mind”.