Singapore has come a long way in establishing herself as a focal point for regional and international commercial arbitration and, in fact, ranks amongst the top 5 preferred international arbitration centres in the world, alongside Hong Kong, London, Paris and Geneva1.
October 2016 saw the release of a report in Hong Kong by the Third-Party Funding for Arbitration Sub-committee of the Law Reform Commission (LRC) which recommended permitting Third-Party Funding for arbitrations seated in Hong Kong, and also for services provided in Hong Kong for arbitrations taking place outside her borders2. Third-party funding is already permitted in London, Paris and Geneva.
Singapore has similarly wasted no time in fortifying her status as a premium international arbitration centre by passing the Civil Law (Amendment) Bill 2016 (the "Bill") in January 2017.
The Bill introduces new Sections 5A and 5B to the Civil Law Act (Cap 43) (the "Act") which are to be read together with its subsidiary legislation, the Civil Law (Third-Party Funding) Regulations 2016 (the "Regulations").
The Act and the Regulations establish a framework for Third-Party Funding in proceedings related to international commercial arbitration and are also reflective of a changing mindset that Singapore's legal framework has to evolve to adapt to the needs of modern commercial dispute resolution.
Third-Party Funding – Scope and Safeguards
Third-Party Funding, in essence, involves the funding of a claim by a funder who has no connection to the dispute. The claimant who obtains funding applies the funds towards his costs of the dispute. In the event of a successful claim, the funder is entitled to a share of the proceeds arising from the claim. The funder is usually not entitled to be repaid its funds in the event the claim fails.
Before the enactment of the Act and the Regulations, the use of Third-Party Funding to facilitate court or arbitration proceedings was prohibited in Singapore as being in breach of the tort of Champerty and Maintenance.
The Act and the Regulations now permit Third-Party Funding for the following proceedings:
(a) International arbitration proceedings; (b) Court proceedings arising from or out of international arbitration proceedings; (c) Mediation proceedings arising out of or in connection with international arbitration proceedings; (d) Application for a stay of proceedings referred to in Section 6 of the International Arbitration Act and any other application for the enforcement of an arbitration agreement; and (e) Proceedings for or in connection with enforcing an award or foreign award under the International Arbitration Act.
Any Third-Party Funding agreements or transactions aside from the aforementioned will be deemed illegal or otherwise contrary to public policy and will be unenforceable.
The application of the Act and the Regulations is also restricted to Third-Party Funders whose principal business is funding the cost of dispute resolution proceedings (defined as a "qualifying Third-Party Funder" for the purposes of the Act). Third-Party Funders will need to possess a paid up share capital of not less than $5 million or the equivalent amount in foreign currency, or not less than $5 million or the equivalent amount in foreign currency in managed assets.
Interestingly, the Act stipulates that where a Third Party Funder fails to comply with the requirements prescribed by the Act and Regulations, or ceases to be a qualifying Third-Party Funder, it will not be able to enforce its rights under any Third-Party Funding agreement entered into with a claimant. Nevertheless, the Third-Party Funder would still be obliged to fulfil its obligations to the claimant in respect of the said Third-Party Funding agreement.
Disclosure of Funding
Since the advent of Third-Party Funding in Singapore, the Legal Profession (Professional Conduct) Rules 2015 have also been amended to make it mandatory for a legal practitioner to disclose to the court or tribunal, and to every other party to those proceedings, the existence of any Third-Party Funding agreement and the identity and address of any Third-Party Funder involved in funding the costs of those proceedings. This disclosure of Third-Party Funding is necessary to ensure there is no conflict of interest.
Going forward, the Ministry of Law will be working with arbitration institutions and practitioners to develop best practices regarding the implementation of Third-Party Funding in Singapore3.
If the Third-Party Funding industry in Singapore is managed appropriately with the necessary tailored safeguards put in place, it is expected that Third-Party Funding will facilitate the increase in meritorious claims presented for international arbitration in Singapore, and will allow Singapore to maintain its competitive edge over other arbitration centres worldwide.