In a judgment handed down on 9 June 2015, the High Court of Singapore has for the first time approved a litigation funding arrangement for the benefit of a company in liquidation.
The key points arising from the judgment are:
- an assignment of the proceeds of a cause of action falls within a liquidator's statutory power of sale;
- accordingly, an assignment of proceeds of a cause of action in exchange for litigation funding to a company in liquidation is permissible;
- although the terms of the funding in this case meant the funders could only recover the amount as funded, the court noted that it would not be fatal to any future funding application if funding was to be provided on commercial terms usually associated with litigation funding; and
- an assignment in this context was immune from the doctrine of maintenance and champerty, common law principles that prohibit 'betting' on litigation in certain circumstances.
The proceedings were bought by the liquidators of Vanguard Energy Pte. Ltd, who sought court approval of a litigation funding arrangement entered into between the company and its current and former directors.
Under the funding arrangement, the directors agreed to provide funding for several claims which the company would otherwise have had insufficient funds to pursue. The parties entered into an arrangement whereby the directors provided funding for prosecution of the company's claims in exchange for an assignment of a portion of the proceeds recovered in the event of a successful outcome. The assignment of proceeds was to be capped at the amount of the original funding.
The court concluded that the assignment of the proceeds of a cause of action to a third party was a sale of the property of the company and fell within the liquidator's statutory powers of sale. This made the assignment immune from the doctrine of maintenance and champerty, the often stated public policy basis for refusing litigation funding. The court helpfully reiterated the general proposition that funding arrangements will not generally be struck down if:
- incidental to a transfer of property; or
- the assignee / funder has a legitimate interest in the outcome of litigation; or
- there is no realistic possibility that the administration of justice may suffer as a result (which includes consideration of the public policy of ensuring access to justice).
Although the agreement approved in this case provided that the funder was only entitled to recover amounts actually outlaid, the court was alive to the fact that litigation funders would generally expect to be compensated for the risk undertaken in this type of funding arrangement. The court observed that it would not be fatal to a funding application if the funder were entitled to recover more than the amount actually funded.
The court's decision is a welcome step to bringing Singapore more into line with the position in other common law jurisdictions such as the England and Wales and Australia, which have well-developed jurisprudence and infrastructure in relation to third party funding in insolvency proceedings.
The decision will also be welcome news for liquidators seeking options to pursue valuable claims that may otherwise have remained unfunded, and in the long term may open the door for commercial litigation funders to operate in Singapore.
A link to the judgment can be found here.