This article is extracted from the upcoming issue of Funding in Focus. 

Historically, save for some limited exceptions (e.g., in the context of insolvency), third party funding of disputes has been restricted under Singaporean law. These restrictions arise largely from the common law torts of maintenance and champerty, which have their origins in medieval England.

As a result of these restrictions, were a party to enter into a third party funding arrangement in Singapore:

  • the underlying agreement would be unenforceable;
  • the funder and the funded party could be sued for damages (in tort) by the defendant; and
  • a lawyer who assisted the funded party to enter into the funding arrangement may be the subject of disciplinary action.

However, this is all about to change for international arbitrations brought in Singapore.

As a leading global centre for international arbitration, Singapore is the first to have crystallised its plans to approve third party funding of disputes on 10 January 2017 when Civil Law (Amendment) Act permitting third party funding, was passed by the Parliament of Singapore.

Stepping back a couple of months, on 7 November 2016, Singapore’s Ministry of Law submitted to Parliament a Bill to bring about amendments to Singaporean law, to permit third party funding of international arbitration. The changes will also apply to Court proceedings to the extent that they relate to international arbitration (e.g., taking enforcement steps), but will not, currently, extend to domestic litigation. The Act also takes the important step of abolishing the common law torts of champerty and maintenance in Singapore as a whole.

This development is further evidence of the Singapore Government’s stated intention of making Singapore the leading regional legal hub. It follows increasing interest by lawyers and their clients in Singapore about third party funding, as Mark Mangan, partner at Dechert in Singapore comments:

"The Singapore government has once again demonstrated that it is sensitive to the needs of the international arbitration community. Many of our clients, and I’m sure 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 gone so far as choosing alternative jurisdictions to Singapore for resolving their international commercial disputes in an effort to gain access to this important risk management tool. Thus, the new legislation is timely and will help Singapore keep pace with other leading seats for international arbitration."

Singaporean international arbitration practitioners welcome this development and wish for it to be extended to litigation as confirms KOH Swee Yen, partner at Wong Partnership in Singapore:

"The legislative amendments in Singapore to allow for third party funding in international arbitrations and related court proceedings are no doubt a welcome development to litigants and lawyers. Although this is presently limited to international arbitrations and related court proceedings, there is avenue for the Minister, by way of regulations, to prescribe other categories of proceedings that could be funded. In the future, one may see third party funding being extended to the Singapore International Commercial Court, as yet another step towards cementing Singapore’s position not just as a leading international arbitration hub, but also as a prime destination for international commercial dispute resolution."

Indeed, the wait for extension of the prescribed category of cases to litigation proceedings may not be a long one. Commenting on the passing of the Act, Singaporean Senior Minister of State for Law, Indranee Rajah indicated that following an initial period of assessment, the Singaporean Government may be prepared to expand the prescribed categories of cases that may be funded.

The Act sets out requirements that must be met for an entity to be considered a "qualifying Third Party Funder" and be permitted to engage in third party funding. These include that the funder has access to sufficient funds immediately within its control to fund the proceedings. Importantly, the funder must also carry on the principal business, in Singapore or elsewhere, of providing funding for dispute resolution processes. In other words, only ‘professional’ funders will be welcome to operate in Singapore which is an important condition when observing the issues that have arisen in the past when inexperienced and amateur ad hoc funders meddled with expensive and complicated procedures associated with complex dispute resolution proceedings.

In addition, changes are also proposed to the Legal Profession Act to allow lawyers to recommend third party funders and provide related funding advice to clients, so long as the lawyer does not receive any direct financial benefit in doing so.

Dovetailing with the new legislation is a new Working Group under the auspices of the Singapore Institute of Arbitrators and the leadership Mr Chan Leng Sun S.C. which is considering production of guidelines for third party funders operating in Singapore. It remains to be seen whether these guidelines will go further than the requirements for “qualifying Third Party Funders” included in the legislation. However, the fact of the Working Group and its focus on funding emphasises further the seriousness with which Singapore as an international dispute resolution centre is viewing the continuing development of funding in the region and international dispute resolution more generally.