On 10 January 2016, the Singapore Parliament passed the Civil Law (Amendment) Bill, which allows third-party funding of international commercial arbitration proceedings that are seated in Singapore. Together with the Civil Law (Third Party Funding Regulation), it will form the framework for the law on third-party funding in Singapore.

Previously, Singapore law prohibited third-party funding of both litigation and arbitration proceedings by rendering third-party funding agreements illegal or contrary to public policy, as such agreements typically fell foul of both the doctrines of maintenance and champerty with very limited exceptions. Under the Bill, the common law torts of maintenance and champerty are abolished and third-party funding agreements are rendered legal and enforceable for international arbitration and related proceedings (e.g. court and mediation proceedings arising from or out of the international arbitration proceedings). Third-party funding agreements remain unenforceable for pure litigation and domestic arbitration proceedings, but the Singapore government has indicated that the current third-party funding framework may be expanded in the future after a periodic assessment.

Also introduced in this new framework were prescribed qualifications that third-party funders must meet in order to fund an arbitration seated in Singapore, including capital maintenance requirements. Funders that fail to do so risk having their rights under the third-party funding agreement rendered unenforceable, though funders may apply to the Court or the arbitral tribunal for relief.

Related amendments have also been made to lawyer’s professional conduct rules for the purpose of dealing with potential conflicts of interest, in particular imposing a disclosure obligation on lawyers to disclose the existence of a third-party funding contract and the identity of the funder to the court or arbitral tribunal and to every other party to the proceedings, as well as a prohibition on lawyers and law practices having an interest in relevant funders and from receiving referral fees and commission.

The new framework, however, does not deal with other aspects of litigation funding, such as contingency fee arrangements, which remain prohibited in Singapore. The Singapore government has indicated that this may change in the future by stating in parliamentary debates that “event triggered fee arrangements, including contingency fee arrangements, will be studied as part of the review of the civil justice system”. The new framework also does not deal with the thorny issue of whether a funder can be held liable for costs in the event the party it is funding turns out to lose the case. The exposure of third-party funders to adverse costs orders is a developing area of international arbitration jurisprudence, especially in investor-state arbitration, due to such funders usually not being a party to the arbitration agreement and having no involvement in the underlying dispute between the parties to the arbitration.

The most immediate beneficiaries of the Bill being passed into law will be small to medium-sized companies, which may have a good claim but find themselves being too cash-strapped to commence a legal action against an opponent with deeper pockets. The Bill is also part of Singapore’s continuing efforts to maintain its status as a dispute resolution hub, with several recent efforts including the creation of the Singapore International Commercial Court, the new Singapore International Arbitration Centre (“SIAC”) Rules (2016) and SIAC Investment Arbitration Rules (2017), the tripling of the size of Maxwell Chambers and the introduction of a new Mediation Act that will make it easier for parties to enforce mediation agreements. The Bill was introduced as part of a mid-2016 consultation process, where Singapore’s Ministry of Law acknowledged that third-party funding is increasingly utilised in major arbitration centres such as London, Paris and Geneva, and that Singapore is “cognisant of the practices and business requirements of commercial parties”.