Regulation

Overview

Is third-party litigation funding permitted? Is it commonly used?

Third-party funding is now permitted in Singapore in the context of international arbitration proceedings and related court and mediation proceedings, including proceedings for, or in connection with, the enforcement of arbitration awards.

This significant development follows amendments introduced in 2017 to the Civil Law Act (CLA) and represents an exception from the traditional position, under which the torts of maintenance (the improper support of litigation in which the supporter has no legitimate concern, without just cause or excuse) and champerty (when the maintaining party pays some or all of the costs of a party in return for a share of the proceeds of the claim) prohibited third-party funding of contentious proceedings. The Ministry of Law ran a consultation to seek feedback on the CLA in early 2018, the results of which may impact future legislative updates.

As at September 2018, we are aware of only one publicised instance of a ‘live’ Singapore-seated arbitration being financed by a third-party finance provider, although funders have received many more proposals. This number is expected to rise as parties and funders become more familiar with the third-party funding framework in Singapore.

Outside the sphere of international arbitration and related court proceedings, there are limited exceptions under which third-party funding may be permitted. In Re Vanguard Energy [2015] SGHC 156, the Singapore High Court found that the sale by a liquidator of a cause of action and the proceeds of such actions are permitted under the statutory insolvency regime (section 272(2)(c) of the Singapore Companies Act). More broadly, the High Court in that case also considered (albeit on an obiter basis) that the assignment of a bare cause of action, or ‘the fruits of such actions’, might be permissible if:

  • it is incidental to a transfer of property;
  • the assignee has a legitimate interest in the outcome of the litigation (the question here being whether the funder’s interest in the litigation justifies his or her intervention); or
  • there is no realistic possibility that the administration of justice may suffer as a result of the assignment, which will be viewed in light of prevailing public policy, with particular regard to ensuring the administration of and access to justice as well as the interests of vulnerable litigants.

In a recent ruling, the Singapore High Court allowed the liquidators of two subsidiaries of PT Trikomsel Oke Tbk to proceed with a commercial third-party funding arrangement. This ruling confirms that commercial funding of claims arising out of an insolvency is permitted in Singapore.

The third-party funding regime will be further expanded if the Insolvency, Restructuring and Dissolution Bill is passed. This will allow third-party funding in claims by liquidators against persons who have misappropriated a company’s assets.

Restrictions on funding fees

Are there limits on the fees and interest funders can charge?

Singapore law does not expressly provide any specific limits on the fees and interest funders can charge. This will largely be a matter to be negotiated between the funder and funded parties.

However, sections 5A(2) and 5B(2) of the CLA provide that a funding contract should not be contrary to public policy. It is therefore possible that the Singapore courts may take into account the level of fees and interest in considering whether a funding contract is in line with public policy. Judicial guidance as to the level of fees and interest that may be charged might therefore be forthcoming in the long-term as the funding market develops in Singapore.

Specific rules for litigation funding

Are there any specific legislative or regulatory provisions applicable to third-party litigation funding?

The CLA and the Civil Law (Third-Party Funding) Regulations 2017 (Regulations) are the primary sources of legislation and regulations applicable to third-party funding.

The CLA abolishes the common law torts of champerty and maintenance and confirms that third-party funding is not contrary to public policy or illegal where it is provided by eligible parties in prescribed proceedings. The Regulations provide further detail on conditions under which third-party funding will be permitted; in particular:

  • in order for a party to be eligible to provide funding under the CLA, the funding of dispute resolution proceedings must be its ‘principal business’ (in Singapore or elsewhere), and the third-party funder must have ‘a paid-up share capital of not less than S$5 million’;
  • the prescribed categories of proceedings in which third-party funding can be used is limited to international arbitration proceedings; and
  • court litigation proceedings and mediation arising out of or in connection with international arbitration proceedings (eg, applications for the enforcement of awards, or mediation undertaken prior to or during an arbitration).

The Singapore Institute of Arbitrators has issued non-binding guidelines for third-party funders, with the aim of promoting best practice among funders who intend to provide funding to parties in Singapore-seated international arbitrations. These guidelines set expectations of transparency and accountability between the third-party funder and the funded party, and encourage funders to behave with high ethical standards towards funded parties so as to uphold the integrity of the international arbitration practice in Singapore. It is expected that these guidelines will provide useful guidance to funders and funded parties alike.

The Singapore International Arbitration Centre (SIAC) has issued a Practice Note on arbitrator conduct in SIAC cases that involve external funding. The Practice Note addresses arbitrator impartiality, independence and disclosures, disclosure of the involvement of funders and costs and security for costs in the context of third-party funding.

Legal advice

Do specific professional or ethical rules apply to lawyers advising clients in relation to third-party litigation funding?

Singapore lawyers and foreign lawyers based in Singapore are subject to the requirements and duties of the Legal Profession Act (LPA) and the Legal Profession (Professional Conduct) Rules 2015 (Legal Profession Rules). The 2017 amendments to the CLA were accompanied by related amendments to both the LPA and the Legal Profession Rules.

Section 107 of the LPA prohibits solicitors from holding any interest of any party in any suit, action or other contentious proceeding, or acting in any suit, action or other contentious proceeding on a basis that contemplates payment only in the event of success. However, these amendments do not prohibit solicitors from:

  • introducing or referring a third-party funder to a client, provided the solicitor does not receive any direct financial benefit (excluding their usual fees, disbursement or expense for the provision of legal services to the client);
  • advising on or drafting a third-party funding contract for such client or negotiating the contract on their behalf; or
  • acting on behalf of the client in any dispute arising out of such a contract.

The Legal Profession Rules deal with third-party funding in two main areas:

  • disclosure: lawyers must now disclose to the court or tribunal and to every other party to proceedings:
    • the existence of any third-party funding contract related to the costs of such proceedings; and
    • the identity and address of any funder involved, at the date of commencement of proceedings, or as soon as practicable after the third-party funding contract is entered into; and
      • financial interest: lawyers are prohibited from receiving direct financial benefits (including referral fees, commissions or any share of the proceeds) from third-party funders, or holding directly or indirectly any share or ownership interest in any third-party funder that they have referred to a client, or that has a third-party funding contract with their client. The above prohibition extends to any arrangement in which a lawyer’s fee is contingent on the outcome of the proceedings. However, it does not extend to the lawyer’s fee if it is not so contingent.

The Law Society of Singapore has also issued a Guidance Note that sets out best practices for lawyers that refer, advise or act for clients who obtain third-party funding.

Regulators

Do any public bodies have any particular interest in or oversight over third-party litigation funding?

There are no public bodies specifically designated as having particular interest in or oversight of third-party funding. However, the CLA provides that the Minister of Law may make regulations necessary or convenient to be prescribed relating to third-party funding. The Law Society of Singapore also has oversight over the conduct of Singapore lawyers and foreign lawyers based in Singapore, including in relation to their conduct on matters involving third-party funding.