Third-party funding for international arbitration in Singapore

New legislation will open up access to “war chests”

The Singapore Government has proposed new legislation to permit third-party funding for international arbitration seated in Singapore. Its aim is to further promote Singapore’s growth as one of the world’s leading arbitration seats. Enactment of this new law is also expected to pave the way for contingency fees in international arbitration.

On 30 June 2016, the Singapore Ministry of Law proposed new legislation to permit third-party funding for international arbitration seated in Singapore, as well as related court proceedings and mediation. The Civil Law (Amendment) Bill 2016 and Civil Law (Third-party Funding) Regulations 2016 will allow parties to access “war chests” to seek pre-action advice and pursue claims, and shift the financial risk to third-party funders.

In introducing the new legislation, the Ministry acknowledged that parties require flexibility in how they fund disputes, that third-party funding is increasingly used in international arbitration in other major arbitral seats, and that the availability of funding options is crucial to enhancing Singapore’s growth as a leading international arbitration seat.

The proposed legislative amendments are expected to be in force before the end of 2016. Singapore has now taken the lead on these issues ahead of regional competitors, including Hong Kong which closed its own consultation on third-party funding in February 2016.

The new framework

The legislative amendments will enact a new framework for third-party funding. The Bill will formally abolish the common law doctrines of champerty and maintenance in Singapore. It will clarify that third-party funding contracts for international arbitration seated in Singapore – as well as related litigation, mediation, setting aside of an arbitral award and enforcement of an award or a foreign award – are not contrary to public policy or illegal.

Subsidiary legislation will be introduced to regulate third-party funders, including the qualifications and other requirements that funders must meet to enter into a third-party funding contract. Funders who fail to comply with those conditions will be unable to enforce their rights under the funding contract.

Lawyers will be able to recommend third-party funders to their clients or advise their clients on third-party funding contracts, so long as they do not receive any direct financial benefit from their recommendation or advice.

Contingency fee arrangements

The abolition of champerty and maintenance is expected to pave the way for future legislative amendments to allow for contingency fee arrangements (CFAs) between lawyers and their clients in international arbitration and mediation. A CFA links the lawyer’s remuneration to the outcome of the case. In Singapore, CFAs are currently only permitted for non-contentious work. However, an ad hoc committee of the Council of the Law Society of Singapore appointed in 2014 proposed that lawyers be allowed to enter into CFAs with clients for contentious work – specifically international arbitration and mediation – with a statutory limit on the success fee that can be applied.

Looking ahead

The number of disputes and the value of claims being resolved by arbitrations seated in Singapore have risen steadily over the last few years. Increased investment flows to Asia and the popularity of bilateral and multilateral investment treaties, such as the Trans-Pacific Partnership Agreement and Transatlantic Trade and Investment Partnership, point to a further shift towards resolving disputes in the region. Singapore’s competitiveness as a preferred arbitral seat for such disputes will be further enhanced by the legalisation of third-party funding for arbitration in Singapore.