Keywords

THIRD-PARTY FUNDING; ARBITRATION

Article

In January 2017, Singapore approved legislative reforms to permit third-party funding in international arbitration, just days after Hong Kong gazetted a bill to introduce similar amendments.
This new direction marks a timely departure from tradition. Both jurisdictions previously adhered to the doctrines of maintenance and champerty, relics of the common law that prohibit third-party funding of legal proceedings. The Singapore courts confirmed that this prohibition applied to litigation and arbitration (Otech Pakistan Pvt Ltd v Clough Engineering Ltd and another[2007] 1 SLR(R) 989), whereas the question of whether arbitration in Hong Kong was subject to such a prohibition was expressly left open by its highest court (Siegfried Adalbert Unruh v Hans-JoergSeeberger(2007) 10 HKCFAR 31). As a result, while professional funders established their presence in England, Australia, the US and parts of Continental Europe, they hesitated to venture into Asia despite the emergence of Singapore and Hong Kong as major arbitration centres.

In a race to keep apace with these changes in the international arbitration landscape, Singapore’s parliament passed the Civil Law (Amendment) Bill 2016 (Bill No. 38/2016, https://www.parliament.gov.sg/publications/bills-introduced) to carve outcertain categories of proceedings in which third-party funding contracts would not be regarded as illegal or contrary to public policy. The Minister of Law will prescribe such categories of proceedings in the Civil Law (Third-Party Funding) Regulations, which are expected to include the following: international arbitration proceedings (defined by reference to section 5 of the International Arbitration Act), and related court and mediation proceedings; applications for a stay of proceedings in favour of arbitration under section 6 of the International Arbitration Act; and proceedings to enforce awards, including foreign awards, under the International Arbitration Act. By providing for regulations to be made, the framework of the Bill leaves it open for the Minister of Law to prescribe other categories of proceedings – potentially, domestic arbitration and international litigation – where third-party funding may be permitted in future. It is also envisaged that related amendments will be made to the Legal Profession (Professional Conduct) Rules 2015 to regulate conflicts of interest and to impose a duty upon practitioners to disclose the existence and identity of a third-party funder to the court or tribunal and every other party to the proceedings.

A bolder approach is being considered in Hong Kong, where proposed amendments to the Arbitration Ordinance and the Mediation Ordinance will permit third-party funding of arbitration (whether international or domestic) and mediation proceedings (http://www.legco.gov.hk/yr16-17/english/bills/b201612301.pdf). Moreover, the scope of the amendments expressly apply to third-party funding of services provided in Hong Kong in relation to arbitrations seated outside Hong Kong – a move that will surely be welcomed by Hong Kong-based practitioners. As inSingapore, there will be an obligation to disclose funding agreements. In addition, an authorised body is expected to issue a code of practice for third-party funders which, although not legally binding, will be admissible in evidence where non-compliance with the code is relevant to a question being decided by the court or tribunal.

Parties and funders should note that these legislative developments stop short of empowering a tribunal to order security for costs or award adverse costs against a non-party. In Singapore, the courts have disavowed any power to order a non-party to pay the costs of arbitration proceedings (Chin Yoke Choong Bobby v Hong Lam Marine Pte Ltd [1999] 3 SLR(R) 907), although a non-party may be made liable for the costs of court proceedings in circumstances where it is just to grant such an order (DB Trustees (Hong Kong) Ltd v Consult Asia Pte Ltd and another appeal [2010] 3 SLR 542). While the Singapore Ministry of Law held a public consultation in 2011 and proposed allowing security for costs and adverse costs orders to be made against third-party funders as a safeguard against abuse (https://www.mlaw.gov.sg/content/dam/minlaw/corp/assets/documents/linkclickf651.pdf), this proposal was eventually not included in the proposal for the public consultation held in mid-2016 (https://www.mlaw.gov.sg/content/minlaw/en/news/public-consultations/public-consultation-on-the-draft-civil-law--amendment--bill-2016.html) or the Civil Law (Amendment) Bill 2016 that followed.

The position in Hong Kong appears to be slightly different, at least for now. In a report released in October 2016 (http://www.hkreform.gov.hk/en/docs/rtpf_e.pdf), the Hong Kong Law Reform Commission noted that the Hong Kong courts had the power to order non-parties to pay adverse costs orders in litigation, and recommended that, in principle, tribunals should likewise be given the power to award costs against third-party funders. However, the Commission felt that it would be ‘premature’ to amend the Arbitration Ordinance to provide for such a power before further consideration of the issue. Also, while the Commission observed that there was general support for amending the Arbitration Ordinance to empower tribunals to order security for costs against third-party funders, it concluded that this was not necessary since such orders should be addressed by the funder and the funded party in their arrangement.

The restraint shown by law-makers in Singapore and Hong Kong dovetails with their expressed preference for a ‘light touch’ approach to the regulation of third-party funding. With the doors open to professional funders, some of whom have already started to expand their reach into the region, claimants can look forward to greater options in financing, resources and in-houseexpertise when arbitrating their disputes. At the same time, respondents should pay close heed to these changes in the playing field. Given that third-party funders operate beyond the jurisdiction of tribunals and the limited supervision of the curial courts, their involvement behind the scenes of international arbitration raises potential hazards such as the ‘arbitral hit-and-run’ – a situation where an impecunious claimant is funded by a third party to pursue arbitration with neither the intention nor the ability to pay costs to the respondent. As third-party funding gains acceptance in international arbitration practice in Singapore and Hong Kong, it remains to be seen whether further measures may be needed to regulate this growing industry.