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Public Consultation on the Draft Civil Law (Amendment) Bill 2016 and Civil Law (Third Party Funding) Regulations 2016

Consultation Period:
to

A.        Background


1.            Third party funding refers to the funding of proceedings by an unconnected entity to a dispute to a party, typically the claimant, in return for financial gain, such as a share of the damages awarded or a share of the settlement sum.


2.            With limited exceptions, Singapore law currently restricts the funding of proceedings to the parties involved[1]. These laws were developed to protect vulnerable litigants, prevent the judicial system from becoming a site for speculative business ventures and to guard against potential of abuse of Court processes[2].


3.            Third party funding is however becoming a feature in jurisdictions without such restrictions. Of particular interest is the growing use of third party funding in international commercial arbitration, where costs can be substantial. Third party funding is increasingly utilised in arbitrations in major arbitration centres around the world including London, Paris and Geneva.


4.            As a leading centre for international commercial arbitration, Singapore is cognisant of the practices and business requirements of commercial parties, many of whom choose to arbitrate in Singapore despite their dispute having no connection to the jurisdiction. Introducing third party funding in Singapore for international arbitration will allow international businesses to use the funding tools available to them in other centres, and promote Singapore’s growth as a leading venue for international arbitration.


5.            MinLaw therefore proposes introducing the following legislative amendments to put in place a framework for third party funding for international arbitration proceedings:


(i)    Civil Law (Amendment) Bill 2016; and


(ii)    Civil Law (Third Party Funding) Regulations 2016. 


6.            This public consultation is the result of a process of inquiry, through which MinLaw sought the views of both local and overseas stakeholders, including Singapore and foreign qualified lawyers, in-house counsel, arbitrators, arbitral institutions, academics, professional third party funders and various government agencies.


B.        Summary of the proposed legislative amendments


7.            The proposed legislative amendments will enact a framework for third party funding for international arbitration proceedings. The proposed Civil Law (Amendment) Bill will:


(i)    Clarify that the common law tort of champerty and maintenance is abolished in Singapore[3].


(ii)    Provide that in certain prescribed categories of dispute resolution proceedings, third party funding contracts are not contrary to public policy or illegal. These categories will be prescribed in the Civil Law (Third Party Funding) Regulations 2016.


(iii)    Allow conditions to be imposed on funders through subsidiary legislation. Funders who fail to comply with the conditions will not be able to enforce their rights under the third party funding contract.


(iv)    Provide that lawyers may 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 the recommendation or facilitation.


8.            The proposed Civil Law (Amendment) Bill is found at Annex A.


9.            The Civil Law (Third Party Funding) Regulations 2016 will:


(i)    Prescribe the categories of proceedings that are deemed not to be contrary to public policy or illegal[4].


(ii)    Provide that funding may only be provided by an entity which meets the criteria for a qualifying third party funder.



10.            The proposed Civil Law (Third Party Funding) Regulations 2016 is found at Annex B.


11.            Apart from the amendments to the Civil Law Act, related amendments to the Legal Profession (Professional Conduct) Rules 2015 are envisaged. These related amendments are expected to draw reference from best practices and international standards reflected in the revised International Bar Association Guidelines on Conflict of Interest in International Arbitration (October 2014)[5]. In brief,


(i)    Legal practitioners will be under a duty to disclose the existence of a third party funding contract and the identity of the third party funder to the Court or tribunal and to every other party to the proceedings, as soon as is practicable.


(ii)    Legal practitioners and law practices will also be prohibited from having interests in relevant third party funders and from receiving referral fees and commissions.


12.            The proposed framework gives precedence to party autonomy and flexibility, with disclosure as the central tenet. It was noted that a “light touch” approach to regulation has generally been adopted in jurisdictions where third party funding is permitted[6].


13.            It is envisaged that the third party funding framework will be supplemented by best practices and guidelines for lawyers and third party funders.  


C.        Invitation for views and feedback



14.            MinLaw invites interested parties to provide their views and feedback on the Civil Law (Amendment) Bill 2016 and Civil Law (Third Party Funding) Regulations 2016. The consultation period is from 30 June 2016 to 29 July 2016. All views and feedback may be sent in electronic form or hard copy form to the address below:


Ministry of Law

Policy Advisory Division

100 High Street

#08-02, The Treasury

Singapore 179434

Fax: 6332 8842

E-mail: [email protected]


[1] Funding legal proceedings by unconnected parties has historically been characterised as maintenance and champerty and therefore considered unlawful. Maintenance is the support of claims by a stranger without just cause. Champerty is an aggravated form of maintenance where the support is in return for a share of proceeds. In Singapore, the Court of Appeal in Otech Pakistan Pvt Ltd v Clough Engineering Ltd and another [2007] 1 SLR(R) 989 held that the rule against champerty applies in both litigation and arbitration proceedings governed by Singapore law.


[2] Singapore Academy of Law, Report of the Law Reform Committee on Litigation Funding in Insolvency Cases (Feb 2014) at [6].  


[3] There are two aspects to maintenance and champerty. First, it is a common law tort, and second, under contract law, champertous agreements are void as contrary to public policy. Unlike England and Australia, Singapore has thus far not introduced a statute that abolishes the tort, although case law suggests that this is the case. The Bill therefore clarifies that the common law tort of champerty and maintenance is abolished in Singapore and that in certain prescribed categories of dispute resolution proceedings, third party funding contracts are not contrary to public policy.


[4] These will be limited to international arbitration proceedings (and proceedings arising from these). 


[5] The most recent version of the Guidelines were adopted by resolution of the IBA Council on 23 October 2014. For ease of reference, the Guidelines can be accessed at ibanet.org.


[6] In Australia, the focus has been on avoiding conflicts of interest. In England, funders are regulated by the Financial Conduct Authority in connection with their asset management activities. Beyond that, there is no formal regulation, but funders who are members of the Association of Litigation Funders in England and Wales self-regulate by agreeing to abide by a voluntary code.  

Last updated on 30 Jun 2016