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Public Consultation to Seek Feedback on the Third-Party Funding Framework

Consultation Period:
to

A.     Background

 

1.         The Civil Law (Amendment) Act 2017 (the “Civil Law Act”), which was passed in Parliament on 10 January 2017, puts in place a framework for third-party funding for international commercial arbitration in Singapore. The amendments, together with the Civil Law (Third-Party Funding) Regulations 2017 (the “Civil Law TPF Regs”), came into force on 1 March 2017.

 

2.         Third party funding refers to the funding of proceedings by an unconnected entity to a dispute in return for financial gain, such as a share of the damages awarded or a share of the settlement sum. Prior to the amendments, funding of legal proceedings by unconnected parties was historically characterised as maintenance and champerty and therefore considered unlawful.

 

 

B. Summary of the current legislative framework

 

3.         The Civil Law Act clarified that the common law torts of maintenance and champerty, which previously restricted the use of third-party funding, were abolished[1]. Contracts affected by maintenance and champerty continue to be contrary to public policy or are otherwise illegal, and hence are unenforceable unless they fall under permitted categories of dispute resolution proceedings[2].

 

4.         The categories of dispute resolution proceedings for which third-party funding are permitted are specified in the Civil Law TPF Regs, as follows: 

 

            a.    international arbitration proceedings;

            b.    court proceedings arising from or out of or in any way connected with international arbitration                                       proceedings;

            c.    mediation proceedings arising out of or in any way connected with international arbitration proceedings;

            d.    application for a stay of proceedings referred to in section 6 of the International Arbitration Act  and any                     other application for the enforcement of an arbitration agreement;

            e.    proceedings for or in connection with the enforcement of an award or a foreign award under the                                 International Arbitration Act.

 

5.         Third-party funders may only provide funding if they meet the following qualifying criteria[3]:

 

            a.       the third-party funder must carry on the principal business, in Singapore or elsewhere, of the funding                         of the costs of dispute resolution proceedings to which the third-party funder is not a party; and

 

            b.      the third-party funder must have a

                                i.        paid-up share capital of not less than S$5 million or the equivalent amount in foreign                                                    currency; or

                              ii.         not less than S$5 million, or the equivalent amount in foreign currency in managed                                                      assets[4].

 

6.         Entities that do not meet the criteria to fund, or funders who do not comply with requirements imposed on them, will not be able to enforce their rights under the third-party funding arrangement[5]. This would include their right to receive a share of the damages in the event the claim succeeds.  However, the funder will still be obliged to fulfil its obligations to the claimant in respect of the third-party funding agreement, including its obligation to fund the claim as the rights of any other party as against the funder under the third-party funding agreement are not affected[6]. The Court or Arbitral Tribunal may grant relief to the funders on their application if the non-compliance was due to inadvertence or some other sufficient cause, or if it is just and equitable to do so[7].

 

7.         Related amendments to the Legal Profession Act were also made to clarify that legal practitioners are able to introduce or refer funders to their client and can advise or act for their clients in relation to the third-party funding contract[8] as long as they do not receive any direct financial benefit[9] from the introduction or referral[10].

 

8.         The Legal Profession (Professional Conduct) Rules[11] were also amended to impose a duty on legal practitioners to disclose the existence of any third-party funding contract which their client is receiving funding and the identity and address of any third-party funder involved in funding the costs of those proceedings. A legal practitioner or a law practice must not hold, whether directly or indirectly, any share or other ownership interest in a third-party funder which they introduced or referred to their client, or which has a third-party funding contract with their client.

 

9.         Separately, the Singapore Institute of Arbitrators[12], the Singapore International Arbitration Centre[13] and the Law Society of Singapore[14] have promulgated guidelines for funders, arbitrators and legal practitioners. To date, 8 funders have voluntarily signed up to the Singapore Institute of Arbitrators’ guidelines.

 

 

C. Invitation for views and feedback

 

10.       MinLaw is seeking views and any other feedback on the operation of the current third-party funding framework thus far, including any suggestions to improve the framework. Please also let us know:

 

            a.      if you have accepted or provided funding for funded cases in Singapore, or if you have advised on or                          been involved with one or more funded cases since the third-party funding reforms came into force.

 

            b.      if you have found the third-party funding reforms useful and whether it has had an impact on your                              practice or business.

 

            c.      whether you are of the view that there is a need to expand the safe harbour for funding of international                      arbitration cases into new areas (if so, which areas and why).

 

If you provide views and feedback, please let us know whether you are willing to be contacted by MinLaw for follow up discussions.

 

11.       The consultation period is from 3 April to 15 May 2018. 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

Email: [email protected]

 

 

 

[1] Section 5A of the Civil Law Act.

[2] Section 5B(1) of the Civil Law Act, read with Regulation 3 of the Civil Law TPF Regs.  

[3] Regulation 4 of the Civil Law TPF Regs.

[4] The definition of “managed assets” is set out in Regulation 4(2) of the Civil Law TPF Regs.

[5] Section 5B(4) of the Civil Law Act.

[6] Section 5B(7) of the Civil Law Act.

[7] Section 5B(5) and (6) of the Civil Law Act.

[8] Section 107(3A)(b) and (c) of the Legal Profession Act.

[9] Fees, disbursements or expenses paid by the client for the legal services rendered do not constitute “direct financial benefit”.

[10] Section 107(3A)(a) of the Legal Profession Act.  

[11] Part 5A.

[12] https://siarb.org.sg/index.php/resources/third-party-funding

[13] http://www.siac.org.sg/images/stories/articles/rules/Third%20Party%20Funding%20Practice%20Note%2031%20March%202017.pdf

[14] http://www.lawsociety.org.sg/Portals/0/ForLawyers/GuidanceOnProfessionalAndPracticeIssues/PDF/Council_GN_Third_Party_Funding.pdf

 

Last updated on 03 Apr 2018