Worldwide: Third-Party Funding For International Arbitration In Singapore And Hong Kong – A Race To The Top?

Readers of this blog will need no reminding that, in the Queen Mary-White & Case 2015 International Arbitration Survey, the seats of Hong Kong and Singapore were amongst the top five most preferred and widely used seats by respondents to that survey. Both jurisdictions are known for adopting competitive and innovative arbitration laws to promote themselves as leading seats of arbitration. Recently, both jurisdictions have made significant steps towards formally permitting the use of third party funding ("TPF") for international arbitration in their municipal arbitration laws.

Rocky road for TPF in Singapore and Hong Kong

TPF has traditionally assisted parties with the costs of litigation and arbitration where they would not otherwise have had the resources to protect their rights under a contract.

That paradigm is changing: users of TPF now include parties with significant means who view TPF as a financing tool or, in some circumstances, as an opportunity to bring on board a party with substantial expertise in the tracing and recovery of assets, thereby adding value to the litigation or arbitration process. Although TPF is gaining momentum for parties to litigation and arbitration in jurisdictions such as England & Wales, Australia, the United States, and various EU States, it is yet to find a solid footing in Singapore and Hong Kong.

Indeed, until recently, Singapore went so far as to prohibit TPF for international arbitration proceedings, and Hong Kong did not expressly permit it. In both cases, this was largely because TPF was considered to offend the age-old English doctrines of maintenance and champerty, which sought to prevent "...gambling in litigation, or of injuring or oppressing others by abetting and encouraging unrighteous suits, so as to be contrary to public policy..." (The Hong Kong Consultation Paper, referring to Ram Coomar Coondoo v Chunder Canto Mookerjee [1876] 2 App Cas 186, at 210).

In Singapore, the doctrine of champerty applied to both public litigation and private arbitration, so as to prohibit the use of TPF in Singapore (see Otech Pakistan Pvt Ltd v Clough Engineering Ltd & Anor [2007] 1 SLR(R) 989). Similarly, in Hong Kong, whilst the decision of Mr Justice Neil Kaplan (as he was then) in Cannoway Consultants Limited v Kenworth Engineering Limited [1995] 1 HKC 179 found that champerty did not apply to arbitration, the later Court of Final Appeal decision in Siegfried Adalbert Unruh v Hans-Joerg Seeberger [2007] HKCU 246 expressly left open this question.

Importantly, however, the Ministry of Law (the "Ministry") in Singapore and the Law Reform Commission of Hong Kong (the "Commission") have both recently taken steps towards the introduction of TPF for international arbitration into their respective laws.

Developments in Hong Kong

In Hong Kong, the Commission issued two reports after consultations, in October 2015 and October 2016, which culminated in proposed legislative amendments to Hong Kong's Arbitration Ordinance (the "AO"), as well as proposed amendments to associated regulations.

Most notably:

  • The doctrines of maintenance and champerty (both as crimes and civil torts) no longer apply to arbitration (including emergency arbitrations), mediation and court proceedings envisaged under the AO, whether domestic or international. Similar amendments have been proposed for the Mediation Ordinance.
  • The amendments are proposed to apply to funding agreements made on or after the amendments come into effect, as well as to international arbitrations which are seated outside of Hong Kong, where the funder is providing funding from within Hong Kong.
  • Within 15 days of a TPF agreement, a funded party must give written notice of the existence of a funding agreement, which also identifies the funder, to each other party to the arbitration and to the arbitral institution and tribunal.
  • The Commission envisaged the need to deal with a third party funder's right to be heard in the arbitral proceedings, its rights of equal treatment and to due process. Further, the Commission suggested that rules of procedure be adopted for TPF, and to address the consequences of non-participation by a third party funder in any costs application.
  • The proposals seek to develop certain standards for TPF, such as by amending professional conduct rules (applicable to barristers, solicitors and foreign registered lawyers) to direct how a lawyer must act when its party's case is funded by a TPF agreement, and introducing clear ethical and financial standards. Further, in keeping with its "light touch" approach to TPF regulation, the Commission envisaged a 'Third Party Funding for Arbitration Code of Practice' to apply as a tester code of rules for the first three years after the amendments pass. The funder must comply with the code, which would also regulate funding agreements and the content of TPF promotional materials.
  • A party that fails to comply with the proposed amendments will not generally be liable before a court or tribunal. However, non-compliance may be taken into question in future proceedings before that court or tribunal. The non-compliant party may also be open to complaint under its governing professional body if it fails to comply with the proposed regulatory frameworks.
  • As to costs, the Commission paused before amending the AO to permit a tribunal to award costs against a funder. This is partly because the AO, which is based on the Model Law, applies only to the parties to an arbitration agreement i.e. not a funder. The Commission has invited further consultation on this issue.

Developments in Singapore

In Singapore, the consultations carried out by the Ministry culminated in two proposed draft instruments: The Civil Law (Amendment) Bill 2016 (the "Bill") and the Civil Law (Third Party Funding) Regulations 2016 (the "Regulations").

Singapore's proposed legal and regulatory amendments are similar to those in Hong Kong:

  • No person will be liable in tort for any conduct on account of it being maintenance or champerty as known to the common law (proposed Section 5A of the Bill).
  • A funding agreement under which funding is provided by a "qualifying" third party funder for "prescribed" dispute resolution proceedings (which includes international arbitration proceedings, as well as related court or mediation proceedings, and applications for a stay or for enforcement of a foreign award under Singapore's International Arbitration Act (Regulation 3)) is no longer contrary to public policy in Singapore, or otherwise illegal under maintenance or champerty (proposed Section 5B(2) of the Bill)
  • In the proposed Regulations, a qualifying 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 it is not a party;

- have access to funds immediately within its control, including within a parent corporation or the third party funder's subsidiary, sufficient to fund the dispute resolution proceedings in Singapore; and

- those funds must be invested, pursuant to a third-party funding contract, to enable a funded party to meet the costs (including pre-action costs) of prescribed dispute resolution proceedings.

  • Further, the third party funder must comply with the newly proposed regulations for TPF before it is able to enforce its rights under a TPF contract. The Bill permits the third party funder to apply for relief, where it can show that its non-compliance was accidental or inadvertent, or because it would otherwise be just and equitable to grant relief on other grounds.
  • The Bill proposes amending Singapore's Legal Profession Act to permit a solicitor to introduce or refer a third party funder to the solicitor's client "...so long as the solicitor does not receive any direct financial benefit from the introduction or referral", to advise or draft a TPF contract, or negotiate the contract on behalf of a client, and to act on behalf of the solicitor's client in any dispute arising out of the TPF contract.
  • Finally, under the proposed amended Legal Profession (Professional Conduct) Rules 2015, legal practitioners would be required under the proposals to disclose the existence of a TPF contract and the identity of the funder to the court or tribunal and to every other party to the proceedings, as soon as is practicable.

Comparison

Although the proposed changes by the Ministry in Singapore and the Commission in Hong Kong do not necessarily mirror each other perfectly, the general purpose of them is the same. That is, they both seek to abolish laws which may render TPF agreements invalid; to ensure that parties who are seeking funding are adequately protected; and to ensure that the TPF industry, including its ethical, financial and procedural elements, are appropriately regulated.

Contrast the developments in Singapore and Hong Kong with the position in England & Wales, where TPF is permitted and almost entirely self-regulated, by the Association of Litigation Funders. The courts in England & Wales are seen to be supportive of TPF, demonstrated in part by the recent decision of Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm) (15 September 2016), in which the High Court enforced an ICC arbitral tribunal's award of costs in favour of Norscot, including its costs incurred as a result of TPF. It is said that Parliament is yet to impose statutory regulation on the industry for fears that doing so may stifle the industry's growth, and because of the belief that the English legal system is sufficiently robust so as to withstand the risk of abuse of process by those who "trafficked in litigation".(Giles v Thompson [1994] 1 AC 142, at 153)

However, regulation may be required if the funding industry in England and Wales continues to grow. (Hong Kong Consultation Paper, page 67; Parliamentary Debates, United Kingdom House of Lords, 1 February 2012, Column 1596 (Lord Davies of Stamford)) For example, whereas both Singapore and Hong Kong have proposed mandatory disclosure of the existence of third party funding, the voluntary Code of Conduct of the Association of Litigation Funders does not presently include this requirement – this may be considered to be one of the areas which is suitable for regulation. It is interesting to note that 71% of respondents to the Queen Mary-White & Case 2015 International Arbitration Survey  were of the view that TPF is an area which requires regulation.

When will the legislative developments in Hong Kong and Singapore come into effect?

The sub-committee of the Commission in Hong Kong was set up in June 2013, and worked steadily towards the issue of its first report in October 2015 recommending that TPF for arbitration taking place in Hong Kong should be permitted under Hong Kong law. It then invited comments on the issues discussed in the first report and took these into account in its second report issued in October 2016, which proposed legislative amendments to the AO to expressly permit TPF in Hong Kong. The authors are not aware that the proposed amendments to the AO have actually been put before the Legislative Council of the Hong Kong Special Administrative Region of the People's Republic of China.

By contrast, the Ministry in Singapore has been carefully considering the issue of TPF for years, with what many practitioners assumed was a fair degree of reticence. The first time it became clear that TPF would likely be permitted in Singapore for international arbitration was when the Ministry released the draft legislation and regulations in early July 2016 for a one-month consultation, after what many would consider a lengthy incubation period. Less than six months later, and the relevant Bill is in Parliament. It is expected that the legislation will come into effect at the beginning of 2017.

It may be some time before both Singapore and Hong Kong adopt amendments to their respective arbitration acts to incorporate provisions relating to TPF, and before each jurisdiction's relevant codes and regulations are amended to dovetail with the letter and purpose of the legislation. Once the proposed amendments are passed, however, Singapore and Hong Kong will have two of the most sophisticated legal frameworks in respect of TPF for international arbitration, and will undoubtedly become an example for other jurisdictions thinking of moving in the same direction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Rupert Coldwell
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.