We reported previously (here) on the Singapore Parliament's passage of the Civil Law (Amendment) Bill (Bill No. 38/2016) (Bill) on 10 January 2017.
The Bill entered into force on 1 March 2017 as the Civil Law (Amendment) Act 2017 (Act). The framework established by the Act has been elaborated in the accompanying Civil Law (Third Party Funding) Regulations 2017 (Regulations) and related amendments to the Legal Professional Act (Cap. 161) and the professional conduct rules for lawyers in Singapore.
In summary, the Act abolishes the common law torts of champerty and maintenance and confirms that third-party funding is not contrary to public policy or illegal where it is (i) provided by eligible parties (ii) in prescribed proceedings.
The Regulations provide further detail on the reform, confirming that:
- in order for a party to be eligible to provide funding under the Act, the funding of dispute resolution proceedings must be its "principal business" (in Singapore or elsewhere), and the third-party funder must have "a paid‑up share capital of not less than $5 million"; and
- the prescribed categories of proceedings in which third party funding can be used is limited to international arbitration proceedings, and court litigation and mediation arising out of such proceedings (for example, applications for the enforcement of awards, or mediation undertaken prior to or during arbitration).
As expected, the Regulations prescribe specific eligibility requirements for funders. Notably, the requirement in the draft version of the Regulations (which was circulated alongside the Bill) for funds "sufficient to fund the dispute resolution proceedings" has been amended in keeping with the Ministry of Law's original proposals in 2011 that "[t]hird party funders should be entities with at least S$5 million in paid up capital").
Related professional conduct reform
The Act's coming into force was accompanied by related amendments to Section 107 of the Legal Profession Act (Cap. 161) (LPA) and the professional conduct rules for lawyers in Singapore (the Legal Profession (Professional Conduct) Rules 2015 (LPRCR).
Section 107 of the LPA prohibits solicitors from (i) holding any interest of any party in any suit, action or other contentious proceeding; or (ii) acting in any suit, action or other contentious proceeding on a basis which contemplates payment only in the event of success. The Act amends the LPA to clarify that the restriction in Section 107 does not prevent solicitors from:
- introducing or referring a third-party funder to a client, provided the solicitor does not receive any direct financial benefit (excluding their usual fees, disbursement or expense for the provision of legal services to the client);
- advising on or drafting a third-party funding contract for such client or negotiating the contract on their behalf; or
- acting on behalf of the client in any dispute arising out of such contract.
The amendments to the LPRCR concern two principal areas:
- Disclosure: practitioners must now disclose to the court or tribunal and to every other party to proceedings: (i) the existence of any third-party funding contract related to the costs of such proceedings; and (ii) the identity and address of any funder involved, at the date of commencement of proceedings, or as soon as practicable after the third-party funding contract is entered into; and
- Financial interest: practitioners are prohibited from
- holding financial or other interests in; or
- receiving referral fees, commission, fees or any share of the proceeds from,
third-party funders which they have introduced or referred to their client(s), or which have third-party funding contracts with their client(s).
These amendments are consistent with public statements made by Singapore's Senior Minister of State for Law, Ms Indranee Rajah, in January 2017 that Singapore "will be taking a limited but targeted regulatory approach" to third-party funding, and her expectation that "industry-promulgated guidelines or best practices will emerge". In particular, the amendments relating to disclosure follow previous comments by the Ministry of Law disclosure obligations would be a "central tenet" of regulatory reform accompanying the Act. This follows general industry sentiment that any regulation of third-party funding should mainly focus on disclosure (see the 2015 International Arbitration Survey, conducted by Queen Mary University), and addresses Singapore Chief Justice Sundaresh's observation at a CIArb conference in Penang in 2013 that "there is a virtual absence of any form of regulation" in Asia in the context of third-party funders, and a need for "meaningful guidance" on issues such as conflicts of interest, influence and disclosure.
A taste of what's to come?
Under the Act and the Regulations, funding solutions outside of those arrangements described above are not possible. In particular, lawyers remain prohibited from funding proceedings themselves, under contingency arrangements or otherwise.
The Act and the Regulations are consistent with Ms Rajah's repeated statements that the limited reform effected by the Act represents a testbed for a more general roll-out of third-party funding in Singapore. The timeline for such further reform is not known, but many will follow the development of third-party funding in Singapore with keen eyes.
Meanwhile, the Act represents a significant step forward for Singapore as an international arbitration hub, and parties involved in arbitrations seated in the jurisdiction now have access to a broader and more diverse range of funding arrangements.
While the Hong Kong Legislative Council is presently in the process of a similar reform in Hong Kong, a final timeline for implementation is not yet available. We previously wrote about this in a blog post in October 2016 and will continue to monitor its progress.
For further information, please contact Alastair Henderson, Partner, Gitta Satryani, Senior Associate, Daniel Mills, Associate, or your usual Herbert Smith Freehills contact.