Singapore arbitration update: Third Party Funding and New SIAC Rules 2016

This week has seen two major developments in Singapore arbitration. First, Singapore's Ministry of Law has published draft legislation to legalise and regulate third party funding for arbitration (and arbitration-related litigation and mediation) in Singapore. Second, the Singapore International Arbitration Centre (SIAC) confirmed the release of the sixth edition of its Rules: the SIAC Rules 2016, to come into effect on 1 August 2016.

Below we explain briefly the effect of the proposed legislation and the SIAC Rules 2016.  More in-depth analysis will follow.

Proposed legalization of third party funding

The use of third party funding in arbitration has been a hot topic in arbitration, both in South East Asia and worldwide. In releasing for public consultation the Civil Law (Amendment) Bill 2016 (the Bill) and Civil Law (Third Party Funding) Regulations 2016 (the Regulations), the Ministry of Law has recognised that:

1. third party funding is increasingly utilised in major arbitration centres throughout the world;
2. offering third party funding increases a party's flexibility in relation to arbitration; and
3. this flexibility is crucial to the continued promotion of Singapore as a leading venue for international arbitration.

The proposed Bill and Regulations establish a framework to legitimise the use of third party funding in international arbitration proceedings seated in Singapore and arbitration-related litigation and mediation in Singapore. Specifically, the proposed changes will:

• abolish the common law torts of champerty and maintenance (which currently restrict the use of third party funding);
• confirm that third party funding is not contrary to public policy or illegal, if used by eligible parties in prescribed categories;
• confirm that the prescribed categories of proceedings in which third party funding can be used include international arbitration proceedings and court litigation and mediation arising out of international arbitration; and
• prescribe the qualifications that a third party funder must satisfy in order to fund an arbitration, including a proviso that the funding of dispute resolution proceedings must be the "principal business" of the third party funder.

The draft legislation is open for public consultation until 29 July 2016.  Details on how to submit a response to the Singapore Ministry of Law can be found here.

Hong Kong, Singapore's main Asian competitor as a seat of arbitration, is also considering legalising third party funding.  As we noted last year, a consultation paper was released by the Hong Kong Law Reform Commission. Draft legislation is not yet available but is expected to be submitted to Hong Kong's Legislative Council later in 2016. 

SIAC Rules 2016

On 1 July, SIAC officially released the SIAC Rules 2016, following an extensive public consultation exercise. The new SIAC Rules 2016 replace the SIAC Rules 2013 and will come into effect on 1 August 2016.

The most notable changes introduced by the SIAC Rules 2016 include:

1. The introduction of a procedure for the early dismissal of claims and defences.  SIAC is the first major arbitration centre to introduce such a procedure, so this is an extremely novel development.  It is hoped that this will lead to cost and time savings for parties faced with unmeritorious or vexatious claims.  However, it will remain to be seen how willing arbitrators will be to use the mechanism to dismiss anything but the most obviously abusive cases, given the potential for any award to be challenged.
2. The introduction of a "streamlined process" for disputes arising out of multiple contracts.  Given the increasing complexity of commercial deals, it is increasingly common for disputes to arise in the context of multiple contracts with multiple parties.  The new Rules will allow a party to file a single Notice of Arbitration in respect of claims under multiple contracts. The Rules also include a mechanism for consolidating related disputes.
3. The improvement of mechanisms to enhance the efficiency of the arbitral process. The Rules will reduce the time it takes to appoint an Emergency Arbitrator to within a single calendar day.  They will also increase the monetary threshold of cases which can use the expedited procedure.

These recent developments should be welcomed by our clients as an important step in further strengthening the arbitration community and framework in Singapore. 

Alastair Henderson, head of Herbert Smith Freehills' South-East Asia International Arbitration practice and Managing Partner of the Singapore office, stated that "The new SIAC Rules and the proposed legislation on third party funding further demonstrate Singapore's determination to evaluate and develop its arbitration laws and procedures to a global market-leading standard. This ensures that users will have access to a modern and efficient arbitral system and that Singapore remains a top choice for international dispute resolution".

For further information, please contact Alastair Henderson, Partner, Daniel Waldek, Senior Associate or your usual Herbert Smith Freehills LLP contact.