UPDATE: Singapore passes law to legalise third-party funding of international arbitration and related proceedings

On 10 January 2017 the Singapore Parliament passed amendments to the Civil Law Act legalising third-party funding in arbitration and related proceedings in Singapore (the "Amendments"). Following a year of positive developments for arbitration in Singapore, this latest development will open up a significant new market for funders worldwide, further asserts Singapore's eminence as an arbitral centre and paves the way for further and deeper reform.

Overview

We previously reported on the introduction of the Civil Law (Amendment) Bill in our blog posts of July 2016 and November 2016. The key features of the Bill were to:

• 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.

While the legislation makes the broad legal amendments necessary to facilitate third-party funding, the finer details – such as the precise scope of the permitted arrangements and accompanying regulatory changes – will be dealt with by subsidiary legislation and regulations by the Minister of Law.

Interestingly, early reports of Ministers' comments on the legislation, indicate that the Amendments – currently limited to international arbitration and related proceedings – are very much a first step toward broader reform. Singapore's Senior Minister of State for Law, Ms Indranee Rajah, reportedly stated that "We want to have [third-party funding] tested in a limited sphere … If the framework works well, as and when appropriate, the prescribed categories of proceedings may be expanded". This will be of significant interest to funders and practitioners alike, as it clearly positions Singapore as a growth market.

A path forward

Hinting at potential areas for expansion of the reform, Ministers reportedly suggested that third-party funding arrangements might be extended to litigation and domestic arbitration. It appears that the Government is also considering expanding the scope of permitted arrangements to include lawyers' contingency fees, citing the more "creative" arrangements permitted in the UK, Australia and the US by way of comparison. In response to a question in Parliament, Ms Rajah reportedly confirmed that "event-triggered fee arrangements" will be studied as part of a broader review of the civil justice system.

Early reports also indicate that a "light touch" approach will be taken toward regulation on the basis that many of the parties, lawyers and funders likely to utilise the new funding arrangements will be outside Singapore's jurisdiction. International Bar Association guidelines and collective self-regulation via a code of conduct were reportedly cited as potential means of achieving this, with disclosure of such arrangements being required as a safeguard of central importance (Ms Rajah reportedly noted that disclosure obligations in particular received "major support" from funding providers in the Ministry of Law's public consultation).

Mediation Bill

Alongside the Amendments, Parliament also passed the Mediation Bill, which we covered in our November 2016 blog post, and which (in its draft form) provides:

• the ability for parties to seek an automatic stay of Singapore court proceedings relating to disputes subject to mediation;
• a mechanism by which parties to a settlement agreement reached through mediation can apply to the Singapore courts for the agreement to be recorded as a court order (which could then be enforced as a normal Singapore court judgment); and
• that all correspondence in a mediation is prima facie confidential and inadmissible in evidence in a Singapore court or before an arbitral tribunal seated in Singapore (subject only to a number of specified exceptions).

In response to Ministers' concerns that professional standards are maintained, Ms Rajah noted that bodies such as the Singapore International Mediation Institute will act independently to promote mediation and ensure such standards.

Summary

The Amendments and the Mediation Bill come at a time when SIAC is experiencing an upward trend in caseload, and the Ministry of Law has recently announced plans to triple the size of Maxwell Chambers (Singapore's leading integrated dispute resolution complex), adding 120,000 square feet of floor space and 50 new offices for dispute resolution institutions, arbitration chambers, law firms and ancillary legal services. There is no doubt that 2017 looks to be a bright year for alternative dispute resolution in Singapore.

Looking to the broader Asian context, the Hong Kong Legislative Council today gave the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 its second reading. 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.