Third party funding of arbitration in Asia

Both Singapore and now Hong Kong have changed their laws in 2017 to enable claims in arbitration to be funded by third parties.

As we foreshadowed at the beginning of 2017, legislation has now been passed in both Hong Kong and Singapore to allow third party funding for arbitration claims and abolish the doctrines of maintenance and champerty in relation to arbitration, related court proceedings (for example enforcement of awards) and mediation.

In the competition between cities and arbitration institutions for a share of the arbitration market, Hong Kong and Singapore were concerned that they would lose market share if they did not allow third party funding given the increasing number of funded arbitrations. The funding of litigation per se is still restricted.

Singapore won the race to legislate with its legislation to amend the Civil Law Act introduced in January this year and in force as of 01 March 2017. The Hong Kong Legislative Council passed legislation yesterday to amend the Arbitration Ordinance and Mediation Ordinance. These amendments will not be in force until later this year.

Disclosure of the funding arrangements

Both Singapore and Hong Kong require that the existence of the third party funding arrangement and name of the funder be disclosed. In Singapore it is the responsibility of the legal practitioner under the Professional Conduct Rules. In Hong Kong it is the responsibility of the funded party to make the disclosure.

In both jurisdictions, disclosure is required at the commencement of the arbitration if the funding agreement was entered into beforehand. If the funding agreement is entered into after the commencement of the arbitration, in Singapore disclosure is required as soon as practicable and in Hong Kong within 15 days. Disclosure must be made to the other party and the arbitration tribunal.

This is to ensure that any actual or potential conflict of interest involving the members of the arbitration tribunal is addressed, for example if a tribunal member is acting as counsel in another matter for a party that is funded by the same funder.

Regulation of the funders

In Singapore the funding needs to come from a “qualifying Third-Party Funder”. To qualify the funder needs to carry on the principal business of funding the costs of third party dispute resolution proceedings and have a paid up share capital of not less than $5m or not less than $5m in managed assets.

Hong Kong has taken a different approach with the planned introduction of a code of practice setting out the practices and standards for third party funders to follow. Funding of claims in Hong Kong is not limited to professional funders although the code of practice may discourage others from funding claims. The code of practice is likely to cover areas such as promotional material, the clarity and terms of funding agreements, capital requirements, monitoring and complaints procedures and ensuring that funded parties obtain independent legal advice. The Secretary of Justice is to appoint the advisory body which will issue the code of practice and it is expected that the legislation will only come into force once the code is developed.

Future developments

Some global funders have already opened in Asia and more are in the process of doing so. There is a lot of interest already in the provision of third party funding.

While for now third party funding in Singapore is limited to arbitration and related proceedings, the legislation in Singapore allows for the government to make future regulations to allow third party funding of other types of proceedings, for example proceedings in the Singapore International Commercial Court.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.