Third-Party Funding: a New Chapter in Hong Kong & Singapore
- Matthew Secomb, Melody Chan, Thomas Wingfield, Philip Tan
Hong Kong, Singapore July 29 2016
The legal landscape is changing in South East Asia for third-party funding of international arbitration. Third-party funding – by which a commercial fund finances a case in exchange for a share of the damages – has historically been confronted by suspicion or silence in the region. Now, the future looks very different. In Singapore, the consultation period closes today for draft legislation legalizing third-party funding for international arbitration. In Hong Kong, the Law Reform Commission has also recommended legislative reform to develop this market. Although not unforeseen, these are important developments for dispute resolution in Asia. Parties, funds and lawyers alike should prepare for changes to come.
What is third-party funding?
Third-party funding, also known as 'litigation finance', represents an alternative means to fund your claim. In simple terms, a commercial fund with no prior connection to the case – the 'third party' – finances the costs of the proceedings in return for a share of any damages awarded. By contrast, the traditional way for a party to fund its claim is simply for that party, or a related company, to pay for its costs.
Over the last decade, however, third-party funding has become increasingly prevalent in many jurisdictions in Europe, Australia and the United States. At its best, third-party funding provides access to justice by enabling a party to enforce its rights that would otherwise be unaffordable. Even for solvent parties, there is the further question of how best to access justice: third-party funding opens up commercial choices to allocate risk, collateralise the claim, and apply capital profitably that might otherwise be tied up in the dispute.
The past – fear of third party funding in Hong Kong & Singapore
For centuries in common law jurisdictions, funding another party's claim was a crime. The public policy fear was that the third party funder "might be tempted, for his own personal gain, to inflame the damages, to suppress evidence or even to suborn witnesses."1 In other words, "an agreement to share in the spoils of litigation may encourage the perversion of justice and endanger the integrity of judicial processes", not least because "it involves a stranger to the litigation in 'trafficking' or 'gambling' in the outcome of the litigation."2
England abolished the common law crime in 1967. However, in Singapore and Hong Kong – heirs in many ways to England's legal tradition – funding another party's claim generally remains unlawful and a crime (with certain exceptions as we explain below).
Reform – a long-time coming?
In recent years, reform has often been a subject of discussion, but also a source of controversy in Hong King and Singapore. Yet, in many other jurisdictions, a consensus has developed that the public policy for outlawing third-party funding has turned "full circle":
"Originally their prohibition was justifiable as a means to help secure the development of an inclusive, pluralist society governed by the rule