By DEBBIE LEE - Associate, ECYT Law LLC
Introduction
1. Champerty and maintenance are age-old doctrines that have been long established in common law. As the Senior Minister of State for Law Ms. Indranee Rajah, has concisely explained: “Maintenance is the provision of assistance to a party by a person or entity that has no interest in the proceedings. Champerty is maintenance of an action in return for a share in the proceeds of the action.”1
2. Champerty and maintenance were prohibited in common law jurisdictions to prevent abuses of the legal system by those who were financially empowered to launch strategic legal attacks for the purpose of gaining profit. Third-party funding has thus been prohibited due to the laws against champerty and maintenance, which essentially rendered contracts for third-party funding illegal and unenforceable.
3. There has been a paradigm shift in the laws against champerty and maintenance that started in Australia, followed by the UK and Europe, then Canada and the United States. Third-party litigation and arbitration funding is now permitted in these jurisdictions.
4. Closer to home, Hong Kong has recently come on board as an advocate of third-party funding for international arbitration.2
5. Singapore has since followed suit. On 7 November 2016, the Ministry of Law proposed amendments to the law to permit third-party funding for international arbitrations seated in Singapore, related court proceedings and mediation. The Civil Law (Amendment) Bill was passed on 10 January 2017.
The Civil Law (Amendment) Bill
6. The Civil Law (Amendment) Bill3 amends the Civil Law Act (Cap. 43) (the “CLA”) to formally abolish the common law doctrines of champerty and maintenance and clarify that third-party funding contracts for international arbitration seated in Singapore, related court proceedings and mediation, are not contrary to public policy or illegal.
7. Subsidiary legislation sets out the requirements and qualifications that third-party funders must meet to enter into a third-party funding contract.
8. The amendments to the CLA have led to corresponding amendments to the Legal Profession Act (Cap. 161). Lawyers will be able to:
a. Recommend third-party funders to their clients; and
b. Advise their clients on third-party funding contracts,
as long as they do not receive any direct financial benefit from their recommendation or advice – this excludes legal fees paid for legal services to the funded party.
Why the Paradigm Shift?
9. The main motivation for the amendment of the Civil Law Act is so that Singapore can strengthen its position as the region’s cross-border dispute resolution hub.4
10. With third-party funding gaining momentum in the common law jurisdictions from which Singapore jurisprudence draws guidance and receives influence, it is inevitable that Singapore embraces these changes to keep her competitive edge.
How Will Third-Party Funding Change the Legal Landscape in Singapore?
11. The availability of third-party funding would help plaintiffs who cannot afford representation and empower the party that is out-resourced by its opponent. This could potentially improve the start-up industry and innovation in Singapore, with start-up companies more well-equipped to enforce their legal rights.
12. Further, with the funder’s resources, funded parties will be able to more efficiently assess their cases, which would allow better decisions to be made. In effect, funding will allow for better risk management in cases.
The Case Against Third-Party Funding
13. On the flip side, third-party funding arrangements may result in undisclosed conflicts of interest, for example, prior relationships between the funder and the law firm involved in the arbitration or the funder and the arbitrator.5
14. The other potential concern is that the funder may engage in frivolous lawsuits anyway and in dealing with the risks associated with the same, spread the risks of the unmeritorious claim among various investors by amassing a conglomerate of investors or securitization of the costs of litigation.6
15. Further, as the funder has an interest in the outcome of a dispute, there is a risk that it might seek to seize control of the proceedings from the party. This could include behaviour such as pressuring the party into settling or preventing the party from settling, even if it were against the best interests of the party, or the withdrawal of funding at the last minute.7
16. Lawyers are also faced with an additional challenge – to act in the best interests of the client, but receive funding from the third-party funder. The risk here is that third-party funders may exert pressure on lawyers to act in their interests, which may not necessarily be in their clients’ best interests.8
Myth Debunked?
17. The issue of unmeritorious claims has been one of the most debated topics in third-party funding. It was opined that funding arrangements are more likely to deter unmeritorious claims - third-party funders will conduct due diligence and have a vetting process, as it is not in their commercial interests to take on weak, unmeritorious cases.9 Third-party funders thus tend to avoid claims based on novel legal theories or theories that stand a substantial risk of being reversed on appeal.10
Concluding Thoughts
18. In an effort to keep herself relevant in cross-border dispute resolution, Singapore has taken a courageous but cautious step toward allowing, on a limited basis, third-party funding, where the Ministry of Law will “consult closely with the profession and stakeholders”.11
19. The new legislation seems to be encouraging the culture of disclosure by making transparency the focus.12 This would address the concern of potential conflicts of interest in third-party funding situations.
20. While dissidents may fear that the evils of third-party funding outweigh the benefits, it is imperative that the legal system in Singapore stay relevant against the backdrop of developments in the international commercial world. With the new legislation in place, it is ultimately up to the discretion of the international arbitration tribunals to be well aware of such concerns and to apply these new laws to maximize the benefits of third-party funding.
1 Singapore Parliamentary Debates, Civil Law (Amendment) Bill (10 January 2017) vol 94 at 2.26 pm (Indranee Rajah, Senior Minister of State for Law).
2 Law Reform Commission of Hong Kong, Third Party Funding for Arbitration Consultation Paper (October 2016) <http://www.hkreform.gov.hk>.
3 Civil Law (Amendment) Bill (Bill No. 38/2016).
4 Supra n 1.
5 Victoria Shannon Sahani, “Judging Third-Party Funding” 63 UCLA L. Rev. 388 (2016)
6 U.S. Chamber (Institute for Legal Reform) website <http://www.instituteforlegalreform.com/issues/third-party-litigation-funding>
7 Ibid.
8 Supra n 6.
9 Douglas R. Richmond, “Litigation Funding: Investing, Lending or Loan Sharking?” 2005 Prof. Law. Symp. Issues 17, at 27
10 Richard Lloyd, “The New, New Thing”, The American Lawyer (17 May 2010)
11 Supra n 1, at 3.18 pm.
12 Ibid.