17 Mar 2021 Posted in [Speeches]
- A very good morning, good afternoon or good evening, depending on where you are watching this video from.
- Thank you for inviting me to speak at this Judicial Roundtable Discussion at the 3rd Meeting of SIFoCC.
- The past year has been unprecedented, with the ongoing COVID-19 pandemic. The 3rd Meeting, in fact, was rescheduled from last year due to the pandemic. But I am glad that it is able to take place now, this year, as issues discussed at this year’s meeting will be of even greater interest to many.
Singapore’s introduction of third-party funding
- The pandemic has also heightened economic pressures, and focused attention on the need for alternative sources of funding litigation.
- In Singapore, we introduced our third-party funding framework in 2017 for international arbitration proceedings. Since then, we have seen a growing presence of funders here.
a. Feedback from funders, and the business, legal and arbitration communities on the framework so far, have been positive.
i. Funders report an upturn in requests for funding in Singapore, and that the reforms were a welcome revision to the business of litigation in Singapore.
ii. Law practices gave feedback that the reforms have been useful and beneficial.
iii. The feedback also saw support for Singapore’s regulatory framework and approach towards TPF.
b. We will be extending the framework to domestic arbitration proceedings, certain proceedings in the Singapore International Commercial Court, and related mediation proceedings.
- I hope to share with you some insights on the following today:
a. First, the impact of commercial litigation funding;
b. Second, the role of commercial litigation funders within a justice system;
c. Third, achieving high standards and whether there is a need for international consistency in regulating third-party funding; and
d. Fourth, how we can share experiences internationally.
Impact of commercial litigation funding
- There have been some observable consequences arising from third-party funding across different jurisdictions. It enables meritorious claims to be heard, that litigants may otherwise be unable to bring, especially in proceedings where legal costs may be substantial. It meets business needs, as it can also be a tool for companies to manage risk and cash flow.
- In particular, the pandemic has highlighted the role and opportunity for third party funding to enhance access to justice. The pandemic has no doubt caused an increase in disputes across many sectors. Many businesses face a real risk of insolvency or otherwise serious cash flow issues. Financial constraints may cause litigants to forgo pursuing their legal rights. Third-party funding plays a pertinent role in this climate – it can offer a lifeline to these businesses, enabling them to pursue meritorious claims, in turn, sustaining them through the economic downturn. Funders have also reported seeing a spike in applications for funding over the past year.
The role of commercial litigation funders within a justice system
- Within the broader justice system, funders also take on several roles.
- They can assist in filtering vexatious or less meritorious cases from the justice system, potentially reducing the caseload of courts. Funders are known to apply very rigorous assessment criteria in deciding whether or not to fund cases. Knowing that a claimant is funded may also discourage defendants from using vexatious or oppressive interlocutory applications to stifle impecunious clients, allowing parties to focus on the substance and merits of their dispute.
- As mentioned earlier, funders also serve a public interest by facilitating access to justice.
- Next, they potentially assist in bringing about a quicker resolution of disputes, as out-of-court settlements may be more likely in funded cases. Respondents may think twice before continuing to litigate a claim, given that funders, being an objective third party, have assessed the merits of the claimant’s case objectively, and will see returns on their investments only if the case succeeds.
- Third-party funding may potentially also bring more complex and meritorious cases into the justice system. This can assist with the development of jurisprudence in courts, and also contributes to the vibrancy of the dispute resolution ecosystem.
- Having said the above, it is important that the role of funders do not supersede or unduly influence lawyers’ duties to their clients, and do not affect clients’ control over their proceedings.
- This leads me to my next point.
Achieving high standards – is there a need for international consistency?
Important issues to address in third-party funding
- While third-party funding plays a valuable role vis-a-vis litigants and the justice system, there are important issues that must be considered and addressed:
a. The first concerns the protection of litigants – It is important for litigants to have independent representation when negotiating contracts with third-party funders. This is to ensure their rights and interests are adequately protected.
b. Second, the integrity of the judicial process and justice system must always continue to be preserved. It is important to prevent conflicts of interest. Such conflicts could take various forms – for instance, where an arbitrator in a funded arbitration acts as counsel in another set of arbitration or litigation proceedings, funded by the same third-party funder. Or more generally, ensuring that a lawyer continues to act in the best interests of his/her client. It is also important to ensure that funders, being a non-party, do not take control of or influence proceedings.
- To deal with the above issues, various regulatory models exist across jurisdictions. It would be helpful to consider some of these models before discussing the need for international consistency.
- In Singapore, we have adopted what we call a “light-touch” approach towards regulating third-party funding. Public consultations were conducted prior to the introduction of the framework in 2017, with feedback received from the legal profession, funders, and industry. “Light-touch” regulation was assessed to strike the right balance between the need for regulation, versus allowing for parties’ autonomy and flexibility. I will go through some key characteristics of Singapore’s third-party funding regulation.
Characteristics of Singapore’s third-party funding framework
- Our third-party funding framework is confined to prescribed categories of proceedings. Presently, third-party funding is permitted for international arbitration proceedings. We will, however, be extending the framework to domestic arbitration and certain proceedings in the Singapore International Commercial Court. This phased approach allows us to test, and subsequently refine, the framework as needed, together with close consultations with stakeholders.
- Next, the Professional Conduct Rules for our legal profession require practitioners to disclose to the court or tribunal, and every other party to the proceedings, the existence of the funding contract, and the identity and address of the funder.
a. Primarily, this serves to enhance transparency, and prevent potential conflicts of interests amongst practitioners, funders and arbitrators.
b. With such disclosure, parties are put on notice, and can take steps to protect their own interests. To protect party autonomy and confidentiality, commercial terms of the funding contract do not have to be disclosed.
- The Professional Conduct Rules also prohibit a law practice or practitioner from holding an ownership interest in, or receiving commissions from, a third-party funder, which has a funding contract with a client of the law practice or practitioner. Again, this serves to prevent conflicts of interest, to ensure that the practitioner is not hindered in acting in his or her client’s best interests.
- Capital requirements are also required of funders, which must be professional funders carrying on the principal business of funding. This ensures that only reputable funders may fund proceedings in Singapore.
- In 2018, a year after the framework was first introduced, we conducted a further consultation to request for feedback and views. As mentioned earlier, the feedback received has been positive. We take the view that close engagement with stakeholders and regular reviews are key to achieving consensus, and of course, developing high standards that are practicable and responsive to changing landscapes.
Reasons for Singapore’s “light-touch” regulation
- There are several aspects to why Singapore has adopted the “light-touch” approach to regulating third-party funding.
a. Studies have found that a nuanced approach should be adopted towards regulation. In the 2015 White & Case International Arbitration Survey conducted by Queen Mary University, 71% of respondents indicated that third-party funding requires regulation. A majority of 58% indicated that the best way to do so was through guidelines such as the International Bar Association (IBA) guidelines, followed by collective self-regulation through a code of conduct by an independent body. The survey also indicated that regulation of third-party funding should focus on disclosure instead of a prescriptive, substantive regime. This would enable tribunals to handle issues on a more nuanced, and case-by-case basis.
b. Singapore’s third-party funding framework has disclosure as its central tenet, while giving precedence to party autonomy and flexibility.
c. As Singapore is an international dispute resolution hub, many parties, counsel, arbitrators and funders are not, and will not, be within our jurisdiction. We have therefore taken an approach that is practical and effective.
d. Our legislative regulation is supplemented by soft laws promulgated by relevant institutions in Singapore. The Ministry of Law worked with arbitration institutions (such as the Singapore International Arbitration Centre (SIAC) and Singapore Institute of Arbitrators (SIArb)), and practitioners (through the Law Society), to initiate the production of “soft laws” on third-party funding. These provide guidelines and best practices on issues including confidentiality, privilege, and funders’ involvement in proceedings.
Other regulatory models
- Singapore’s regulatory model is one of several models that have been adopted by different jurisdictions. For instance, in England and Wales, many major funders are self-regulated under the Association of Litigation Funders, and agree to abide by a set of voluntary guidelines. I understand that recent developments in Australia will see enhanced regulation and oversight over third-party funders to address evolving issues. I will leave my fellow distinguished speakers to elaborate on these models.
- For jurisdictions with civil law traditions, the fundamental starting point for litigation funding may also be different, as the common law concepts of maintenance and champerty occupy varying significance across these jurisdictions.
- Let me now say something about international consistency. While regulatory models differ, there are common key issues in third-party funding across jurisdictions, across civil and common law traditions. Some have therefore called for international consistency in this regard.
a. For instance, for issues relating to preventing conflicts of interest, privilege, confidentiality, and costs – a “safety net” of minimum standards would be valuable to protect litigants, and to preserve the integrity of the justice system.
b. However, perhaps the solution is not in uniformity or a “one size fits all” approach, but rather, an approach that allows balance, and is tailored to the funding environment, litigation culture, architecture and costs, as well as procedural norms.
c. A common thread that runs through the various models is how litigation funding ought to be regulated to protect litigants and prevent misconduct, whilst at the same time, not inhibiting the growth of the industry, or stifling party autonomy and freedom of contract.
d. Many industry associations and dispute resolution institutions have developed some form of guideline or code to address these concerns.
- It is notable that in the 2018 Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, the Task Force recognised a distinction between specific issues capable of being addressed at an international level, and issues that are regulated at a national level, subject to the norms of each jurisdiction or legal tradition.
- While it was agreed that stakeholders would benefit from greater consistency and more informed decision-making in addressing issues relating to third-party funding, the challenge was how such consistency could be achieved.
a. The Task Force recognised the difficulty of suggesting principles and/or guidelines that apply across a myriad of jurisdictions, and among different national contracting and lawyering norms.
b. They also avoided excessive intrusion upon parties’ freedom of contract, recognising that most aspects of funding arrangements were negotiated in private arrangements between funders and a funded party.
c. Consequently, it was decided that a statement of existing best practices would be the most useful means of providing guidance to parties, funders, arbitrators and counsel.
- We agree that a nuanced approach, focusing on standards for key issues, whilst allowing market forces and freedom of contract to promote growth, is helpful in achieving some international consistency.
Sharing of experiences internationally
- How then can we achieve this consistency? We know that regulatory models across jurisdictions are varied. Jurisdictions with different legal traditions have adopted a range of approaches, and have also progressed at various paces. This will continue to evolve with the litigation funding landscape and the needs of litigants.
- Platforms such as this meeting, which brings together key stakeholders in international commercial courts and dispute resolution, are crucial for regular exchanges of experiences and learning points.
- International associations such as the IBA and International Council for Commercial Arbitration (ICCA), as well as studies and surveys on third-party funding and users’ perspectives, also play a key role in sharing experiences internationally.
- In a way, the pandemic has also facilitated the sharing of experiences. Where it was previously the norm to travel to attend such conferences, travel restrictions have compelled governments, institutions and also individuals to be more creative. Events have moved online and allowed more to participate and be involved, where previously, it would not have been possible. This trend would certainly facilitate international sharing of experiences.
- Looking forward, as the global community continues to manage the effects of the pandemic, the role of litigation funding and its impact is set to take on an increasing significance.
- In Singapore, we have further reforms in the pipeline to better support businesses, and to offer additional options for funding their disputes, in order to meet varying needs in this climate. We are working on legislative changes to allow conditional fee agreements (CFAs) for the same categories of proceedings as third-party funding, once expanded. Separately, we are also studying whether CFAs can promote access to justice for other categories of proceedings. While we have historically been more conservative in the area of litigation funding, we are taking incremental steps and looking at the landscape holistically, taking into account what has been done elsewhere, the safeguards that are put in place, and how we can contextualise it for Singapore.
- It is important for regulators, businesses, and lawyers to understand the opportunities for litigation funding to assist in times of economic uncertainty, while ensuring that litigants are adequately protected, and the integrity of the justice system is preserved.
- Approaches across jurisdictions will only continue to evolve with new issues and needs that arise.
- It is important to stay responsive, with active dialogue amongst all stakeholders.
- I look forward to discussing these issues further and hearing from you at the live roundtable session.
- Thank you very much.
Last updated on 17 Mar 2021