Civil Law (Amendment) Bill

Order for Second Reading read.

2.26 pm

The Senior Minister of State for Law (Ms Indranee Rajah):Mdm Speaker, I beg to move, "That the Bill be now read a Second time."

As mentioned in my speech to introduce the Mediation Bill, Singapore is well poised to strengthen its position as a leading centre for cross-border dispute resolution. We will make a number of moves this year to grow dispute resolution work in Singapore to the next level, and these amendments for the Civil Law (Amendment) Bill are one of those moves.

Compared to international commercial mediation, international commercial arbitration in Singapore is more developed. Our International Arbitration Act was introduced in 1994 and has been updated from time to time, to be on the cutting-edge of international arbitration.

The Singapore International Arbitration Centre (SIAC) is now amongst the top five most preferred arbitral institutions in the world. It set a record in 2015 for the number of new cases and dispute quantum. I am confident that in 2016, SIAC would have done even better. I look forward to a new record.

Singapore is now one of the top five most preferred seats in arbitration in the world, alongside London, Paris, Geneva and Hong Kong. But we are not resting on our laurels. We will need to stay responsive to business and constantly adapt what we do to better serve their needs.

One area where we can do so is in third-party funding in international commercial arbitration, where legal costs can be substantial and where there is today a growing body of reputable professional funders.

There are two main aspects to third-party funding. First, as the name suggests, third-party funding involves the funding of a claim by a party who is unconnected to the dispute. The party, usually the claimant, uses the funds to cover its legal costs in the dispute. Second, in return for the funds, the funder usually receives a share of the damages awarded if the claim succeeds. If the claim fails, the claimant does not have to repay the funder. This is the risk that the funder takes.

Currently, in Singapore, agreements for third-party funding of dispute resolution proceedings are generally unenforceable as they fall foul of the laws of maintenance and champerty. 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.

There are two aspects of champerty and maintenance. First, there is a common law tort of champerty and maintenance. Second, also, under contract law, agreements affected by maintenance or champerty are void as contrary to public policy.

These laws on champerty and maintenance were inherited from English common law. They were originally developed in medieval times to protect vulnerable litigants and to guard against potential abuse of court processes.

However, jurisdictions such as the UK and parts of Australia have decided that such protections are no longer necessary and have removed them. Third-party funding of dispute resolution has emerged, driven on the demand-side by business needs for such financing options and on the supply-side by well-capitalised professional third-party funders.

These third-party funders raise capital from investors and use the money to fund claims. Their objective is to make an attractive return for their investors out of the proceeds of the claims that are successful.

Today, third-party funding has become a feature in other leading arbitration centres, including London, Paris and Geneva. As a leading centre for international commercial arbitration, Singapore is cognisant of the practices and business requirements of commercial parties, many of whom choose to arbitrate in Singapore, despite their dispute having no connection to Singapore.

In this context, the Bill, which will introduce a framework for third-party funding in Singapore, will achieve the following:

(a) It will offer businesses an additional financing and risk management tool when engaged in the relevant categories of proceedings. This includes the financing of valid claims which they may otherwise not pursue, due to financial constraints.

(i) Businesses that seek to access third-party funding will typically have to undergo a rigorous process of claim assessment by the chosen funder.

(ii) Funders are known to be highly selective, given they need to provide attractive returns to their investors. Thus, their due diligence process is designed to provide them with a degree of confidence that the claims they fund will succeed.

(b) Offering third-party funding, which is already available in other international arbitration centres, will strengthen Singapore's position as a premier international commercial dispute resolution hub and a key arbitration seat in the world. This will benefit Singapore law firms and lawyers.

I will now take the House through the main features of the Bill.

The Bill provides a framework for third-party funding in Singapore. The Bill does the following in relation to the laws of champerty and maintenance.

The Bill clarifies that the common law tort of champerty and maintenance is abolished in Singapore, as had previously been stated by the High Court in Jane Rebecca Ong v Lim Lie Hoa.

The Bill makes clear that while the tort is abolished, contracts affected by maintenance and champerty will continue to be contrary to public policy or otherwise, illegal. Third-party funding contracts will therefore, still be unenforceable.

It is only for certain prescribed categories of proceedings that a third-party funding contract will not be contrary to public policy or illegal by reason that it is a contract for maintenance or champerty. These categories will be specified in subsidiary legislation after the Bill comes into force. At the outset, third-party funding will only be permitted for international arbitration proceedings, and related court and mediation proceedings.

This will allow the framework to be tested within a limited sphere by parties of commercial sophistication. The framework may be broadened in future after a period of assessment. Drawing from the experience of other jurisdictions which permit third-party funding, there will be limited but targeted regulation of third-party funders.

The Bill provides that third-party funding may only be provided by an entity which meets the criteria set out in subsidiary legislation. The criteria in the subsidiary legislation will ensure that only professional funders whose principal business is funding claims, will be allowed.

The Bill also allows requirements to be imposed on funders through subsidiary legislation. Entities that do not meet the criteria to fund, or funders who do not comply with requirements imposed on them, will not be able to enforce their rights under a third-party funding agreement. This would include their right to receive a share of damages, should the claim succeed.

The funder would, however, be required to continue performing its obligation under the third-party funding agreement, including its obligation to fund the claim as the Bill provides that the rights of any other party as against the funder under the third-party funding agreement are not affected. To ensure fairness to the funders, the Court or Arbitral Tribunal may grant relief to the funders on their application, if the non-compliance was due to inadvertence or some other sufficient cause, or if it is just and equitable to do so.

In addition, the Legal Profession (Professional Conduct) Rules will be amended to impose a duty on lawyers to disclose the existence of any third-party funding which their client is receiving. Disclosure of third-party funding is necessary to ensure there is no conflict of interest. It is anticipated that similar to other jurisdictions where third-party funding is prevalent, industry-promulgated guidelines or best practices will emerge. The Ministry of Law is working with arbitration institutions and practitioners to initiate the production of such "soft laws".

The Bill also makes a related amendment to the Legal Profession Act to clarify that lawyers are allowed to introduce or refer funders to their clients. Lawyers are also allowed to advise or act for their clients in relation to the third-party funding contract.

However, the Bill provides that lawyers are not allowed to receive direct financial benefit from the introduction or referral of the funder. Direct financial benefit does not include legal fees paid to the lawyers for the provision of legal services. Lawyers can be paid for the provision of legal services to the funded party. Such payment can be made by the funded party or by the funder on behalf of the funded party.

The framework will facilitate the use of third-party funding in appropriate cases, commencing with international arbitration proceedings. The amendments contemplated will level the playing field so that international businesses which arbitrate in Singapore are able to make use of the financing and risk management tools available to them in other major arbitration centres. At the same time, we will continue to monitor the third-party funding landscape here and abroad and will seek to ensure that best practices are adopted here. Mdm Speaker, I beg to move.

Question proposed.

2.37 pm

Mr Dennis Tan Lip Fong (Non-Constituency Member):Madam, I would like to declare my interests as a lawyer who has a practice in the area of commercial arbitration.

Madam, this Bill essentially legalises and introduces third-party funding for legal costs in international arbitration proceedings in Singapore. Third-party funding is essentially financing provided by financing firms for claims in arbitration or litigation. These companies treat arbitration or litigation claims as assets. Like insurance, they distribute risks across their portfolio cases and in the process, they are able to also invest in claims which are otherwise regarded to have lesser merits, and may not otherwise see the light of day.

I recognise that third-party funding has been in existence in some jurisdictions for some time. Third-party funding may be growing, but it is not without controversy. In countries where third-party funding is allowed, the following problems have been raised.

One, third-party funders may transfer control of the cases from the claimants themselves, and take control of the strategy and decision-making for cases which they fund. If so, would this not be desirable because it would no longer be about the claimant's interests? For example, the claimant may wish to conduct the claim proceedings in a certain manner or may wish to settle the claim at some point, but the third-party funders may disagree, and the third-party funders' preference will prevail if the third-party funding agreement ceded control and decision-making for the claim to the third-party funders.

Two, there is also the issue of conflicts of interest for the lawyers who are acting on behalf of the claimants in a claim funded by third-party funders. Who are the lawyers answerable to? Can the same lawyers act for both the claimants and the third-party funders without being in a position of conflict?

In many cases, lawyers or even arbitrators have been routinely appointed by the same third-party funders in different cases. Clearly, in such cases, there is a huge question mark over whether the interests of the claimants are protected or compromised. The claimants are left with no one to protect their interests if their position defers from that of the third-party funders, and I do not think this is desirable.

In the context of international arbitration, Chief Justice Sundaresh Menon said in 2013 that, "International arbitration features the unique situation of counsel and arbitrators often being drawn from essentially the same pool". The Chief Justice also said, "A potential problem can arise when a funder finances multiple arbitral claims, and where an arbitrator in one of those claims is also the legal representative of the claimant in a separate claim that is being financed by the same funder". The Chief Justice also raised questions about third-party funders having influence over the arbitration proceedings and appointing arbitrators who have prior commercial relationships with the third-party funders. He asked whether such relationships should be disclosable to the other party.

Three, third-party funding has resulted in prolong litigation. In some reported cases, third-party funders have entered into third-party funding agreements with claimants which encourage claimants to settle a claim for more money by increasing the claimants' share of the recovered amount, if it is beyond certain specified sum. Claimants may, in such cases, reject what may otherwise be a fair settlement sum with their opponents earlier on in the proceedings, in the hopes of getting a higher recovery later on, but which may not ultimately prevail.

Four, third-party funders effectively become the new additional party to any proceedings which has an interest in the proceedings, which is to effect maximum returns on its investment, which may run conflict to the interests of not just the claimants they are funding, but also to the prejudice of the defendants on the opposite side on how the claim should be conducted, and whether settlement should be entered int.

Madam, I would also like to seek clarification from the Senior Minister of State as to how the Government intends to deal with issues I have highlighted above. Will all these issues be addressed in the subsidiary legislations that the Senior Minister of State has mentioned?

Madam, I would also like to seek one other clarification from the Senior Minister of State. What is meant by the term direct financial benefit under clause 3 of the Bill where it proposed to include a clause 3A(a) and clause 3B? Will this mean that third-party funders will be allowed to fund the setting up of a law firm's litigation department, which I read that such funders do in some jurisdiction? If so, would there be a conflict of interest for lawyers vis-Ã-vis the third-party funders and the actual claimant?

Madam, while I am in principle, supportive of allowing third-party funding and this Bill, I am concerned that the issues which I have raised must be correctly addressed by the Government at the onset, so that we can avoid experiencing the same problems, which surfaced in other jurisdictions, and exclude the known negative aspects of third-party funding. Madam, I support the Bill.

2.43 pm

Asst Prof Mahdev Mohan (Nominated Member):Madam, third-party funding refers to an agreement by an unconnected party to fund another's dispute in return for a share of any damages or settlement.

Traditionally, in the past, this amounted to the tort and crime of champerty and maintenance. The courts were also cautious in guarding against the abuse of the court's process, fearing that a third-party funder "might be tempted, for his own personal gain, to inflame damages, to suppress evidence, or even to suborn witnesses".

But this position changed in the UK and the other common law jurisdictions over the years. The UK, through the Criminal Law Act of 1967, abolished the tort and crime of champerty, though the champertous agreements remain unenforceable for being contrary to public policy, or otherwise illegal in contract law. Today, as the Senior Minister of State notes, third-party funding is increasingly used in international commercial arbitration, where costs are increasing and substantial.

It is utilised in arbitrations in major arbitration centres around the world including London, Paris and Geneva. What of Singapore then, which has been described as the fourth most preferred seat for arbitration?

I welcome this proposal of having of third-party funding. In Singapore, as the law currently stands, "champerty and/or unlawful maintenance will be struck down as being against public policy". In 2007, Singapore's highest court held that champerty applies to any procedure chosen for the resolution of a claim, including arbitration.

This Bill, therefore, that is before this House, is crucial. It abolishes the tort of maintenance and champerty; high time, some would say, given that the UK's abolition of the same, came 50 years ago.

More importantly, the Bill boldly carves out "prescribed categories" regarding the enforceability of funding contracts for arbitration and arbitration-related proceedings. These proceedings will not automatically deemed as being contrary to public policy or illegal. This amendment is important for Singapore to gain and maintain its competitive advantage over the other established and popular seats, namely Geneva, New York, Stockholm and most close to home, Hong Kong.

As I understand the Bill, our courts will continue to retain the discretion to inquire into the nature of third-party funding in order to determine whether the circumstances reveal an improper motive or a tendency to act in an unethical manner that would "sully the purity of justice". By allowing third-party assistance, this will promote legal representation and facilitated access to justice in commercial and investment arbitration, which would otherwise be sacrificed.

Permit me though to ask the following questions of the Senior Minister of State.

First, on the issue of balance. Could I ask the Senior Minister of State, will the Ministry tell us more about the balance it intends to strike between this need for regulation on one hand, and the parties' autonomy and flexibility in future amendments on the other? Particularly, what is the role that it sees arbitral tribunals and institutions play as check against abuse of process by third-party funders?

Two, will Singapore be following in the footsteps of the UK by having a regulatory or self-regulatory body, or perhaps Australia which seems to focus on the avoidance of a conflict of interest? How will we be calibrating our approach? Will there be a periodic review of this approach that we take in consultation importantly with the users of third-party arbitration funding procedures?

Three, on costs, what will the third-party funders' liability be for costs, if any? Does the Ministry envision that it could include not only security for cost but also adverse cost orders? Are there plans to provide further guidance as to the factors that ought to be taken into account in a cost order against a third-party funder?

Fourth, disclosure. Given the proposed disclosure requirements through possible amendments to the Legal Profession Act in due course, what does the Ministry have in mind to allay third-party funders' concerns that their identity and amount of funding, will be unduly exposed? I say this as in my research, I notice that seems to be a concern for third-party funders. While I personally support transparency, could this disclosure or over-disclosure have a "chilling effect" on their willingness of third-party funders to come forward?

Fifth, finally, on qualifications. The current criteria for qualifying as a third-party funder are focused on capital adequacy in the Bill. Will other criteria, in addition to capital adequacy such as having a minimum claim requirement to help to ensure that funders assess the merits of each case carefully before agreeing to provide funding be put in place so that claims are not "farmed"? Mdm Speaker, notwithstanding these questions, I support the Bill.

2.49 pm

Mr Louis Ng Kok Kwang (Nee Soon):Madam, I commend this Bill for its recognition of third-party funding and the benefit it will generate for Singapore.

Recently, persuasive arguments have been raised in support of third-party funding, especially given the high costs of international commercial arbitration. It has been used in arbitration centres such as London, Paris and Geneva.

I support this Bill on two main points.

Firstly, third-party funding would benefit the vulnerable, providing them with access to justice. With this new option, parties to a dispute can now consider their commercial choices: how they might allocate risk, collateralise the claim or apply capital profitably, which may not otherwise have been available.

Secondly, recently Singapore has become a preferred venue for international arbitration. It is therefore necessary to be alive to the need to retain the momentum as an arbitration hub − a status that Singapore has worked tirelessly to achieve.

Madam, while I support the Bill's main purpose in legitimising third-party funding contracts, I would like to raise a few points.

Firstly, it seems that the Ministry is not proposing a blank cheque for third-party funding. There are a number of safeguards which will affect the funders, such as the Civil Law (Third-Party Funding) Regulations 2016, as well as the lawyers engaged by funders. It would be useful to consider if these current regulations sufficiently protect all stakeholders, and if they serve the intended purpose of permitting third-party funding.

Secondly, lawyers will be duty-bound to disclose a few matters to the court, including the existence of third-party funders, funding agreements, the identity of the third-party funders to a court or arbitral tribunal, as well as to all other parties to the proceedings. I would suggest for the Ministry to take steps to ensure that the process and mechanisms to all these are adequately clear.

Thirdly, given the complexities of the third-party funding market, it is critical that parties fully understand the details involved. For example, what are the various products available to them? What are the terms on which they are being offered? What is the impact on their control of the proceedings, and what are the consequences of recovery if there is a successful outcome? In this regard, I would also suggest taking steps to ensure that in practical terms, lawyers and parties are equipped with knowledge of funded actions.

Lastly, parties will also need to take appropriate measures to maintain legal privilege and confidentiality. This area of law is always subject to dispute. As such, I would like to clarify if there is sufficient guidance on the effect of third-party funding on legal privilege and confidentiality. Madam, these comments aside, I stand in support of the Bill.

2.52 pm

Mr Murali Pillai (Bukit Batok):Mdm Speaker, I wish to first declare my interest as a litigation lawyer in private practice. The Civil Law (Amendment) Bill seeks to amend the Civil Law Act to abolish the common law tort of maintenance and champerty in Singapore, and to allow third-party funders to provide funding in certain categories of dispute resolution proceedings, namely international arbitration proceedings under the International Arbitration Act and related dispute resolution proceedings arising therefrom. The amendments aim to ensure that Singapore remains a premier international commercial dispute resolution hub. I support this economic objective.

There is equally another important objective that we should look at. Third-party funding allows commercial funders to enable a funded party to litigate what the funder perceives to be a legitimate case. In this manner, third-party funding facilitates access to justice by enabling parties who may not have sufficient financial means to prosecute their genuine dispute to do so. Whilst facilitation of access to justice may not be the main motivation of a commercial funder who is focused on making a return on his investment, as recently recognised by the UK Court of Appeal in November last year, it is nonetheless "true that the facilitation of access to justice is an incidental by-product of commercial funding".

I take this opportunity to comment on and seek clarification on the following areas of the Bill.

First, I note that the wording of the new section 5A appears to be adopted from the UK provisions which also abolished the tort of maintenance and champerty under English law. Also similar to the UK provision, section 5A(2) maintains the law on maintenance and champerty in the context of the enforceability of contracts as a matter of public policy.

However, I wish to highlight that in the UK, the UK courts have allowed third-party funding contracts for both litigation and arbitrations. In fact, the UK court in the same case that I had mentioned earlier recognised that third-party funding "is a feature of modern litigation". Yet, the proposed section 5B of the Act read with the proposed regulations appear to allow only third-party funding in Singapore in the context of international arbitration, at least for now.

Given that the proposed section 5A is similar to the UK provision which allows third-party funding for both litigation and arbitration, could the Senior Minister of State please clarify why it could not left to the Singapore courts to determine what contracts can be enforced or what contracts may be contrary to public policy. In this regard, I wish to further highlight the Singapore High Court in a 2015 case has already demonstrated a willingness to uphold third-party funding arrangements for litigation in the specific area of corporate insolvency.

Second, if the objective of section 5A is to specifically allow third-party funding contracts in the context of international arbitration, would it not be more appropriate for the International Arbitration Act to be amended instead of amending the Civil Law Act, which has a far wider scope? This is in fact the approach being contemplated in Hong Kong, where the Hong Kong Law Reform Commission is considering amendments to the Hong Kong Arbitration Ordinance. I also note that in 2011, the Ministry of Law had in fact consulted the general public on whether third-party funding should be allowed in international arbitration in the context of proposed amendments to the International Arbitration Act.

More fundamentally, if the objective of section 5A is to allow third-party funding contracts in the context of international arbitration only, I would like to ask the honourable Senior Minister of State what is the basis for permitting third-party funding in the context of international arbitration, but not litigation and domestic arbitration?

This is especially where "After the Event" (ATE) insurance is already available for both arbitration and litigation. ATE insurance provides coverage for legal costs, subject to an agreed limit of indemnity. It is essentially a risk management tool that allows parties to limit their exposure to costs if they are unsuccessful.

Further, the policy considerations of third-party funding in the context of international arbitration to enhance Singapore as an international hub for commercial dispute resolution are also equally applicable to disputes litigated in the Singapore Courts, especially the Singapore International Commercial Court, which was designed to enable parties to avoid some of the problems often encountered in international arbitration and to encourage litigants to use Singapore as a hub to resolve transnational commercial disputes.

In respect of domestic arbitrations, I would like to highlight that the International Arbitration Act allows parties to a non-international arbitration to agree that the provisions of the International Arbitration Act to apply to arbitration, thereby turning it to an international arbitration. Therefore, parties to a domestic arbitration who wish to avail themselves of a third-party funding may circumvent this proposed section 5B restrictions against third-party funding for domestic arbitrations in this manner.

Additionally, allowing third-party funding in the context of litigation and domestic arbitration would also allow litigants to pursue their legitimate claims where they may not have been able to do so. In the preliminary report on the review of Civil Litigation costs in the UK in 2009 commissioned by the UK judiciary, also known as the Jackson Report, it was reported that there was a range of third-party funders in the UK, which provided funding in respect of claims of a minimum values ranging from £150,000 to £25 million. The same situation could also happen in Singapore where certain third-party funders may choose cater to a target group of litigants or a portfolio of small claims for commercial considerations.

The Jackson Report cited five reasons why third-party funding in civil litigation is beneficial and should be supported. I wish to highlight three of these.

First, third-party funding provides an additional means of funding litigation and, for some parties, the only means of funding litigation. Thus third-party funding promotes access to justice. Second, although a successful claimant with third-party funding foregoes a percentage of his damages, it is better for him to recover a substantial part of his damages than to recover nothing at all; and third, third-party funding tends to filter out unmeritorious cases, because funders will not take on risk of such cases. This benefits the opposing parties.

Therefore, if section 5A is intended to allow third-party funding only in the context of international arbitration, I urge a reconsideration of this position and to also allow the third-party funding for litigation and domestic arbitration. A key group of potential beneficiaries for third-party litigation funding are SMEs facing cash flow issues, but who may have legitimate claims. I accept that there could be reasons for excluding third-party litigation funding for certain types of claims where there may be greater potential for abuse, such as personal injury claims. I propose that, in lieu, we should consider providing better assistance for these "sandwich class" litigants who do not qualify for legal aid, for example, by enhancing the Litigants in Person programme or the Primary Justice Project.

Thirdly and finally, I note that there has been an increasing concern over the extent of control third-party funders may exert over the dispute resolution proceedings. In the UK, litigation funding contracts may still be struck down as being contrary to public policy if it confers disproportionate control of the claim to the funder. After all, the common law rules against champerty were developed to protect vulnerable litigants, and to guard against third-party interference in legal proceedings to protect the integrity of the judicial process. In the 2011 consultation on the International Arbitration Act, the Ministry had proposed safeguards to third-party funding to minimise potential abuse, such as restricting third-party funding by stipulating the permissible categories of practice areas, threshold claim value and minimum capital adequacy of third-party funders.

May I please ask, in broad policy terms, what we can expect to be covered in the regulations that will be issued if the Bill is passed? In light of the potential risks of third-party funding, does the Ministry intend to impose further requirements so as to safeguard against the potential abuse of third-party funding?

The extent to which regulatory requirements apply may also be adjusted, depending on the value of the claims. This may incentivise third-party funders to provide funding for smaller value claims, such as District Court claims, where they may not ordinarily do so.

Separately, I also note that the proposed new section 5B of the Bill provides that where a funder ceases to be a qualifying funder, the rights of the third-party funder under the funding contract are not enforceable but the court or arbitral tribunal may grant relief if it is satisfied that the disqualification or noncompliance was accidental or due to some other sufficient cause.

I would like to ask the Senior Minister of State why it is being left to the court or arbitral tribunal to "police" third-party funders in this manner, especially when the qualifying criteria are prescribed by the Minister in the proposed regulations. Would the relevant Ministry not be in a better position to determine if the qualifications and requirements have been met?

In the UK, third-party funders are regulated by the Financial Conduct Authority in connection with their asset management activities and supervised by the Association of Litigation Funders, which is an independent body that has been charged by the UK Ministry of Justice with delivering self-regulation of litigation funding. The Association also oversees and administers a complaints procedure in respect of third-party funders. In Hong Kong, the Hong Kong Law Reform Commission is considering whether the development and supervision of the applicable ethical and financial standards should be conducted by a statutory body or a self-regulatory body.

Given the potential risks of third-party funding highlighted earlier, it may be preferable for third-party funders to be subject to some level of supervision, something that the hon Member, Asst Prof Mahdev Mohan, raised in his speech. Would the Senior Minister of State consider whether there should be some form of regulation and supervision over third-party funders in Singapore, whether by the Ministry, Statutory Board, Government body, or by a self-regulatory body, to ensure and enforce compliance with statutory qualifications and regulations?

As a matter of parity, I note that the local insurance broker of ATE insurance is regulated by MAS. The insurers themselves are regulated at their place of business.

The Hong Kong Law Reform Commission has highlighted some risks with third-party funding, including the risk of money laundering. Would it not be better for a regulator to be vested with statutory oversight, with the degree and extent of regulatory control to be adjusted accordingly? Without providing for a regulator and simultaneously providing for a light-touch approach right from the word "go" would run the risk of not providing adequate safeguards to protect the public's interest.

To conclude, while further clarification and clarity on the ambit, extent of regulation and supervision of the activities of third-party funders in Singapore would be welcome, I support the Bill in principle.

3.04 pm

Mr Vikram Nair (Sembawang):Mdm Speaker, I declare my interest as a dispute resolution lawyer in private practice.

It had always been a part of the common law heritage that while litigation was necessary, it should not be encouraged. There were several rules that had developed over the ages in common law jurisdictions, including the tort of champerty, which says that a person with no interest in a law suit should not be funding that suit nor have a share in its returns, or the tort of maintenance, where a person interferes in a legal suit he has no interest in.

Along with these two rules, there was also an additional rule which the current legislation does not address, and that is a rule that prohibits lawyers from having a financial interest in the outcome of a suit. This is a rule against contingency fees.

All these rules were designed to prevent frivolous claims, abuse of vulnerable litigants and, in the case of lawyers, it was also to ensure that their primary duties as officers to the court would not be compromised by trying to advance their client's case at all costs.

These rules were developed at a time when there was a need and, obviously, would have served its purpose as it has lasted for hundreds of years. The reality though is that access to courts and legal advice is expensive and getting more so. In many situations, an individual or entity may have no ability to pay legal fees but may nonetheless have a valid claim.

A classic example that people can relate to is personal injury. A person who suffers a serious personal injury may have a valid claim but may have no financial means to advance that claim, either to pay lawyers or to the courts, and may end up recovering nothing.

So, it was in order to facilitate access to justice that many other jurisdictions started relaxing these rules. The US, interestingly, started by relaxing the rule on contingency fees, meaning that lawyers were allowed to have an interest in the outcome of the litigation. This meant that a party did not have to pay the lawyer's fees upfront but could give the lawyer a quantum of the proceeds from any claim they successfully get.

The UK was much slower to relax the rules on contingency fees but eventually did that. The UK, however, was one of the leaders in pioneering third-party litigation funding. What this meant is that someone else who has no interest in the litigation could help to fund that litigation in exchange for a return of the proceeds. In principle, this is what the current legislation is aiming to do. It allows third parties to fund litigation expenses. It appears to be focused currently on international arbitration.

Singapore has prided itself on being a leading financial and legal hub, and the strong rule of law in Singapore has helped to facilitate this reputation. I think the speakers before me, including the Senior Minister of State, have pointed out, we are one of the top hubs for international arbitration. However, unlike jurisdictions, such as the UK, Australia and even the US, we have, until now, not permitted more creative fee arrangements that allow financing of claims.

So, in our competition to be a hub for international arbitration, Singapore is sometimes at a disadvantage. In international arbitration, for example, where Singapore firms take on international firms from other jurisdictions, the international firms' clients may have more creative funding arrangements, which means that they may likely have a greater ability to prosecute the claim. Likewise, when a corporate client is deciding which lawyer or counsel to appoint, they may choose the jurisdiction of the lawyer based on their ability to fund their claim. So, for example, they may decide to go to a London law firm rather than a Singapore law firm if they were able to get third-party litigation funding in London. So, in that respect, I think this is an important change that helps to mitigate some of the disadvantages that Singapore lawyers may face when dealing with international competition in international arbitration.

This step is something to be welcomed. However, I would add this important caveat. One of the reasons the third-party funding was allowed in many other jurisdictions was to facilitate access to justice. However, if we look at the example of jurisdictions, such as the UK, in fact, the parties that use third-party litigation funding are mostly sophisticated corporates. And, typically, the corporates will choose external funding for litigation not because they cannot afford fees but because they want to share their risks. After all, litigation is a high-risk venture and you have to pay the lawyers' fees upfront. So, if someone else would share that risk, then the corporates may well make a business decision and they may also be happy to share some of the gains. So, there is a certain benefit in this certainly, and I think my colleague Mr Murali's analogy to insurance is actually quite apposite, because what this is really is a pooling of risks.

However, if we are still taking access to justice as being one of the important aims for these more creative fee arrangements, I would suggest that future legislation go even further and consider looking into allowing contingency fee arrangements. Contingency fees, as some of my colleagues mentioned, have also got a bad reputation. The US, while being a jurisdiction where parties are very proud of being able to access the court, also terrifies business owners because of the astronomical claims that sometimes come out, and its horrible reputation ‒ I guess Mr Murali mentioned ‒ for personal injury claims. However, I do not think this risk will be as great in Singapore for two reasons.

First of all, we do not have class action litigation as they do in the US. Class action means that you do not even need a named plaintiff to commence the action. You just need to define a group of people. So, this allows lawyers to actually take on claims on behalf of very large groups of unnamed people. Singapore does not have that.

Secondly, we also do not have jury trials. Jury trials are where a lot of the largest personal injury awards are made, and that does not exist here. So, my guess is that we will probably not have the US-style abuse of process. I still think this is a move that requires some consideration, and certainly consideration needs to go into how we can protect vulnerable litigants, particularly in relation to fee arrangements that may be unfair to them.

By and large, if you are talking about ensuring access to justice, particularly for impecunious litigants, chances are that contingency fee arrangements are more likely to achieve that objective.

At many of our Meet-the-People sessions, we meet litigants who may have either personal injury issues or, more likely, claims for divorce or other personal issues for which they may not qualify for financial assistance under the current Legal Aid schemes. They may have the means to pay, but I guess, like the bigger corporates, they, too, may, in fact, want someone to share their risks. Many have even asked me if there are any lawyers that would be prepared to work and then get a share of the outcome, and I have had to tell them that that is not the way the legal profession works in Singapore. A lawyer cannot peg his fees to what you get from your settlement. But the reality is that if you are talking about access to justice, this may be one of the workable solutions for the truly impecunious litigants.

In conclusion, while I think these changes play an important role in maintaining Singapore's position as a financial, corporate and legal hub, I would say that this is the first step in what, I hope, will be a bold journey forward. I agree with my friend Mr Murali's suggestion that they should also go towards domestic litigation and domestic arbitration because, in principle, they are the same thing. It is a sharing of risks. I would even go further and say it should even go towards contingency fees because, ultimately, the concept is the same. If you are allowing a third-party to have an interest in the outcome of the litigation, there is no harm in allowing a lawyer to do that. I think the abuses can be contained and the fundamental principle of access to justice will be enhanced if we allow these more creative fee arrangements.

Of course, rules can be developed around these, and there are many other jurisdictions that have these arrangements to which we can look to for guidance. The good news is we are not pioneers in that area and we can definitely learn from all those who have gone before us.

3.13 pm

Mr Patrick Tay Teck Guan (West Coast):Mdm Speaker, I declare my interest as a Fellow of the Singapore Institute of Arbitrators. I rise to support this Bill which seeks to abolish the common law tort of maintenance and champerty in Singapore and allowing third-party funding contracts in certain prescribed categories of dispute resolution proceedings, as well as set out the regulations around this.

I agree with the ambit of the proposed Bill and objective to allow international businesses to use funding tools available in other jurisdictions and promote Singapore's growth as a leading venue for international arbitration. According to the SIAC Annual Report 2015, 84% of new cases filed with SIAC in 2015 were international in nature, and 42% had no connection with Singapore.

As third-party funding is becoming a feature in major arbitration centres around the world, allowing third-party funding in Singapore for international arbitration will offer international businesses an additional financing option for international commercial arbitration in Singapore.

However, I would like to highlight two suggestions for the Ministry's consideration.

First, to promulgate a set of guidelines on entering into third-party funding contracts. I submit that the Ministry of Law or relevant industry accepted organisations should promulgate a set of guidelines that would help parties to navigate potential areas of concern, for example, conflicts of interest arising from third-party funding arrangements in relation to the tripartite relationship of third-party funder, solicitor and client as parties should mitigate risks through formulation of a third-party funding contract which covers these areas of concern.

One example would be to emphasise that the solicitor-client relationship takes precedence in the tripartite relationship and, especially, as solicitors are allowed to introduce or refer a third-party funder to the client.

Some of these potential areas of conflict are addressed in the new sections 3(A)(b) and 3(A)(c) in the Legal Profession Act. However, they could be further expanded on in the guidelines to cover other situations where conflicts of interest may arise. For example, a major potential area of conflict is in relation to settlements. While both funders and funded litigants have broadly the same interest in maximising any settlement or damages award and they will share the proceeds of the litigation, they can find themselves in conflict over whether or not to settle. This conflict can best be dealt with by providing that any irreconcilable difference over settlement be referred to counsel in the proceedings for a binding expert opinion.

In the same vein, conflicts of interest which are thought to be inherent in funded proceedings can be avoided or resolved by ensuring that the lawyers' fiduciary and professional duties to the litigants are given precedence over any duties or contractual obligations the lawyer may owe to the funder. A properly drafted funding agreement will do just that.

One example would be that the disclosure of client's privileged information to third-party funder should be made on the agreement that the third-party funder is bound to maintain confidentiality of the privileged information shared.

Another example would be the disclosure of funding arrangements to parties in the arbitration and to the arbitrator. In the public consultation on this Bill, it was stated that amendments to the Legal Profession (Professional Conduct) Rules 2015 were envisaged. These related amendments were expected to draw reference from best practices and international standards reflected in the revised International Bar Association Guidelines on Conflict of Interest in International Arbitration (October 2014) which provides in General Standard 7 that funding arrangements ought to be disclosed to the arbitrator and parties to the arbitration.

My second suggestion is to promulgate a code of conduct for third-party funders. Allowing third-party funding in international arbitration in Singapore may lead to third-party funding organisations to set up and operate in Singapore. As the number of third-party funders increase in Singapore, it would be ideal to have the third-party funders come together to design a code of conduct to self-regulate their involvement in third-party funding arrangements. Self-regulation provides greater transparency and raises standards of funding arrangements whilst not being overly restrictive on funding arrangements.

For example, the Association of Litigation Funders (the ALF) in England and Wales is an independent body that has been charged by the Ministry of Justice, through the Civil Justice Council, with delivering self-regulation of litigation funding in England and Wales. The members of the Association are governed by a Code of Conduct which sets out standards of practice and behaviour to be observed by funders in respect of funding the resolution of disputes within England and Wales.

Mdm Speaker, I am hoping that Ministry of Law would take cognisance of these two suggestions. With that, I support the Bill.

3.18 pm

Ms Indranee Rajah:Mdm Speaker, may I thank all the Members who have spoken in support of the Bill.

Mr Murali Pillai asked about the scope of the third-party funding framework. Specifically, he asked if the amendments should be in the International Arbitration Act, rather than the Civil Law Act.

As mentioned, we are first proceeding with third-party funding in the context of international arbitration and related proceedings. This is because we want to have the framework tested in a limited sphere, where those involved are typically well-advised, commercially sophisticated and better able to bear the reduction in damages. If the framework works well, as and when appropriate, the prescribed categories of proceedings may be expanded. The Ministry will consult closely with the profession and stakeholders on this, as we have been doing. So, that is why the amendments are to the Civil Law Act rather than to the International Arbitration Act.

As a side note, I should mention that "after-the-Event" (ATE) insurance is a different product from third-party funding. While it takes many forms with varying features, typically, for example in the UK, it is used where a party pays a premium to insure itself against the risk of having to pay the opposing counsel's fees. As such, the policy considerations may overlap but it differs from third-party funding.

Mr Vikram Nair also asked about the implications of the proposed third-party funding framework for contingency fees and whether this opens the way for contingency fees generally to enhance access to justice. As part of the review of the civil justice system, event-triggered fee arrangements, including contingency fee arrangements, will be studied. Until such time, lawyers and law firms will continue to be prohibited from entering into contingency fee arrangements.

The issue of regulation of third-party funding was also raised, in particular whether we should do more to regulate funders and how to balance between the need for regulation while preserving party autonomy and flexibility. Other points raised include the protection of stakeholders' interests and how we plan to deal with the bad practices associated with third-party funding.

Singapore is an international dispute resolution hub and as such, a large number of parties, counsel, arbitrators and funders are not and will not be within our jurisdiction. A heavy regulatory framework will therefore have little practical effect and our approach should be focused on what is practical and what is effective, taking into account the nature of international arbitration.

We also considered recent developments in the third-party funding market for international arbitration. The industry is gaining stability. Norms and industry practices are also emerging. There is now a high level of awareness and acceptance of third-party funding. Certain funders have established good reputations and have flourished. Bad practices have come to light and with greater awareness, advisers and reputable funders have developed measures to curtail such practices.

In the White & Case 2015 International Arbitration Survey conducted by Queen-Mary University, 71% of the respondents indicated that third-party funding is an area which requires regulation. The preference, however, was for soft-law regulation, for example, through the International Bar Association (IBA) guidelines or collective self-regulation through a code of conduct. The survey also indicated that regulation of third-party funding should mainly focus on disclosure rather than on the creation of a prescriptive, substantive regime. This would enable tribunals to handle potential issues on a more nuanced, case-by-case basis.

From the experience of other jurisdictions, abuses typically arise from lack of transparency and conflicts of interest. The proposed third-party funding framework therefore seeks to address these issues by making disclosure the central tenet, while giving precedence to party autonomy and flexibility. This approach will allow for the regulation to keep pace with the changes in the industry and this would address the point raised by Asst Prof Mahdev Mohan.

As mentioned earlier, amendments to the Legal Profession (Professional Conduct) Rules will be made to require legal practitioners to disclose if their client is receiving third-party funding, but not the commercial terms of the funding agreement. This will enhance transparency and allow the tribunal to avoid potential conflicts of interest. Also, with disclosure, parties are put on notice and can take steps to protect their own interests. The reason the obligation is placed on the lawyer instead of the funded party is to ensure that the disclosure requirement has practical and real effect since parties and funders are often outside our jurisdiction. That is the nature of international arbitration. The parties may be international so they may not be here but the lawyers when they come here will be present in our jurisdiction.

As for Asst Prof Mahdev Mohan's question about whether the disclosure requirement will affect the willingness of third-party funders to fund here, I am happy to share that disclosure received support from the majority of international professional funders who responded to our public consultation.

Legal practitioners and legal practices will also be prohibited from holding any share or having ownership interests in relevant third-party funders and from receiving referral fees and commissions. This will also help prevent situations of conflicts of interest.

The proposed approach to regulation would be in line with that in other jurisdictions. In Australia, the focus has been on avoiding conflicts of interest, coupled with reasonable transparency. In England, funders are regulated by the Financial Conduct Authority but only in connection with their asset management activities, and not their conduct in relation to funding of proceedings. Nonetheless, some funders choose to become voluntary members of the Association of Litigation Funders in England and Wales, and self-regulate by agreeing to abide by a voluntary code.

As mentioned, we expect similar self-regulation through the issuance of best practices or guidelines for arbitrators, lawyers and funders and the Ministry is already working with stakeholders to address this need. These "soft-laws" will cover issues including the solicitor-client relationship, costs, confidentiality, legal privilege, withdrawal of funding, essential terms to include in third-party funding agreements, as well as control of the dispute by funders, which a number of the Members have raised.

Lawyers must be mindful of their duty to act in the best interests of their clients and industry promulgated best practices or guidelines will help to bolster the legislative framework and ensure that all stakeholders, including arbitral tribunals and institutions, are fully apprised of best practices and standards.

This should address the very valid concerns and suggestions raised by Mr Louis Ng, Mr Patrick Tay and Mr Dennis Tan.

For completeness, I would highlight that the third-party funding framework will only allow entities which meet the "qualifying third-party funder" criteria to provide third-party funding. Such criteria will be set out in subsidiary legislation. The criteria will help to ensure that only reputable, professional funders may fund international arbitration proceedings in Singapore. Non-compliant entities will not be able to enforce their rights under the third-party funding agreement. In other words, they will not receive a share of the proceeds should the claim succeed. This would be a practical and effective deterrent against non-compliance.

Finally, I would like to touch on whether third-party funders will be liable for costs and whether this will include the making of adverse costs orders against third-party funders. These are matters best left to the parties and tribunals. In practice, costs orders against funders may be difficult as they are not party to the arbitration agreement. Feedback received during the public consultation process indicated that parties have sufficient levers, including seeking security for costs.

I will now address some of the queries raised by Mr Dennis Tan. His first concern was whether there would be a transfer of control of the proceedings to the funders from the claimant. The overall philosophy to this is party autonomy. So, that is something that should be dealt with in the funding agreement. The claimant and funder should both have their own representation. So, in that way you would have a lawyer who is acting in the best interest of the claimant and they can negotiate the commercial terms of the funding agreement in the same way as many other commercial agreements are negotiated. The nature of this kind of industry is that if one funder's terms are too onerous, there would be other funders available that the claimant can turn to. So, the market will find its own level.

With regard to conflict of interest, Mr Tan asked what would happen if the lawyer found himself in a position of a conflict between the claimant and the funder. Again, this is not different from other scenarios where you have different parties and the question of conflict arises. Let me explain it in this way. Ideally, the claimant and the funder should have their own lawyers. If, for whatever reason, they start off with the same lawyer, which is probably not a good idea, but if they do, and if an issue crops up where it is quite clear that the claimant and the funder have different interests, then the lawyer should − as all lawyers in this scenario should do − either discharge themselves from acting for one, or for both parties. It is no different from a scenario where, let us say, you are acting for two defendants and for some reason, the defendants' stories start to conflict. The lawyers know that in that scenario, they either have to discharge themselves or act only for one defendant.

I think Mr Tan had one more question which was on the meaning of "direct financial benefit" in new subsection 3A of section 107 of the Legal Profession Act. Subsection 3A says that to avoid doubt, the section does not prevent a solicitor from introducing or referring a third-party funder to the solicitor's client, so long as the solicitor does not receive any direct financial benefit and "direct financial benefit" is defined so that it does not include any fee, disbursement or expense payable by the solicitor's client for the provision of legal services by the solicitor's client.

In short, lawyers will continue to receive what they have always received which is their fees, their disbursements and their expenses. What they ought not to be getting is the financial benefit, for example, referral fees or a commission.

In the scenario which Mr Tan described, where a funder takes an interest in the lawyer's litigation department or acquires the department, first, you would have to get round all the provisions of the Legal Profession Act which will be very difficult. But even if you could get round that, I think the essential question would be, is the lawyer put in the position where he is beholden to the funder and cannot carry his duties to the claimant? This is the sort of test which lawyers have to face all the time when they are deciding conflicts of interest and the lawyers in third-party funding situations will have to apply those strict standards to themselves. Madam, I believe I have answered the various queries and I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Ms Indranee Rajah].

Bill considered in Committee.

[Mdm Speaker in the Chair]

The Chairman:The citation year "2016" will be changed to "2017", as indicated in the Order Paper Supplement.

Clauses 1 to 3 inclusive ordered to stand part of the Bill.

Bill reported without amendment; read a Third time and passed.