Second Reading Speech by Senior Minister of State for Law, Indranee Rajah SC, on the Civil (Amendment) Bill 2016

10 Jan 2017 Posted in Parliamentary speeches and responses

Madam Speaker,

1. I beg to move, ‘That the Bill be now read a Second time’.

1. Introduction

2. 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. I will now set out the context for the Civil Law (Amendment) Bill.

3. Compared to international commercial mediation, international commercial arbitration in Singapore is more developed.
   1. 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.
   2. 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.

4. Singapore is now one of the top five most preferred seats of 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.

5. 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.

6. There are two main aspects to third-party funding:
   1. 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.
   2. 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.

7. 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.
   1. Maintenance is the provision of assistance to a party by a person or entity that has no interest in the proceedings.
   2. Champerty is maintenance of an action in return for a share in the proceeds of the action.

8. There are two aspects of champerty and maintenance.
   1. There is a common law tort of champerty and maintenance.
   2. Also, under contract law, agreements affected by maintenance or champerty are void as contrary to public policy.

9. 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.

10. 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.
    1. These third-party funders raise capital from investors, and use the money to fund claims.
    2. Their objective is to make an attractive return for their investors, out of the proceeds of the claims that are successful.

11. 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.

12. In this context, the Bill, which will introduce a framework for third-party funding in Singapore, will achieve the following:
    1. 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.
       1. Businesses that seek to access third-party funding will typically have to undergo a rigorous process of claim assessment by the chosen funder.
       2. 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.
    2. 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.

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

2. Bill’s features

14. The Bill provides a framework for third-party funding in Singapore.

1. Maintenance and Champerty

15. The Bill does the following in relation to the laws of champerty and maintenance.

16. The Bill clarifies that the common law tort of champerty and maintenance is abolished in Singapore^[1], as had previously been stated by the High Court in Jane Rebecca Ong v Lim Lie Hoa ^[2].

17. 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^[3]. Third-party funding contracts will therefore still be unenforceable.

18. 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^[4].
    1. These categories will be specified in subsidiary legislation after the Bill comes into force^[5].
    2. At the outset, third-party funding will only be permitted for international arbitration proceedings (and related court and mediation proceedings).
    3. This will allow the framework to be tested within a limited sphere by parties of commercial sophistication.
    4. The framework may be broadened in future after a period of assessment.

2. Regulation of Third-Party Funding

19. Drawing from the experience of other jurisdictions which permit third-party funding, there will be limited but targeted regulation of third-party funders.

20. The Bill provides that third-party funding may only be provided by an entity which meets the criteria set out in subsidiary legislation^[6].

1. The criteria in the subsidiary legislation will ensure that only professional funders whose principal business is funding claims will be allowed.

21. The Bill also allows requirements to be imposed on funders through subsidiary legislation^[7].

22. 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^[8]. This would include their right to receive a share of damages, should the claim succeed.

23. 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.^[9]

24. 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.^[10]

25. 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.
    1. Disclosure of third-party funding is necessary to ensure there is no conflict of interest.

26. It is anticipated that similar to other jurisdictions where third-party funding is prevalent, industry-promulgated guidelines or best practices will emerge.
    1. The Ministry of Law is working with arbitration institutions and practitioners to initiate the production of such “soft laws”.

3. Amendments to the Legal Profession Act

27. 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.

28. Lawyers are also allowed to advise or act for their clients in relation to the third-party funding contract^[11].

29. However, the Bill provides that lawyers are not allowed to receive direct financial benefit from the introduction or referral of the funder^[12].
    1. Direct financial benefit does not include legal fees paid to the lawyers for the provision of legal services^[13].
    2. 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.

3. Conclusion

30. 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.

31. 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.

32. Madam Speaker, I beg to move.

^[1] Clause 2 of the Bill (New section 5A(1)).
^[2] [1996] SGHC 140. At [16], the Court held:
“[B]y virtue of the English Criminal Law Act 1967 neither maintenance nor champerty is a crime or tort in England. However, champerty and/or unlawful maintenance will still be struck down as being against public policy. That is also the law in Singapore.” ^[3] Clause 2 of the Bill (New section 5A(2)).
^[4] Clause 2 of the Bill (New section 5B(2)).
^[5] Clause 2 of the Bill (New section 5B(8)(b)).
^[6] Clause 2 of the Bill (New section 5B(3) read with new section 5B(8)(a) and the definition of “qualifying Third-Party Funder” in new section 5B(10)).
^[7] Clause 2 of the Bill (New section 5B(3), read with new section 5B(8)(c)).
^[8] Clause 2 of the Bill (New section 5B(4)).
^[9] Clause 2 of the Bill (New section 5B(7)).
^[10] Clause 2 of the Bill (New section 5B(5) and (6)).
^[11] Clause 3 of the Bill (New section 107(3A)(b) and (c)).
^[12] Clause 3 of the Bill (New section 107(3A)(a)).
^[13] Clause 3 of the Bill (New section 107(3B)).

Last updated on 10 Jan 2017