Introduction
Singapore has cemented its position as a global hub for international arbitration, thanks to its robust legal framework, neutrality, and efficiency. A key aspect enhancing Singapore's attractiveness is its progressive stance on third-party funding (TPF) in arbitration.
TPF allows external financiers to cover the legal costs of a dispute in exchange for a share of the potential award. This funding mechanism is particularly beneficial for parties who may lack the financial resources to pursue arbitration.
This article explores Singapore’s legal framework supporting TPF, its advantages, regulatory safeguards, and what the future holds for this financing model in arbitration.
What is Third-Party Funding?
TPF is a financial arrangement where an independent third party provides funding to a claimant in an arbitration case in return for a portion of the awarded damages if the case is successful.
Key Benefits of TPF in Arbitration:
● Access to justice – Allows claimants to pursue valid claims without financial constraints.
● Risk mitigation – Claimants do not bear the financial burden of legal fees.
● Enhanced case evaluation – Funders conduct rigorous due diligence before financing a case.
● Stronger negotiation position – The presence of a funder signals claim strength and financial backing.
Key Stakeholders in TPF
● Claimants seeking funding to pursue arbitration.
● Third-party funders assessing and financing claims.
● Law firms and arbitrators facilitating arbitration proceedings.
● Regulators and institutions ensuring compliance with legal frameworks.
Historically, TPF was prohibited in Singapore due to the doctrines of maintenance and champerty. However, recognising the global shift towards arbitration financing, Singapore enacted legislative reforms to allow TPF in international arbitration.
Key Legislative Milestones:
● 2017: Amendments to the Civil Law Act legalised TPF for international arbitration and related court proceedings.
● 2018: The Singapore Institute of Arbitrators (SIArb) issued guidelines for best practices in TPF.
● 2021: Expansion of permitted funding arrangements to cover insolvency-related disputes.
1. Civil Law Act Amendments
● Legalised third-party funding for international arbitration.
● Established disclosure obligations to ensure transparency.
2. Singapore International Arbitration Act (IAA)
● Governs international arbitration proceedings.
● Supports arbitration-friendly policies that facilitate funding arrangements.
3. Singapore International Arbitration Centre (SIAC) Guidelines
● Provides best practice recommendations on TPF disclosure.
● Encourages ethical and professional conduct in funding arrangements.
1. Disclosure Requirements
To ensure transparency, Singapore mandates that:
● The involvement of a third-party funder must be disclosed.
● The identity of the funder must be revealed to all parties and the tribunal.
2. Ethical Considerations
● Conflict of interest safeguards – Arbitrators must disclose relationships with funders.
● Professional responsibility – Lawyers must act in the best interests of their clients, even when a funder is involved.
1. Increased Access to Justice
● Enables financially constrained parties to pursue arbitration.
2. Strengthening Singapore as an Arbitration Hub
● Aligns with leading arbitration jurisdictions like London and Hong Kong.
3. Enhanced Investor Confidence
● Legal clarity ensures funders and claimants operate within a predictable framework.
How to Secure Third-Party Funding
Parties seeking funding should:
1. Assess their case merits – Funders evaluate the strength and enforceability of claims.
2. Engage reputable funders – Many international funders operate in Singapore.
3. Ensure compliance – All funding arrangements must adhere to Singapore’s legal requirements.
For professional arbitration services, consult Dr. Andreas Respondek.
Emerging Trends
● Expansion beyond international arbitration – Potential for domestic arbitration and commercial litigation.
● Innovative funding models – Hybrid arrangements and portfolio funding are gaining traction.
Comparison with Other Jurisdictions
● Singapore vs. Hong Kong: Both allow TPF, but Hong Kong has stricter regulations.
● Singapore vs. UK: The UK has a broader application of TPF, including commercial litigation.
Singapore’s legal framework for third-party funding is a testament to its progressive approach to arbitration. By providing a well-regulated, transparent, and investor-friendly environment, Singapore strengthens its position as a leading arbitration hub.
Parties interested in exploring third-party funding options can consult arbitration experts for tailored guidance.
FAQs
1. What is third-party funding in arbitration?
Third-party funding (TPF) in arbitration is when an external financier covers the legal costs of a dispute in exchange for a share of the awarded compensation.
2. Is third-party funding legal in Singapore?
Yes, Singapore has legalised third-party funding in international arbitration through amendments to the Civil Law Act, enhancing its status as an arbitration-friendly jurisdiction.
3. How does third-party funding benefit arbitration parties?
TPF provides financial support to claimants, mitigates risk, and ensures meritorious claims can proceed without financial constraints.
4. What are the key regulations governing third-party funding in Singapore?
Singapore’s legal framework for TPF is primarily governed by the Civil Law Act, the International Arbitration Act, and SIAC guidelines. How can parties secure third-party funding for arbitration in Singapore? Parties can secure funding by approaching reputable funders who assess cases based on merits, potential recovery, and enforceability of awards.
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