Third-Party Funding in Arbitration

To overcome risking of its own finances or obtain

additional financing to pursue legal action, an individual

or firm can approach a third party to agree to finance all

or part of its legal costs

Originally, arbitration was designed as a more

cost-effective method of dispute resolution as

compared to litigation. Unfortunately, high-

value arbitration proceedings have ended

up being quite expensive as they are often

managed like a court case. A claimant is at a disadvantage

if he or she does not have the financial resources to instruct

a team of lawyers to properly deal with the matter under

arbitration. This goes against the principle of a right to

justice for all.

To overcome the issue of risking its own finances or

to obtain additional financing to pursue legal action,

an individual can approach a third party (with no prior

connection to the case or party) to agree to finance all

or part of its legal costs, in expectation of receiving a

substantial percentage of a monetary order, should the

party be successful.

Third-party funding for litigation has been in

existence for a while, mainly for court litigation matters, in many jurisdictions, including

the United States, England and Wales,

Australia, Netherlands, and France. In January

2017, UK Justice Minister Lord Keen of Elie

confirmed that the UK government has no

plans to introduce laws to regulate third-party funders

in the same way as law firms. However, in England

and Wales, the Association of Litigation Funders has

published its own self-regulated code of conduct to be

abided by its subscribing members.

Singapore

In contrast to the UK, on March 1, 2017, Singapore

took an important step in codifying the law on third-party

funding in arbitration claims (third-party funding for litigation

is still not permitted in Singapore). The new regulation allows a

party to approach a third-party funder to finance an arbitration

claim seated in Singapore, including related applications

to the Singaporean court seeking interim relief, and for the

enforcement of an arbitration award.

The significant amendment, and difference to law in England, is

to the professional conduct rules regulating lawyers. Singapore

lawyers are now obliged to disclose to the arbitral tribunal

and to every other party the existence of a third-party funding

arrangement and the identity of their client’s funder.

There are, however, some concerns with regard to the disclosure

obligation imposed on Singaporean lawyers which will need

further clarification. They are:

What happens to the disclosure obligation when a party is not

being represented by a Singapore-registered lawyer/firm and is

acting as a litigant in person and is therefore not required to

comply with the professional code of conduct?

If a party is represented by a foreign lawyer who is not registered

or practising in Singapore, does that foreign lawyer have to

comply with disclosure obligations contained in the professional

conduct rules regulating only Singapore-registered lawyers?

Any additional disclosure obligation to disclose funding

arrangements will likely increase legal costs incurred by a

funded party to comply with such requirement. It is also not

yet clear whether these costs, including additional costs to

retain a funder, are recoverable as “costs of Arbitration” under

these new regulations. (In Essar Oilfields v Norscot, the English

High Court did allow a party to recover the costs of obtaining a

third-party funder).

There may be drawbacks to third-party funding, but it will no

doubt protect smaller businesses by putting them in a position

to hire a reputable law firm (domestic or foreign) without

risking their limited funds. There is no doubt that the Singapore

government has introduced these rules to increase Singapore’s

attractiveness as seat of arbitration and to topple England

from its preeminent position as an international arbitration

hub. These recent reforms will allow parties to access a diverse

range of funding options to pursue arbitration claims seated in

Singapore and will also ensure that transparency is maintained

between litigating parties.

For further information on this topic or advise in relation to third-party

funding arrangement for your legal matter, please contact our team at

info@zaiwalla.co.uk

Disclaimer

– This article is for information purposes only and is not

intended to be and should not be taken as legal advise. The opinions

expressed are those of the author and do not necessarily reflect the

views of the firm, Zaiwalla & Co LLP or its clients, or any of its or their

respective affiliates.