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Legal finance market focus: Asia-Pacific

October 11, 2019
James MacKinnon

Legislative reforms and increased interest from prospective users of outside finance in Asia are fueling ongoing growth of litigation and arbitration finance as an accepted reality of the business of law.

Singapore ushers in arbitration finance in Asia

In March 2017, Singapore’s Civil Law (Amendment) Act went into full effect, abolishing the common law torts of champerty and maintenance and formally permitting the use of third-party funding in certain categories of dispute resolution (currently arbitration). The legislation also allows lawyers to recommend finance providers to their clients and lays the groundwork for litigation finance to be permitted for other types of dispute resolution proceedings.

The legalization of finance for arbitration helps solidify Singapore’s position as a leading seat of arbitration in Asia. This outcome was clearly on the minds of the Ministry of Law, who acknowledged that outside finance is “a feature in major arbitration centers around the world” and that allowing it would help to “consolidate Singapore’s position as a key seat of arbitration in Asia.”[1]

The legislation reflects growing demand for litigation and arbitration finance in Asia, a trend we’ve likewise noted at Burford. Just a few months after the Civil Law (Amendment) Act went into effect, Burford funded the first known Singaporean-seated arbitration, and has recently opened an office in Singapore.

Hong Kong prepares for the implementation of funding reforms

In June, Hong Kong followed in Singapore’s footsteps by passing the Arbitration and Mediation Legislation (Third-Party Funding) (Amendment) Ordinance.  The legislation follows the recommendations of the Law Reform Commission of Hong Kong, and clarifies that third-party funding of arbitration shall be permitted under Hong Kong law once the legislation is implemented.

Hong Kong is currently developing the regulatory framework to be adopted under the legislation (which it sees as a pre-condition to implementation of reforms), and we expect that the industry will receive clarity on this early in 2018. The eventual implementation of the reforms will help Hong Kong compete with other prominent jurisdictions in which users of arbitration already have access to forms of legal finance. It will also allow Hong Kong to put itself in a competitive position as a cost-effective seat of arbitration for future “One-Belt-One-Road” related outbound investments disputes brought by mainland Chinese companies, which is seen to be a future trend in the growth of Asian arbitration.

A new approach to corporate legal spend in Korea & Japan

Whilst the focus of discussion regarding arbitration finance in Asia has been the reforms in Singapore and Hong Kong, we’re increasingly seeing a trend of established corporates in Korea and Japan seeking sophisticated forms of legal finance.

Companies and trading houses in Korea and Japan are making enquiries about portfolio-based legal finance, principally as a means to relieve legal expense budget pressures and its potentially negative effect on share price. Legal finance reduces the financial risks associated with pursuing litigation and arbitration, and also enables the company to book the capital as income received, without waiting for the underlying arbitration or litigation matters to resolve. As a result, a key attraction for these companies is an improved share price if calculated on an EBITDA basis.

Such trends reveal that in Asia legal finance is no longer considered a last resort for clients who are unable to pay, but rather a highly useful financial tool to manage legal budgets more efficiently, especially across a portfolio of matters.  We’re pleased that corporates across Asia are waking up to the benefits of legal finance, and hope to see this trend develop in the future.

[1] Ministry of Law, “Legislative Changes to Enhance Singapore as an International Hub for Commercial Dispute Resolution” (2016). Available at https://www.mlaw.gov.sg/content/minlaw/en/news/press-releases/legislative-changes-to-enhance-singapore-as--an-international-hu.html.