Many companies in Asia have long been participants in foreign dispute resolution proceedings. But the legal finance industry in Asia emerged at the start of 2017, when Singapore passed legislation permitting “third-party funding” (a term now commonly used to encompass a broad range of legal finance activities) of international arbitration proceedings seated in the country. Since then, use of legal finance solutions has proliferated but remains largely confined to insolvency litigation and arbitration.
Specific rules in Singapore
In 2017, Singapore amended the Civil Law Act—the first in a series of regulatory developments that limited the application of maintenance and champerty and provided for the use of legal finance in arbitration proceedings. The revised Act provides an express validation of third-party funding in “prescribed dispute resolution proceedings” , which initially included international arbitration and related court proceedings only.
Arbitration proceedings: The definition of “prescribed dispute resolution proceedings” is significant. Initially, the prescribed classes of dispute resolution proceedings included:
- Arbitration proceedings
- Court proceedings arising from or connected with any arbitration proceedings
- Certain applications for a stay of proceedings and for the enforcement of an arbitration agreement
- Proceedings for or in connection with the enforcement of an award under the Arbitration Act
- An award or a foreign award under the International Arbitration Act and related mediation proceedings
SICC: Proceedings commenced in the Singapore International Commercial Court (SICC) have recently been added to the above list, so long as those proceedings remain in that court.
Insolvency proceedings: The enactment of the Insolvency, Resolution and Dissolution Act 2018 (IRDA) amended and consolidated the written laws governing corporate insolvency and bankruptcy and codified the use of legal finance in certain types of cases.
Requirements for legal financiers: Commercial third-party finance providers must have paid-up share capital of not less than S$5 million (or its equivalent in foreign currency) or not less than S$5 million (or its equivalent in foreign currency) in managed assets.
Use of legal finance in Singapore
Since the introduction of third-party funding in 2017, the broader legal ecosystem in Singapore has shown increasing recognition of legal finance as an important financial tool for lawyers, and the scope of third-party funding has been continually expanded.
As the legal finance framework in Singapore has evolved, so too has end-user awareness and understanding—the impact of which is not confined to domestically seated proceedings. Indeed, the increasing understanding of legal finance has and will continue to increase its use among Asia-based companies in proceedings brought in other international dispute resolution centers where funding is available, such as the US and England and Wales.
As has happened in other jurisdictions around the world, since third-party funding became legal in one context (arbitration) it is now being considered in a range of other contexts. Examples include contractual disputes and high-value investor-state arbitrations. More significantly, we have encountered growing interest among Asia-based companies, which points to the increasing sophistication of the market, as companies proactively seek to finance litigation and monetize legal assets like arbitral awards as a way of enhancing their balance sheets and optimizing the use of capital.
The expansion of the scope of legal finance in Singapore to proceedings in the SICC is significant. The SICC, designed to deal with transnational commercial disputes, allows non-Singapore qualified lawyers to appear when certain requirements are met. Coupled with the availability of legal finance, there are simply now more options of counsel for parties involved with SICC proceedings. In addition, the funding of court litigation would provide an opportunity for the Singapore court to refine its jurisprudence relating to risks borne by litigants that are not usually relevant in arbitration proceedings, such as adverse costs and security for costs orders. These aspects of litigation have significant financial impact on litigants and underscore the importance of risk allocation and diversification.
Case study: Funding an Asia-seated international arbitration matter
Burford provided a multi-million facility to fund a Singapore-seated arbitration for a financial institution to pursue a contractual dispute with an infrastructure developer in Southeast Asia. Although the institution has the required means to pursue the claim, its internal policy restricts the use of available funds for pursuing legal claims. Burford’s financing covered legal fees and costs of the arbitration, as well as costs incurred in the enforcement of the subsequent arbitral award, including amounts spend in tracing the assets of relevant parties and asset recovery work.
The end result: Burford’s funding allowed the claims to proceed, providing the claimant meaningful flexibility in its ability to allocate internal capital.