Singapore Parliament considers draft law allowing third party funding of arbitration

Third party funding is the funding of proceedings by an entity that is not involved in the dispute, typically in return for a share of the damages received or of the settlement sum. The amendments to Singapore's Civil Law would bring the country into line with major arbitration centres around the world, the Ministry of Law said. 

Singapore law currently restricts the funding of proceedings to the parties involved. The law was developed to protect vulnerable litigants, to prevent the judicial system from becoming a site for speculative business ventures, and to avoid potential abuse of the court processes, the Ministry said in July, when a public consultation was launched on the change.

However, third party funding is "becoming a feature in jurisdictions without such restrictions", it said.

"Allowing third-party funding in Singapore for international arbitration will therefore offer international businesses an additional financing option for international commercial arbitration and consolidate Singapore’s position as a key seat of arbitration in Asia," the Ministry said.

The Civil Law Bill would prescribe the categories of proceedings where third party funding would be allowed. Further secondary legislation would be developed to impose conditions on funders.

Lawyers would be allowed to recommend third party funders to clients or advise clients on third party funding contracts so long as they do not receive any direct financial benefit from the recommendation or facilitation, the Ministry said.

"The Bill will apply to all types of mediation including international commercial mediation and will also codify certain issues currently dealt with under common law, such as confidentiality of communications in the context of mediation. This will provide greater certainty and clarity for commercial parties who opt to conduct their mediation in Singapore," it said.

Yong Neng Chan of Pinsent Masons MPillay, the Singapore joint law venture partner of Pinsent Masons, the law firm behind Out-Law.com, said: "The proposed legislation is a welcome change. It presents additional funding options and risk management strategies for litigants, and is a positive step in Singapore being an attractive and competitive arbitration seat."