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Singapore allows third party funding in international commercial arbitration

Businesses involved in international arbitration in Singapore will now be allowed to use funding from third parties to finance their case.12 Jan 2017

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 the Civil Law will "strengthen Singapore’s position as a premier international commercial dispute resolution hub and a key arbitration seat in the world", said senior minister of state for law Indranee Rajah.

Singapore law has until now restricted 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 2016 when a public consultation was launched on the change.

Third-party funding will initially be permitted for international arbitration proceedings and related court and mediation proceedings, Rajah said.

"This will allow the framework to be tested within a limited sphere by parties of commercial sophistication," she said.

The bill prescribes the categories of proceedings where third party funding would be allowed. Further secondary legislation will be developed to impose conditions on funders.

Lawyers will 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.

Singapore-based arbitration expert Chen Han Toh of Pinsent Masons MPillay, the law firm behind Out-Law.com, said: "This relaxation enhances Singapore’s competitiveness as a leading centre for international dispute resolution. It helps level the playing field and promote access to justice for impecunious litigants. It allows parties to hedge litigation risks in exchange for part of the fruits of legal proceedings, and deploy their financial resources elsewhere."