In a recent judgment1, the Singapore High Court allowed the liquidator of insolvent Castlewood Group to enter into a litigation funding arrangement, finding that such an arrangement does not amount to maintenance or champerty. The court’s brief remarks on the decision provide another indication that the use of legal finance in insolvency is becoming more established in Singapore.
The external capital, which was raised by a subgroup of Castlewood’s creditors, will allow the liquidator to pursue litigation related to the real estate developer’s October 2019 voluntary liquidation. In exchange, the liquidator will assign any proceeds of claims to the creditor group. Through the arrangement, the creditors behind the funding may receive higher returns (based on an undisclosed rate) should the liquidator’s recovery efforts succeed.
In finding that the funding arrangement doesn’t violate the rule against champerty or maintenance, Judge Aedit Abdullah held, “Those standing behind the arrangement, namely creditors of the company, have an interest in the litigation. The proceedings will be under the control of the liquidator and allowing the arrangement to proceed will ensure access to justice since, otherwise, the company would not be able to investigate and pursue the claim.”
Singapore has broadened the scope of use for legal finance in litigation and arbitration in Singapore in several recent moves. On June 28, 2021, Singapore’s Ministry of Law expanded its 2017 third-party funding framework (the first to permit such financing in Singapore) to address increasing demand from companies for external capital to finance dispute resolution. That amendment created new categories under which parties can use legal finance—including domestic arbitration proceedings and, more significantly, proceedings in the Singapore International Commercial Court (SICC)—in effect endorsing the use of third-party funding in non-insolvency-related court litigation—as well as related mediation proceedings or subsequent appeals.
Further, the Castlewood decision follows on the heels of new legislation in Singapore in February 2022 that introduced a framework for conditional fee agreements (CFAs) in international arbitration and other proceedings. That reform aims to align Singapore with major arbitral hubs that already use such CFAs, and thus provide parties in domestic and international arbitration with more risk-sharing solutions.
The accelerating acceptance of legal finance for a variety of litigation and arbitration matters reflects a shift away from champerty and maintenance as archaic principles. The Castlewood decision is another example of the court’s recognition of the value proposition of legal finance. This is a welcome development, further establishing Singapore as a leader in the region in this fast-growing industry.
[1] In the matter of Section 310 of the Companies Act (Cap 50, 2006 Rev Ed) Castlewood Group Pte Ltd (in creditors’ voluntary liquidation) [2022] SGHC 117
