Singapore extends the scope of third-party funding

Singapore’s Ministry of Law (MinLaw) announced on June 21 an expansion to the framework of third-party funding to address the increasing demand of businesses for financing the resolution of disputes. The expanded framework came into effect on June 28 and includes new categories under which parties can utilise legal finance, including domestic arbitration proceedings and, more significantly, proceedings in the Singapore International Commercial Court (SICC), along with related mediation proceedings or subsequent appeals. The expanded framework will cover SICC proceedings as long as they are commenced and remain in the SICC throughout the case.

MinLaw stated that it extended the framework to address the rise in disputes and insolvencies as a result of the pandemic and to provide businesses with the option of using third-party funding to pay for meritorious claims. The decision comes as insolvencies are expected to rise by 3% this year compared to 2019, when Singapore saw its highest number of insolvencies (3,500). We discuss below what the changes to the existing framework mean for businesses in the region.

The SICC may be more attractive for high-value dispute resolution

Singapore courts have been expanding the scope of litigation funding in the context of insolvency for a number of years, and the introduction of the third-party arbitration funding framework in 2017 was a significant step in opening up the types of disputes for which funding would be available. The latest development goes a step further in helping parties in high-value disputes to manage the financial burdens of meritorious litigation.

However, it is important to note the specific amendments to the rules governing SICC proceedings in relation to third-party funding, including that:

• Third-party funding costs are not recoverable as part of the costs of SICC proceedings
• The SICC may order a third-party funder to provide security for the defendant’s costs and be responsible for the cost orders
• The SICC may take into consideration the terms of third-party funding contracts in ordering costs

Under these amendments, litigation funders stand to pay significant sums and may require claimants to provide added protection against adverse costs, often achieved through After-the-event (ATE) insurance. However, ATE insurance is often unavailable for high-cost, high-stake matters, and claimants may have to make separate applications for funding and adverse costs coverage—which can ultimately be a time-consuming and complicated process with the potential to delay dispute resolution.

Partnering with a funder that can offer insurance solutions for claimants seeking access to litigation financing thus provides a clear benefit. Burford offers companies both financing and insurance against adverse costs, which together provide claimants with all the tools they need to proceed with litigation.

Legal finance may be the critical factor for distressed domestic businesses

The prior scope of funding under Singapore law focused on financing provided to judicial managers and liquidators but did not directly benefit struggling businesses that are often the most impacted by litigation costs. Given that the funding of international arbitration in Singapore has been so successful, extending the scope of legal finance to domestic arbitration is a logical and crucial next step.

The Singapore economy was profoundly disrupted by the pandemic, with its GDP shrinking by 5.4%, the worst recession since the city state’s independence. With a tepid first-quarter recovery of 0.2% in 2021, the expansion comes at the crux of Singapore’s recovery efforts. Legal proceedings involving high-value disputes remain an expensive process for businesses looking to pursue meritorious claims during uncertain times. Businesses in distress as a result of the pandemic now have another avenue to finance claims and access the value of their legal assets.

Conclusion

Singapore’s developed economy and sophisticated legal foundations make it a valuable destination for foreign parties seeking neutral ground for dispute resolution. Expanding the scope of funding to SICC proceedings makes Singapore even more attractive for international businesses, given the new streams of financing available. The expanded framework demonstrates recognition by MinLaw that legal finance is a valuable tool for businesses as Singapore’s economy enters recovery.

Burford welcomes these developments as they bring Singapore closer to other international financial centres in allowing funding for most commercial disputes—whether resolved by litigation or arbitration. While the majority of arbitration proceedings that take place in the region are international, the new framework is a welcome sign that major hubs in Asia are opening up to the benefits of legal finance.