Third-Party Funding For International Arbitration In Singapore And Hong Kong – A Race To The Top?

Readers of this blog will need no reminding that, in the Queen Mary-White & Case 2015 International Arbitration Survey, the seats of Hong Kong and Singapore were amongst the top five most preferred and widely used seats by respondents to that survey. Both jurisdictions are known for adopting competitive and innovative arbitration laws to promote themselves as leading seats of arbitration. Recently, both jurisdictions have made significant steps towards formally permitting the use of third party funding ("TPF") for international arbitration in their municipal arbitration laws.

Rocky road for TPF in Singapore and Hong Kong

TPF has traditionally assisted parties with the costs of litigation and arbitration where they would not otherwise have had the resources to protect their rights under a contract.

That paradigm is changing: users of TPF now include parties with significant means who view TPF as a financing tool or, in some circumstances, as an opportunity to bring on board a party with substantial expertise in the tracing and recovery of assets, thereby adding value to the litigation or arbitration process. Although TPF is gaining momentum for parties to litigation and arbitration in jurisdictions such as England & Wales, Australia, the United States, and various EU States, it is yet to find a solid footing in Singapore and Hong Kong.

Indeed, until recently, Singapore went so far as to prohibit TPF for international arbitration proceedings, and Hong Kong did not expressly permit it. In both cases, this was largely because TPF was considered to offend the age-old English doctrines of maintenance and champerty, which sought to prevent "...gambling in litigation, or of injuring or oppressing others by abetting and encouraging unrighteous suits, so as to be contrary to public policy..." (The Hong Kong Consultation Paper, referring to Ram Coomar Coondoo v Chunder Canto Mookerjee [1876] 2 App Cas 186, at 210).

In Singapore, the doctrine of champerty applied to both public litigation and private arbitration, so as to prohibit the use of TPF in Singapore (see Otech Pakistan Pvt Ltd v Clough Engineering Ltd & Anor [2007] 1 SLR(R) 989). Similarly, in Hong Kong, whilst the decision of Mr Justice Neil Kaplan (as he was then) in Cannoway Consultants Limited v Kenworth Engineering Limited [1995] 1 HKC 179 found that champerty did not apply to arbitration, the later Court of Final Appeal decision in Siegfried Adalbert Unruh v Hans-Joerg Seeberger [2007] HKCU 246 expressly left open this question.

Importantly, however, the Ministry of Law (the "Ministry") in Singapore and the Law Reform Commission of Hong Kong...