Dispute funding in the U.K. and Singapore: A comparative review and looking ahead

Dispute funding in the U.K. and Singapore: A comparative review and looking ahead
Author:
Camilla Godman
Investment Manager - England

Dispute funding’s rapid advance around the globe has occurred in a relatively organic fashion—with jurisdictions where it is now available taking unique approaches to its development.

With that said, those common law jurisdictions where third-party funding is still relatively new, such as Singapore, can look to jurisdictions with a more established third-party funding infrastructure, such as the U.K., to develop and refine its own regime. This is particularly true where both locales share similar legal systems.

Singapore’s laws expressly facilitating third-party funding in arbitrations are less than five years old. Singapore has been able to take advantage of the evolution of funding in Australia and the U.K., where progress was initially hindered by a hostile legal environment. As such, Singapore has by-passed nearly 20 years organic maturation of its funding industry, but it may develop further by adopting aspects of the legal regime already accepted in the U.K. The U.K. funding market is also primed to advance further and some greater legal certainty will assist this. In this post, we briefly review third-party funding’s continuing development in both the U.K. and Singapore and consider how funding may continue to evolve in both jurisdictions in the coming years.

Modern Outlooks on Litigation Finance  
Litigation funding, or third-party funding, started in Europe in the late eighties on the back of the pursuit and recovery of international claims and insurance subrogation rights by industry pioneers such as Omni Bridgeway. By the early 2000s, litigation funding had developed in common law jurisdictions such as Australia and the U.K. During the last five years, funding of international arbitration has come into greater focus in East Asia, namely in Singapore and Hong Kong, which have been the first jurisdictions to pass express legislation to facilitate the funding of international arbitration.

Key to the global expansion in common law jurisdictions has been shifting attitudes to the antiquated doctrines of maintenance and champerty. The doctrines have been recognized in recent years as a barrier to those seeking access to justice, particularly when they face opponents with substantial financial resources. In many jurisdictions, officials have realized that a third-party funder can help balance the scales, providing a path for highly meritorious claims that may have withered without financial assistance. 

In addition, throughout the world, the growing normalization of third-party funding has led to increased use by well-resourced corporate users, seeking to manage the risk and cost of complex disputes, as well as to monetize the value in their contingent claims.  In this way, dispute finance has evolved into a sophisticated and accepted corporate finance and risk management tool.

In the U.K., the acceptance of funding has occurred primarily via case law and changes in court procedures. Arkin v. Borchard Lines Ltd. [2005] EWCA 655 was a watershed moment in the rise of the U.K.’s third-party funding industry. The case established the “Arkin Cap,” whereby the risk to litigation funding companies to pay the full amount of an adverse costs ruling was limited to the amount of funding that had been paid by the funder.

Also critical was a 2009 review by Lord Justice Jackson of litigation costs and third-party funding, which led to significant amendments to the costs procedures in England and Wales. Jackson recommended a voluntary code of conduct to oversee litigation funding activity in the country. Soon after, in 2011, The Association of Litigation Funders (ALF) of England and Wales was established. The ALF administer self-regulation of the funding industry in the UK through the Code of Conduct for Litigation Funders (published by the Civil Justice Council).

A Restricted Legislative Approach  
Unlike the U.K., third-party funding in Singapore has been encouraged primarily by legislative action through the 2017 amendments to the country’s Civil Law Act, abolishing the torts of maintenance and champerty and expressly facilitating the funding of international arbitration.

In the U.K., significant judicial support has led to a general acceptance of third-party funding both in the courts and in arbitration. In Singapore, the funding framework has been developed through a mix of expressly permissive legislative regimes (for arbitration, Singapore International Court Proceedings and select insolvency related claims) and case law. The case law informs the development of policy regarding the funding of other commercial litigation outside of the expressly permissive regimes. 

Indeed, Singapore’s judiciary are taking a consistently expansive view to funding. In a 2018 decision, Re Fan Kow Hin, the court was clear that ongoing interpretation of public policy surrounding third party funding has been left by Parliament to the courts, despite express statutory interventions to facilitate funding in certain areas, like arbitration. Notably, Singapore case law has established that a third-party funding agreement is not an abuse of process under Singapore law, and funding agreements have little chance of being found abusive and thus injurious to the administration of justice (see for example, Re Vanguard Energy Pte Ltd., (2015) 4 SLR 597).

For the U.K. too, the intention is to continue to facilitate development of the industry, where it is thought needed, through the courts, with the oversight of the ALF. As yet, the UK government has not announced any plans to formally regulate the market.

Funders and Fee Arrangements   
Singapore’s acceptance of funding has differed from the U.K.’s in another respect. The Civil Law Act amendments made it clear that financing could only be offered by companies that specialize in the business of dispute funding and that had a certain amount of assets under management. This has given Singapore the ability to control the growth of the funding industry and protect users within its borders before potentially opening up the market to a wider group of investors. By restricting the industry to professionals, such as Omni Bridgeway, whose specialists are all experienced dispute lawyers, it ensures there is some level of rigor and professionalism, in the absence of a more prescriptive regulatory regime. In the UK, whilst there is no such restriction, there is a natural tendency to prefer a funder who is a member of the ALF.

The terms of funding agreements may also be evolving, both in Singapore and Hong Kong. Unlike the U.K., conditional-fee arrangements (CFA’s) are currently prohibited in Singapore. However, recognizing the U.K’s rationale to introduce CFAs to incentivize lawyers in relation to the cases they pursue and discourage them pursuing weak cases, Singapore’s Ministry of Law proposes to legalize CFAs  for certain proceedings. Hong Kong has announced that it, too, would consider allowing outcome-related fee structures for arbitration and took a step farther than Singapore by including damages-based fee arrangements (DBAs) in its proposal. Both jurisdictions are currently accepting public feedback on the proposals.

CFAs and DBAs are both permitted in the UK. In another example of the UK judiciary supporting third-party funding, the Court of Appeal has recently confirmed, as part of the Trucks cartel litigation that a litigation funding agreement cannot be categorized as a DBA (the effect of which would have been to render the majority of funding agreements in the UK unenforceable).

The Road Ahead: Singapore    
Government’s ”light touch” statutory regulation of the litigation funding industry may be the reason a self-regulating funding organization—along the lines of the U.K.’s ALF—has yet to emerge in Singapore. As funding grows in stature, a local funding organization may yet develop.

Singapore is likely to grapple with issues like a funder’s liability for adverse costs, as the UK courts did in Arkin when the funding industry was in its infancy. Should the same issues arise in a Singapore court, the judge will no doubt be influenced by the conclusions in Arkin (albeit that Arkin is no longer considered a binding rule since Davey v Money, a 2019 case, held that the court has wide discretion and need not apply the cap if circumstances dictate, reflecting further maturation of the UK funding market). The area of adverse costs is ripe for examination and codification by legislators in both jurisdictions. So, too, are issues raised in Essar v Norscot [2016] EWHC 2361, where the English High Court held that a respondent must pay, as part of a costs award in an arbitration, the amount a claimant paid its third-party funder.  Indeed, in a recent Singapore arbitration, the claimant funded by Omni Bridgeway was awarded its funding costs with the tribunal applying the ratio in Essar v Norscot. [link to our ASX announcement]

The types of litigation investment products used by parties in Singapore will continue to increase in number and sophistication. For instance, portfolio financing, well-established in the US and increasingly common in the UK, is already taking hold.

As law firms and companies grow confident with litigation financing, we also are seeing its increasing recognition as a corporate finance tool, for raising capital and balancing budgets.

The Road Ahead: The U.K.   
Just as Singapore and other jurisdictions are embracing more complex forms of dispute financing, the U.K., too, will not remain stagnant in its development.

The recognition of litigation as a corporate asset is already well established in the UK. The next stage will be the use of funding products addressing a broader range of subject matters, including defence-side financing. In the U.S., portfolio financing is frequently deployed to allow companies to bundle claimant-side claims of significant value and then use the capital they generate to help fund defence-side matters.

 In addition, institutional investors have taken a greater interest in UK litigation funding in recent years, seeking returns uncorrelated to the capital markets. With this, secondary markets, with funders selling interests in litigation investments, and new financial products and derivatives are emerging, and are likely to take hold in advanced investment markets like the U.K and Europe.

Greater certainty around the legal rules applying to litigation funding is essential for further development of all funding markets, as mentioned above in relation to adverse costs. In the U.K., for instance, the full assignment of claims to third-party funders is not yet available (although it’s likely only a matter of time before it is, provided the Courts are convinced that the interests of justice are not suborned). This has been available in Australia for over 10 years. Some guidance on the role of a funder in U.K. group claims may well be forthcoming in the much-awaited judgment of the Supreme Court in the Lloyd v Google case.

The publication of relevant global guidelines from international bodies will further assist those using or involved with funding by increasing transparency and educating the market.

As the U.K. and other key legal jurisdictions continue to develop case law and investment products around funding, expect other jurisdictions—such as Singapore—to follow suit, if not actively compete. With no single, global standard for jurisdictions to draw upon, they are closely watching, emulating and learning from one another.

We at Omni Bridgeway will continue to closely monitor the development of these funding systems. To learn more about our litigation funding capabilities, visit our Company Insights. While there, explore our recent podcasts, blog posts, and videos. Or contact us for a consultation to learn more about the ways we can help you pursue meritorious claims.