(Delivered in Parliament on 10 January 2017)
Madam, this Bill essentially legalizes and introduces Third Party Funding for legal costs of international arbitration proceedings in Singapore. Third Party Funding is essentially financing provided by financing firms for claims in arbitration or litigation. These companies treat arbitration or litigation claims as assets. Like insurance, they distribute risks across their portfolio of cases and in the process they are able to also invest in claims which may otherwise be regarded to have lesser merits and may not otherwise see the like of day.
I recognize that Third Party Funding has been in existence in some other jurisdictions for some time. Third Party Funding may be growing but it is not without controversy. In countries where Third Party Funding is allowed, the following problems have been raised:
Third Party Funders may transfer control of the cases from the claimants themselves and take control of the strategy and decision making for cases which they fund? If so, would this not be desirable because it would no longer be about the claimant’s interest? For example, the claimant may wish to conduct the claim proceedings in a certain manner or may wish to settle the claim at some point but the Third Party Funders may disagree and the Third Party Funders’ preference will prevail if the Third Party Funding agreement ceded control and decision-making for the claim to the Third Party Funders.
There is also the issue of conflicts of interest for the lawyers who are acting on behalf of the claimants in a claim funded by Third Party Funders. Who are the lawyers answerable to? Can the same lawyers act for both the claimants or Third Party Funders without being in a position of conflict? In many cases, lawyers and even arbitrators have been routinely appointed by the same Third Party Funders in different cases. Clearly in such cases, there is a huge question mark over whether the interest of the claimants are protected or compromised. The claimants are left with no one to protect their interest, if their position differs from that of the Third Party Funders. I don’t think this is desirable.
In the context of international arbitration, Chief Justice Sundaresh Menon said in 2013 that (I quote) “international arbitration features the unique situation of counsel and arbitrators often being drawn from essentially the same pool”. The Chief Justice also said (and I quote) “a potential problem can arise when a funder finances multiple arbitral claims and where an arbitrator in one of those claims is also the legal representative of the claimant in a separate claim that is being financed by the same funder”. The Chief Justice also raised question about Third Party Funders having influence over the arbitration proceedings and appointing arbitrators who have prior commercial relationships with the Third Party Funders. He asked whether such relationship should be disclosable to the other party.
Third Party Funding has resulted in prolonged litigation. In some reported cases, Third Party Funders have entered into Third Party Funding agreements with claimants which encouraged claimants to settle a claim for more money by increasing the claimants’ share of the recovered amount if it is beyond a certain specified sum. Claimants may in such cases reject what may be a fair settlement sum from their opponents earlier in the proceedings in the hope of getting a higher recovery later on, but which may not ultimately prevail.
Third Party Funders effectively become the new additional party to any proceedings who has an interest in the proceedings which is to effect maximum return on its investment which may run conflict to the interests of not just the claimants they are funding, but also to the prejudice of the defendants on the opposite side on how the case should be conducted and whether settlement should be entered into.
I would like to seek clarifications as to how the Government intend to deal with the issues I have highlighted above. Will all issues be addressed in the subsidiary legislation which the Senior Minister of State has mentioned?
Madam, I also have one other clarification: What is meant by the term ‘direct financial benefit’ under Clause 3 where it is proposed to include a clause (3A)(a) and Clause 3B? Does this mean that the Government will allow Third Party Funders to fund the setting up of a law firm’s litigation department which such funders do in some jurisdictions? If so, would there be a conflict of interest for the lawyers vis-à-vis the Third Party Funders and the actual litigant? He has different interests in respect of both parties.
Madam, while I am in principle supportive of allowing Third Party Funding and this Bill, I am concerned that the issues I have raised must be correctly addressed by the Government at the onset so that we can avoid experiencing the same problems which surfaced in other jurisdictions and exclude the known negative aspects of Third Party Funding.