september 2018 a new dawn: third-party funding of ......any real push for third-party litigation...
TRANSCRIPT
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A NEW DAWN: THIRD-PARTY FUNDING OF ARBITRATION IN HONG KONG AND SINGAPORE
SEPTEMBER 2018
In this edition of Vannin Capital’s In Conversation Series, Managing Director Adam Silverman from Vannin speaks to Nicholas Lingard and John Choong, Partners in the International Arbitration Group of Freshfields Bruckhaus Deringer based in Asia, about the recent legislative reform allowing third-party funding of arbitration in Hong Kong and Singapore.
Adam Silverman (AS): The recent approval of third-party funding of arbitration in Hong Kong and Singapore has arrived at an opportune time given that there is a noticeable growing appetite for third-party arbitration funding globally. Is there any particular reason why Hong Kong and Singapore felt that the time was right to make the legislative changes to allow third-party arbitration funding?
Nicholas Lingard (NL): The impetus for legislative change in Singapore came largely from developments in other leading arbitration jurisdictions. The Singapore Ministry of Law has been keen to maintain Singapore’s edge as a leading arbitration centre, and it was felt at the time that Singapore should be in step with international developments by permitting third-party funding in international arbitration and related proceedings. While third-party funding for domestic
arbitration in Singapore remains unenforceable (unlike the position in Hong Kong), the Singapore government has indicated that the current third-party funding framework may be expanded further in the future.
John Choong (JC): The points raised by Nick are also relevant to Hong Kong, and in particular, it was felt that there was a need to clarify the status of third-party funding agreements, following a number of decisions from the courts dealing with this issue. Absent such clarification, there was a concern that third-party funding would be hindered by the uncertainty surrounding the common law position. That uncertainty has now been removed, for both domestic and international arbitrations seated in Hong Kong, and no doubt Hong Kong will use this to leverage its position as a pre-eminent arbitral centre.
IN CONVERSATION SERIES NO.10
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AS: John and Nick, you have both practised in Hong Kong and Singapore for many years and acted for a wide-range of clients in high-value and complex arbitrations. Have clients historically enquired about the third-party funding of Hong Kong or Singapore seated arbitrations? Are you now seeing more client interest?
NL: We have seen in recent years significant client interest regarding third-party funding arrangements in Singapore and we already are doing funded cases from Singapore. Interest has not always translated into an uptake of funded arbitrations but I think that will change over time. Whether a case is suitable for third-party funding will always depend on having the right claim, the right clients, and the right circumstances, but the interest is certainly there and clients are becoming more attuned to the potential benefits.
JC: On the Hong Kong side, we are certainly also seeing a great deal of interest from clients, and there is no doubt that as the legislation comes into full effect (which it is understood will happen shortly), we will see a steady growth in interest and take-up rate for third-party funding. As for financial drivers, the potential to offset risk, and free up cash flow are important considerations for many of our clients.
AS: It has been interesting to observe the competition in recent years between Hong Kong and Singapore to stake their respective claims as leading arbitral centres in Asia, and internationally. Has the approach to third-party funding differed as between Hong Kong and Singapore?
NL: It would be fair to say that regional competition has helped drive innovation and developments in arbitration generally in Hong Kong and Singapore, to the benefit of both. The Singapore approach aligns very closely with Hong Kong. In
particular, both the Singapore and Hong Kong frameworks envisage a light touch ‘self-regulation’ approach towards third-party arbitration funding. In Singapore, the Guidelines for Third-Party Funders issued by the Singapore Institute of Arbitrators and the Singapore International Arbitration Centre (SIAC) published Practice Note: “On Arbitrator Conduct in Cases Involving External Funding” (which applies to all SIAC administered cases conducted under the SIAC Rules) have been particularly influential in this regard. SIAC also recently published the SIAC Investment Arbitration Rules 2017, which include provisions on third-party funding. It’s also interesting to note that the Singapore and Hong Kong models appear to have been influential in the International Centre for Settlement of Investment Disputes’ (ICSID) recent proposed rule revisions, which, at least with respect to disclosure of the fact of funding, are similar to the Singapore and Hong Kong approaches.
WHILE THIRD-PARTY FUNDING FOR DOMESTIC ARBITRATION IN SINGAPORE REMAINS UNENFORCEABLE (UNLIKE THE POSITION IN HONG KONG), THE SINGAPORE GOVERNMENT HAS INDICATED THAT THE CURRENT THIRD-PARTY FUNDING FRAMEWORK MAY BE EXPANDED FURTHER IN THE FUTURE.
NICHOLAS LINGARD
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JC: I agree with all that Nick has said. In addition, one notable difference is that Hong Kong has at least left open the possibility that a tribunal may be empowered to order security for costs against a third party funder. The Hong Kong Government has agreed to review the position on this issue in three years’ time. Another key difference is that the Hong Kong legislation envisages that a statutory body will be designated to issue and oversee a Code of Practice to govern best practices in the third-party funding industry for an initial period of three years. In addition, as I said earlier, third-party funding of domestic arbitration is permitted in Hong Kong whereas the Singapore legislative changes extended only to international arbitrations seated in Singapore.
AS: We are regularly asked about third-party funding of litigation in Hong Kong and Singapore and whether this will be fully opened up in the near future. This is a question of equal interest to Vannin, given we are already active in the litigation space in those jurisdictions with respect to the funding of litigation in the insolvency context (which is permitted in certain circumstances). How do you see Hong Kong and Singapore approaching third-party litigation funding?
NL: Without ruling it out, I have not seen any real push for third-party litigation funding in Singapore, at least not for general commercial disputes, in the way we saw with international arbitration funding. The government obviously had the opportunity to consider litigation and arbitration funding when the reforms were first proposed in 2016, and I think a conscious decision has been made
ANOTHER KEY DIFFERENCE IS THAT THE HONG KONG LEGISLATION ENVISAGES THAT A STATUTORY BODY WILL BE DESIGNATED TO ISSUE AND OVERSEE A CODE OF PRACTICE TO GOVERN BEST PRACTICES IN THE THIRD-PARTY FUNDING INDUSTRY FOR AN INITIAL PERIOD OF THREE YEARS.
JOHN CHOONG
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not to pursue litigation funding (outside of insolvency related matters) for the time being. That said, unlike in Hong Kong, Singapore chose to give effect to third-party funding of arbitration by way of amendments to the Civil Law Act rather than in the arbitration legislation. In addition, the Singapore legislative framework permits the Minister of Law to pass regulations designating other types of proceedings (ie. other than international arbitration proceedings and related actions) as qualifying for third-party funding. The Singapore legislative framework can therefore be readily adapted to allow third-party funding of litigation should the government wish to move in that direction.
JC: I am less optimistic that Hong Kong will move towards third-party funding for all types of litigation, at least in the near future. There has been a real push to allow third-party funding arrangements in the international arbitration space, but there have been broader concerns about expanding this to cover the non-arbitration space (outside of certain specialist areas, for example, insolvency). However, there is currently a move to begin a consultation process on permitting practitioners in Hong Kong to enter into contingency fee arrangements in relation to arbitration proceedings. There are also ongoing discussions around a number of related proposals.
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AS: One key issue that funders are always very alive to, when considering whether to invest in an arbitration, is that of the prospects of enforcing any arbitral award rendered in favour of a funded claimant against the losing respondent. Will a third-party funded claimant face any additional hurdles when seeking to enforce an arbitral award in Hong Kong or Singapore for the specific reason that the claimant was funded?
NL: Given the relatively recent nature of third-party funding arrangements, there is very little in the way of authority on how the courts should deal with the enforcement of funded awards. In a situation where a funded claimant seeks to enforce an award (which will presumably have been made in a jurisdiction which permits funding) in Singapore, it is unlikely the courts would take issue with this. The two bases on which such an award could be challenged on public policy grounds under the New York
Convention (the tort of champerty and the unenforceability of funding agreements) are no longer applicable in Singapore so far as third-party arbitration funding is concerned. I think resisting enforcement on the basis of a funding arrangement alone would be a difficult proposition, at least in Singapore.
JC: The points raised by Nick also apply to Hong Kong. The Hong Kong courts, as in Singapore, are extremely pro-arbitration, and given the specific legislation on third-party funding in Hong Kong, the Hong Kong courts are unlikely to refuse enforcement of an award on the basis of a funding arrangement per se. In this regard, it is interesting to note that in Democratic Republic of Congo v FG Hemisphere Associates LLC, the Court of Final Appeal noted that the respondent in that case had purchased the right to the arbitration awards in question but emphasised that all parties were entitled to equal treatment before the Hong Kong courts.
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Adam SilvermanManaging Director, Vannin [email protected]
Nicholas LingardPartner, Freshfields Bruckhaus [email protected]
John ChoongPartner, Freshfields Bruckhaus [email protected]
Adam is a Managing Director based in Vannin Capital’s Sydney office. He is responsible for managing and advising on Vannin’s multi-million dollar portfolio of funded arbitration, litigation and insolvency claims throughout the Asia-Pacific and globally. Adam also works with law firms and litigants in assessing claims for investment, including single-case, portfolio and disbursement funding.
A specialist in commercial dispute resolution, Adam worked in private practice for over ten years advising major businesses in multiple jurisdictions on cross-border and domestic commercial litigation, and international commercial arbitration under the rules of the leading arbitral institutions. Adam has also acted for leading investment banks, listed companies and investment funds on a range of financial regulatory issues.
Prior to joining Vannin, Adam worked for six years in the dispute resolution team at Freshfields Bruckhaus Deringer in Hong Kong, including a secondment to the litigation department of Bank of America Merrill Lynch. He has also practiced in the UK and Mainland China. Adam is admitted as a solicitor in Hong Kong and England & Wales.
An experienced international arbitration counsel and advocate, Nick heads the international arbitration practice of Freshfields Bruckhaus Deringer in Asia. He leads probably the most active treaty arbitration practice in Asia, representing both investors and States, in high-profile, politically complex cases around Asia and the world. He also represents clients in commercial disputes across a variety of industries, under all the major arbitral rules, including ICC, SIAC, UNCITRAL, HKIAC, AAA and NAI.
Nick is an expert member of the Energy Charter Treaty Secretariat’s Legal Advisory Task Force, and writes and speaks widely on international arbitration. He is co-author of the leading Japanese practitioners’ text on international arbitration.
A former law clerk to the Chief Justice of Australia, Nick was educated at the University of Queensland, where he graduated at the top of his class in law and Japanese, and Harvard Law School, where he was a Frank Knox Memorial Fellow. He is admitted to practice in New York and New South Wales, Australia. Nick is also a Registered Foreign Lawyer at the Singapore International Commercial Court.
John Choong is a Partner at Freshfields Bruckhaus Deringer with the International Arbitration Group, based in Hong Kong.
John specialises in international arbitration and cross-border disputes throughout Asia with particular experience in PRC-related disputes, and has practised for over 15 years in Hong Kong and Singapore. During this time, he has advised clients on and represented them in a wide range of international commercial and investment arbitrations. These have ranged in value and complexity, and have included a number of billion-dollar arbitrations.
John is a Fellow of the Chartered Institute and Hong Kong and Singapore Institute of Arbitrators and has been listed as a leading individual for dispute resolution by a number of legal directories. He serves on the SIAC Users Council (Hong Kong), is also a country rapporteur for the ICC Task Force on the New York Convention, and sits on the Equal Representation in Arbitration committee. He has edited a number of books published by Oxford University Press and Sweet & Maxwell and is a General Arbitration Editor of the Hong Kong White Book.
BIOGRAPHIES
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