It comes as no surprise that the widespread and lingering economic disruption from the pandemic and the conflict in Ukraine has detrimentally affected supply chains, eroded consumer and business confidence and introduced uncertainty into contractual relations and obligations.
The consideration of legal fees, especially in these uncertain times, is an influencing factor on whether to pursue legal proceedings. Even in situations where a claim has its merits, businesses focused on liquidity may be reluctant or unable to enforce their legal rights due to lengthy proceedings and prohibitive legal costs. Parties recovering from the pandemic and geopolitical challenges lack a war chest to fall back on and have liquidity concerns when involved in a lengthy action. They may also face opponents tactically deploying the adversarial process to inundate and deplete the party’s resources in the hope that they would discontinue the proceedings or settle at unfavourable terms just to avoid expending further costs on the dispute.
The revised Third-Party Funding regime and the newly introduced conditional fee agreements can be welcome relief for such parties.
Third Party Funding
So, what is third-party funding? Third-party funding, by definition, is the funding of legal proceedings by a party uninvolved to the dispute, in exchange for an agreed return; for example, compensatory damages or proceeds from a settlement sum.
Until 2017, third-party funding was prohibited in Singapore due to historical laws against
maintenance and champerty that were still in place. In 2017, Singapore became one of the first jurisdictions in Asia to authorise third-party funding in international arbitration and related court proceedings. This has since been expanded.
On 28 June 2021, the Ministry of Law (MinLaw) extended the third-party funding (TPF) framework to cover domestic arbitration proceedings, Court proceedings arising from or connected with domestic arbitration proceedings, proceedings commenced in the Singapore International Commercial Court (SICC) for as long as those proceedings remain in the SICC, and mediation proceedings relating to the any of the aforementioned proceedings.
This offers businesses an alternative avenue to fund meritorious claims. While the current framework does not yet allow for third party funding in court actions, the expansion of the framework to cover both domestic and international arbitration nonetheless provides business with a genuine alternative option primarily because many modern contracts provide for arbitration as the mode of dispute resolution.
Conditional Fee Agreements
What about conditional fee agreements (CFA)? These are agreements where a lawyer receives payment of a part, or all of his or her legal fees, depending on the outcome of a dispute as agreed by the client and the lawyer. Similar to third-party funding, this form of funding was previously prohibited by the laws of Singapore. Following the success of third-party funding, the Singapore government introduced the CFA Framework to widen the
ambit of litigation funding and support the needs of litigants who may be unwilling to pursue claims due to fear of incurring excessive costs.
The CFA Framework is embodied in the Legal Profession (Amendment) Act 2022 as well as the Legal Profession (Conditional Fee Agreement) Regulations (CFA Regulations). The CFA Regulations govern CFAs made between the clients and their lawyers. Presently, CFAs can only be entered into for international and domestic arbitration proceedings, some proceedings in the SICC, and related court and mediation proceedings. CFAs are also permitted in the event that proceedings are ultimately settled out of court.
The type of CFA that a lawyer and his or her client may wish to enter into can vary depending on parties’ risk appetite, the nature of the case and other individual factors.
For instance, a CFA can be structured such that a lawyer may take less or no legal fee if the claim is ultimately unsuccessful. Alternatively, a CFA can also mandate that a lawyer receives increased legal fees should a claim succeed, than would otherwise be payable without a CFA.
However, it is important to note that CFAs do not allow for ‘success fees’ to be calculated as a percentage or derivative of the damages or claim sum ultimately awarded. These types of ‘success fees’ are considered contingency fee arrangements and are still prohibited in Singapore.
Alternative Funding: A real choice?
Both third-party funding and conditional fee agreements are now viable options to assist parties in the financing of potential disputes.
Third Party Funding:
The introduction of Third-Party Funding allows businesses to pursue legitimate claims, equipped with the ready capital made
accessible, while eliminating risk and cost from the balance sheet; and shifting such risk and costs of dispute resolution from the business to the funder, and freeing up capital for investment and growth. This would allow parties, especially ones which cannot afford to expend funds in litigation, to pursue claims without the fear of the costs attached to litigation.
As an added incentive, a large majority of funders operate on a non-recourse basis. This means that if the funded party is ultimately unsuccessful, there is no obligation to repay the third-party funder the advances that were made towards litigating the dispute, this makes the option of funding a more commercially attractive option for companies.
A client can also choose to retain full control over the dispute resolution process. Alternatively, depending on the parties agreement, the funder could work together with the litigant on the overarching strategy.
Local and international business can also be rest assured that potential ethical and policy concerns, such as conflicts of interest, have been assuaged by the requirements of duties of disclosure regulations. Guidelines have also been issued by the Law Society of Singapore and the city-state’s arbitration centres to allay anticipated challenges in TPF which cover confidentiality and privilege issues, the funder’s liability for adverse costs and setting up the scope of funding, allocation of the funder’s level of control in the dispute resolution process and decision-making powers, and how the funding agreement can be terminated.
Conditional Fee Agreements:
CFAs can also be appealing to a broad range of potential litigants. CFAs would help potentially spread the risk of litigation between the lawyer and the potential litigant. A party who is unable to expend funds for litigation but has a very strong case can also consider a
CFA wherein the lawyer is to only obtain fees upon a win.
Potential litigants can be assured that there are adequate safeguards. The CFA Regulations require lawyers to draft the terms of the CFA in plain language and explain the nature and operation of the CFA to the client. Additionally, the lawyer is to inform the client of their right to seek independent legal advice before entering into CFA. If a provision for uplift fee is introduced, the particulars of the same in terms of calculation and an estimate result of the quantum of fee must be specified. If there are any variations in the CFA, it has to be made in writing and explained to the client. Every CFA entered into must contain a minimum cooling-off period of five days after the CFA is entered into, during which parties to the CFA have the option of terminating the CFA. A minimum cooling-off period of three days is also applicable to any variation agreement entered into regarding the CFA. Another safeguard is that clients need not pay any fees for costs incurred during this period apart from the costs incurred for service performed that was expressly instructed by or agreed to by the client. However, despite a CFA, the client will be liable for any cost order that is made against them. Certain conditional fee agreements would also allow parties to pay the lawyer after receiving damages from the adverse party.
Set against current and continuing global economic uncertainty, alternative funding presents itself as an instrument in the armoury of dispute resolution mechanisms for businesses across industries. More importantly, external funding has made access to justice more convenient. Parties need not assess the possible costs to determine pursuing a claim. That is why funding is a valued resource for companies, even more in the post-covid situation. By taking a step further in favour of funding, Singapore, as an international legal hub and a local market, has understood the advantages of funding for its stakeholders and has allowed them to use it more broadly.
But what does the future hold? No doubt tremendous progress has been made with the introduction of the above regimes but bolder steps can be adopted to introduce alternative funding options to bring Singapore closer to its counterparts in the West. It is useful to consider allowing third-party funding and CFAs to civil suits with appropriate safeguards in place to achieve harmony between allowing greater access to justice and preventing Singapore from becoming a litigious society. Such safeguards can include the use of costs sanctions for unmeritorious litigation and a greater push for mediated settlements.
This article is co-authored by Managing Partner and Head of Dispute Resolution Bazul Ashhab and Litigation & Dispute Resolution Partners Lionel Chan and Tanya Thomas Vadaketh.
The above content is for general information purposes only. It is not and does not constitute nor is it intended to provide or replace legal advice, a legal opinion or any information intended to address specific matters relevant to you or concerning individual situations. Should you require specific legal advice, please do not hesitate to contact the Partner listed or your regular contact at the firm. Copyright of Oon & Bazul LLP