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Harbour View Quarter 4 2015

Featuring news from the Team at Harbour Litigation Funding. Visit our website for more in depth details

Contents Page 4 - 7 — Hong Kong looks to open the door to funding of arbitrations James Rogers and Matthew Townsend of Norton Rose Fulbright Hong

Kong give an overview into Hong Kong opening the door to funding

Page 9 - 12 —

Litigation Funding – Next stop Singapore

Shaun Langhorne, Jonathan Leach and Tarah Hamiliton of Hogan Lovells

Lee & Lee provide an insight into litigation funding in Singapore

Page 14 - 17 —

Dogma or Debate?

Matthew Knowles, a Harbour Director of Litigation Funding, gives Harbour’s view on the debate on disclosure and security for costs in international arbitration

Page 18 - 19 —

Harbour News

Rounding up global activities this quarter, including the appointment

of senior hires within the Harbour team



any jurisdictions accept the value of funding to enable parties to enforce their rights in court proceedings and arbitration. More jurisdictions now recognise funding as an option to pay for costs of running a dispute.

The concluding article by Matthew Knowles, a Harbour Director of Litigation Funding, reviews the issues which need to be considered in the debate about the disclosure of funding arrangements and whether the involvement of funders should lead to security for costs being ordered in international arbitrations.

The first article from Norton Rose Fulbright reviews the 4 recommendations made by Hong Kong’s Law Reform Commission, issued in October, which supports the use of litigation funding in their jurisdiction.

To be kept informed on Harbour’s news and updates, as well as previous issues of Harbour View, visit

In addition, Singapore has shown an appetite for reform in relation to litigation funding. Hogan Lovells Lee & Lee’s article considers the court’s recent decision in Re Vanguard Energy Pte Ltd. The judgment not only allowed litigation funding in an insolvency context, but also shows a change in judicial attitude towards funding and the way that it might be permitted in Singapore in the future.



Hong Kong signals acceptance of funding of arbitrations By James Rogers and Matthew Townsend, Norton Rose Fulbright Hong Kong


n a move widely welcomed in the local legal community, the Hong Kong Law Reform Commission has recommended a change in the law to permit funding of arbitrations.

current legal status of funding arbitration in Hong Kong is unclear. Recent Hong Kong court decisions have confirmed that litigation (as distinct from arbitration) funding is prohibited by the doctrines of champerty and maintenance (Unruh v Seeberger [2007] 2 HKLRD 414). However, Unruh and subsequent cases have carved out exceptions to these principles, including in circumstances where:

The Hong Kong position The obvious value of litigation funding is that it provides a claimant with the financial resources to enforce its rights.

• the funder held a legitimate common interest in the proceedings • funding was necessary to give effect to the party’s fundamental right of access of justice • the proceedings took place outside of the jurisdiction • the party is a liquidator or in liquidation.

Funding has become increasingly common in international arbitration in many jurisdictions. Steps have been taken in other jurisdictions to regulate the industry. Notably, in 2011, the Association of Litigation Funders of England and Wales published a voluntary Code of conduct for Litigation Funders. The code, which also applies to arbitration funding, was revised in 2014.

An illustration of the application of the final ground can be found in the November 2015 judgment in Re Company A-E ([2015] HCMP 2019/2015). In that first instance decision, the liquidators of several companies were permitted to obtain litigation funding so as to allow the companies to pursue a claim which would otherwise have to be abandoned.

However, it is fair to say that Hong Kong is behind the curve in these developments. As early as 1997, the Hong Kong judiciary suggested that funding of arbitration proceedings (as opposed to litigation) may be permissible. However, the


Funding has become increasingly common in international arbitration in many jurisdictions



However, neither recent decisions, nor the landmark Unruh ruling, have offered guidance on the position when it comes to arbitration (as opposed to litigation).

The Law Reform Commission’s support of funding is understandable

Given Hong Kong’s position as a leading international arbitration centre, it is therefore natural that the jurisdiction is looking to open the door to litigation funding. Accordingly, in June 2013, Hong Kong’s Chief Justice and the Secretary for Justice asked the Law Reform Commission to “review the current position relating to third party funding for arbitration for the purposes of considering whether reform is needed, and if so, to make such recommendations for reform as appropriate”.


The committee’s support of funding is understandable, as is its concern to introduce safeguards to ensure best practice in this new area of the law.


he resulting Law Reform Commission consultation paper issued on 19th October 2015 made four recommendations, namely that:

It is unclear yet whether the proposed form of regulation will be by statute (for example as a schedule to the Arbitration Ordinance) or by way of a voluntary code of conduct. However, the committee has expressed reservations regarding the self-regulatory approach, citing the lack of “critical mass” of funders based in Hong Kong.

1. The Arbitration Ordinance be amended to provide that funding for arbitration taking place in Hong Kong is permitted under Hong Kong law. 2. Clear ethical and financial standards for third party funders providing third party funding to parties to arbitrations taking place in Hong Kong should be developed. 3. The Commission invited submissions as to the nature, provenance and content of such ethical and financial standards and how they should be enforced. 4. The Commission invited further submissions as to whether, and on what basis, a funder should be directly liable for adverse costs orders, or orders to provide security for costs.

Other areas for decision include whether and how to regulate: • to ensure that funders have sufficient capital • the potential for conflicts of interest arising from a funder’s involvement in proceedings • the confidential nature of arbitration • the rules on privilege and waiver in the context of funding


• the territorial application of the rules • the balance between funder and the funded party’s control over the arbitration • dealing with complaints and issue standards. Many practitioners are interested to see if the committee recommends that a funded party be required to disclose the nature of its funding to the tribunal and to the other party to proceedings. This is a controversial area. There are arguments in favour of requiring such disclosure (most notably to avoid arbitrator conflicts and to allow for proper determination of whether security for costs should be awarded). Indeed, disclosure is already recommended in the IBA Rules on Conflict of Interest in International Arbitration. However, such a disclosure requirement also raises concerns for the funded party, which may find funding harder to obtain or else see itself as more vulnerable to an adverse security for costs order, which would only increase the costs of bringing the claim.

Next steps


t is expected that the vibrant arbitration community in Hong Kong will provide detailed feedback to the Commission during the consultation period. Indeed, the authors are involved in efforts by several Hong Kong based arbitral institutions who have recently set up working groups to consider the issues raised by the consultation paper. The more detailed recommendations which will follow the expiry of the consultation, on 18th January 2016, are eagerly awaited.


In Singapore there has been, for some time, an appetite for reform in relation to litigation funding



Litigation funding – next stop Singapore? By: Shaun Langhorne, Partner, Business Restructuring and Insolvency, Jonathan Leach, Partner, International Arbitration, Tara Hamilton, Associate, Hogan Lovells Lee & Lee


he High Court of Singapore has recently approved a litigation funding arrangement for a company in liquidation, paving the way for the expansion of litigation funding in the jurisdiction.

Further, although the doctrines of maintenance and champerty remain a barrier to a broader acceptance of litigation funding in Singapore, the court took the opportunity to record a general acceptance of the broad-based exceptions to the doctrines under English law. Although not binding, the court’s observations in this regard may signal a shift in the approach to litigation funding in the future.

Re Vanguard Energy Pte Ltd [2015] SGHC 156 (“Re Vanguard Energy”) is a significant decision as it provides a clear precedent for litigation funding, albeit limited to the insolvency context. The fundamental rationale for the court’s decision can be summarised as follows:

Background to the decision

1. the relevant provisions of the Singapore Companies Act not only permit a liquidator to sell a cause of action accruing to a company, but also permit the sale of the proceeds of such actions; 2. an assignment of the proceeds of a cause of action in exchange for funding to a company in liquidation is permissible; and 3. the doctrines of maintenance and champerty have no application to the exercise by a liquidator of this statutory power of sale.


ingapore-based bunker trader Vanguard Energy Pte Ltd (the “Company”) was wound up and placed into compulsory liquidation in November 2014. Prior to the commencement of the liquidation, the Company initiated a number of actions seeking damages or recovery of funds from third parties. Several further potential claims were also identified. However, the Company had insufficient assets to continue with the proceedings, and the Company’s liquidators (“Liquidators”) were unwilling to proceed with any of the claims without an indemnity or funding.

The decision is an important one as it brings the Singapore insolvency law position in line with that under other common law jurisdictions such as England, Australia and Hong Kong.



Three shareholders of the Company (“Funders”) were willing to provide funding for the pursuit of the claims. The Company and the Liquidators entered into a funding agreement with the Funders in February 2015 (“Funding Agreement”), which contained a simple promise by the Company to use part of any proceeds recovered from the claims to repay the Funders. The Liquidators then commenced proceedings in the High Court of Singapore seeking judicial approval of the funding arrangements.

The approach of the court in Re Vanguard Energ y has potentially opened the way to an expansion of circumstances in which litigation funding might be permissible in Singapore in the future

During the course of the approval hearing, the Liquidators provided the court with a draft Assignment of Proceeds Agreement (“Assignment Agreement”) with the intention that the document would, upon execution, supersede the Funding Agreement. The substantive terms of the Assignment Agreement mirrored those of the Funding Agreement, save for one key difference. The Assignment Agreement provided that all rights, title and interests of the Company and the Liquidators over the part of any monies recovered through the claims equal to the funds provided (the “Assigned Property”) would be sold to the Funders by way of assignment, with the amount of the funding provided by the Funders comprising the consideration for the sale.

adopted the broad definition of ‘property’ set out in the Singapore Bankruptcy Act, which included ‘every description of interest, whether present or future or vested or contingent, arising out of or incidental to, property.’



n considering the Assignment Agreement, the court was called upon to determine whether the assignment of the Assigned Property fell within the ambit of section 272(2) (c) of the Singapore Companies Act. Relevantly, section 272(2)(c) empowered the Liquidators to ‘sell the immovable and movable property and things in action of the company… to any person or company or to sell the same in parcels’. In determining the scope of this power, the court

In considering the provision, the court drew upon authorities from England and Australia which considered substantially similar statutory provisions. On this basis, the court concluded that the sale of the Assigned Property, insofar as it represented the proceeds of causes of action belonging to the Company, was permitted, observing:



The continued applicability of the torts of maintenance and champerty mean that there remains a general prohibition in Singapore against providing funding to solvent third parties in order to conduct litigation. The restriction also extends to arbitration (see Otech Pakistan Pvt Ltd v Clough Engineering Ltd and another [2007] 1 SLR(R) 989).

“Having considered the language in section 272(2) (c) and the English and Australian cases, I had no hesitation in accepting counsel’s submission that section 272(2)(c) permits the sale of the fruits of a cause of action that belongs to the company…” The court made a point of contrasting the approach under the Assignment Agreement with that of the Funding Agreement, and noted that section 272(2)(c) could not apply to a mere promise to use part of the proceeds to repay the Funders.

Having reviewed the current position under English law, the court observed that there was authority to support the proposition that an assignment of a cause of action, or indeed the fruits of such action, ought not be struck down if there was no realistic possibility that the administration of justice may suffer as a result of the assignment. The court noted that in determining this point, questions as to whether the assignment conflicts with existing public policy protecting the due administration of justice and the interests of vulnerable litigants, as well as the policy in favour of ensuring access to justice, should be considered.

The court then went on to consider application of the doctrines of maintenance and champerty to the sale contemplated under the Assignment Agreement, and concluded that an assignment of the proceeds of a cause of action under the statutory power of sale did not fall foul of these doctrines because the assignment was expressly authorised by the statute. As a result, the Assignment Agreement and the contemplated funding arrangements could be accepted by the court.

Key applications of the decision

Consideration of the broader application of maintenance and champerty


here has, in Singapore, for some time been an appetite for reform in relation to litigation funding, particularly in the field of international arbitration. The Singapore Ministry of Law, in its consultation paper to the 2012 amendments to the Singapore International Arbitration Act, sought public input as to whether funding would be appropriate in the context of international arbitration. The potential expansion and regulation of litigation funding remains a live area of consideration within the jurisdiction.


lthough having concluded that the doctrines of maintenance and champerty had no application to funding arrangements authorised by statute in the context of insolvency, the court took the opportunity to consider the broader implications of the principles to litigation funding arrangements in Singapore.




The approach of the court in Re Vanguard Energy is therefore potentially significant, as in addition to determining that the specific form of Assignment Agreement under consideration was permissible, the court also indicated a general acceptance to the broader application of exceptions to the doctrines of maintenance and champerty. Although the observations in question were made in obiter and therefore are not binding precedent on any future court, by approving the broad exceptions accepted under English law, the court has potentially opened the way to an expansion of the circumstances in which litigation funding might be held to be permissible in Singapore in the future.


ermitting litigation funding in a particular jurisdiction is likely to be attractive to potential users of that jurisdiction. Given Singapore’s stated ambitions to be a regional hub for international arbitration and restructurings amongst others, developments in this area will be keenly observed.

The starting point for the vibrant litigation funding industries in Australia, England and to a lesser degree Hong Kong, was the court’s willingness to approve funding in an insolvency context. Therefore, the court’s reasoning on this issue, and the wider discussion of a broad based exception to the doctrines of maintenance and champerty, may prove to be a significant step forward in the on-going process of reform in Singapore.


What is a funder? Anyone who makes a financial contribution, whether by payment or forbearance, in respect of the costs of conducting an action



Dogma or debate? By Matthew Knowles, Harbour Director of Litigation Funding


isclosure of funding arrangements and whether the involvement of funders should, lead to orders being made for security for costs, continue to be topics of discussion producing much heat (and sometimes some light).

about third party funders specifically although no stakeholder group is blameless. Seen in its proper context, the issue around security for costs is a secondary matter in a broader policy debate as to what protections ought to be afforded to respondents in arbitral proceedings, whether States or commercial parties.

But before we get into those issues, we should start with a definition. What is a funder? The answer is: anyone who makes a financial contribution, whether by payment or forbearance, in respect of the costs of conducting an action. That, of course, includes professional third party funders such as the Harbour Funds but it also includes lawyers who run cases on a contingency or conditional fee bases, insurers, interest groups such as trade associations and runs all the way through to creditors of an insolvent entity providing funding to that entity to enable it to bring a claim. Otherwise, the playing field is uneven.

The traditional position in treaty arbitration was that States would almost invariably bear their own costs, whatever the outcome. In commercial arbitration, claimant default on a costs award was taken to be an assumed risk unless the respondent could show that the claimant’s creditworthiness had substantially diminished since the time of the arbitration agreement for reasons unconnected with the matter in dispute. Costs awards, although more likely to follow the event than in treaty arbitration, were still substantially less likely to do so than in court proceedings in, say, the UK or Australia. Tribunals’ approach to applications for security for costs reflected those positions, but they no longer hold good. The trend, both of awards and of academic and political discussion, is strongly towards the unsuccessful party bearing the costs of the winning party.

It is critical to keep this definition in mind when deciding if new rules or standards should apply and, if so, what those rules or standards should be.

Security for costs

But how to achieve this? Enforcement risk runs both ways and the posting of security as a default seems a step too far, not least in light of the increasing use of funding, of all types, by perfectly solvent commercial parties.


series of treaty arbitration orders addressing security for costs has attracted much coverage and fundamentally some intemperate language





his does, of course, require funding arrangements to be disclosed, consistent with the IBA Guidelines on Conflicts of Interest in International Arbitration. While, from a conflicts perspective, it might seem right for a funded party to disclose both the existence of funding and the identity of the funder to the tribunal and the respondent, parties have very real and understandable concerns that bias against ‘pure’ third party funding (whatever that may really mean) may lead them to be in effect penalised. As noted above, equality of treatment between different types of funders is both rational and desirable, not least because it will dispose of at least that concern and thereby encourage disclosure.

Equality of treatment between different types of funders is both rational and desirable

The solution so far as funded cases is concerned seems to lie in the tribunal requiring the funder (and let us remember the breadth of that definition) to adhere to the arbitration agreement for the purposes of costs only. This would place each party with a financial interest in the outcome on a level playing field and it would then be a matter for claimant and funder to resolve between them as to how to address the potential liability.

That is not, however, the only matter to be addressed in relation to disclosure. Identifying the funder as a party, particularly when taken together with the identification of an arbitrator with his or her law firm and the ever-increasing size and reach of international law firms, which are often partnerships of convenience, throws up a multitude of issues when one considers the traffic lights. To take just one example, the first situation on the Orange List is “The arbitrator has, within the past three years, served as counsel for one of the parties, or an affiliate of one of the parties, or has previously advised or been consulted by the party, or an affiliate of the party, making the appointment in an unrelated matter, but the arbitrator and the party, or the affiliate of the party, have no ongoing relationship.” On its face, if the arbitrator’s law firm had provided a second opinion on a completely unrelated case to the funder two years before the present arbitration arose, an Orange List situation would arise. You might

For funders accustomed to investing in cases in jurisdictions where costs follow the event, this will not markedly affect their business model, although it will alter the economics of investments and so risks some degree of stifling good claims. All clients and funders alike want is certainty as to how the rules will be applied so all concerned know what their costs exposure is and can price that exposure accordingly.


This is a time for measured debate



consider this uncontroversial, but it would still be the case if, say, it had been an Australian office of the arbitrator’s law firm which had provided the second opinion, for which it had charged A$25,000, while the arbitrator was based in North America and was a local partner in the North American entity, which did not share profits with the Australian entity. That is not to say that the Guidelines are wrong or that the traffic lights need to be amended. Indeed, the Guidelines note that there is the potential for “unwarranted or frivolous challenges�. It will be important both for institutions and individual tribunals to continue to take fact-sensitive but robust approaches to challenges. They should penalise by immediate costs awards those who make unwarranted or frivolous challenges, and make available (anonymised as necessary) challenge decisions to provide guidance as to what is likely to be permitted. This is a time for measured debate, not unthinking dogma.



Harbour News

Harbour supported the Legal Business, International Arbitration Summit. Participants and attendees represented the elite of the UK’s arbitration community and included general

The Harbour team continues to grow with the appointment of two new litigation specialists.

counsel, private practice lawyers and barristers. Highlights included: Current trends around transparency, recent

Michael Hartridge

changes to protocols and the development of arbitration in Africa and Asia were some of the issues debated at the summit. Harbour’s Head of Litigation Funding, Susan

Mark King

Dunn, was a panellist in the session Lifting the veil: Transparency and protocol in international arbitration. She spoke about the need for certainty of process and costs; ‘While there is a good degree of certainty in arbitrations about


ichael Hartridge has joined as Senior Director of Litigation Funding from Lloyds Banking Group where he was previously General Counsel for Litigation, Regulatory and Competition. Prior to this Michael was at Morgan Stanley, latterly as Executive Director, which he joined from Freshfields Bruckhaus Deringer. Michael will bring a wealth of experience to the Harbour team.

the cost of the arbitrators, there remains a lot of uncertainty on the predictability of costs awards and security for costs.’   Focusing on what matters to Harbour, she outlined ‘when assessing any case, of course the merits are important, but just as importantly is having certainty about what the case will cost to take to conclusion and that includes knowing what the exposure to adverse costs will be if the case is lost.  There is that degree of predictability in litigation and

Mark King has joined as Associate Director of Litigation Funding from Mayer Brown, where he was a Senior Associate advising domestic and international clients in high-value complex litigation and arbitration.

arbitrations that need to be clearer in this regard’. Other panellists for this session, which focused on the confidentiality of awards and the extent to which they should be more widely published, were Constantine Partasides QC, Peter Rees QC of 39 Essex Chambers (Harbour Investment Committee member) and Michael Schoepe of Siemens.


In Brief


• Susan Dunn spoke at the IBA Arbitration Conference on 3rd December • Rocco Pirozzolo was involved in the International Conference for Commercial Arbitration’s task force on Litigation Funding on 3rd December.

ith a significant donation, Harbour Litigation Funding has become the latest corporate supporter of JUSTICE,

the law reform and human rights organization

For more information on Harbour Litigation

working to strengthen the UK’s administrative,

Funding call +44 20 3829 9320 or

civil and criminal justice system. Susan Dunn commented that “being associated with the admirable work and achievements of JUSTICE across a broad spectrum is a privilege and Harbour is looking forward to making more than just a financial contribution”.

Team Activities


The last quarter has seen the team talking to a number of different audiences:

• Susan Dunn spoke at the IBA Vienna conference on 5th October • Matthew Knowles spoke at the 5th Investment Treaty Arbitration Conference in Prague on 22nd October • Ruth Stackpool-More was a panellist at ADR in Asia on 27th October • Susan Dunn spoke at the Arbitration Event in Kiev on 5th November • Matthew Knowles spoke at CDR Autumn Arbitration Symposium on 12th November • Matthew Knowles was a panellist at the ICC Annual Arbitration Forum on 2nd December



Featuring news from the Team at Harbour Litigation Funding. Visit our website for more in depth details

Harbour View Q4 2015  

This edition features articles on the development of arbitration funding in Hong Kong; a perspective on litigation funding in Singapore, and...

Harbour View Q4 2015  

This edition features articles on the development of arbitration funding in Hong Kong; a perspective on litigation funding in Singapore, and...