Assignment
Rewrite the below research paper on how to build a disclosure system to meet the difficulties posed by third-party funding (TPF) in arbitration and comparison of regulations in Hong Kong and Singapore.
The Third Party funding Disclosure System in International Commercial Arbitration.
Research question
How to build a disclosure system to meet the difficulties posed by third-party funding (TPF) in arbitration and compare regulations in Hong Kong and Singapore.
Background
Third-party funding has both advantages and disadvantages. This dissertation will evaluate the regulations of various jurisdictions, notably HKTAC (Hong Kong) and SITAC, to determine how different institutions and jurisdictions should create a disclosure system to handle the issues presented by third party funding in arbitration ( Singapore International Trade Arbitration) especially if the party is impoverished. However, having a third party pay for private arbitration has resulted in a variety of complications. This dissertation examines the usefulness or ineffectiveness of the third-party funding system, how its components function third party funding, and the stability of the legislation in international arbitration in Singapore and Hong Kong.
The dissertation is divided in different chapters first, I will explain what is arbitration is why do parties in the arbitration need third party funding.
Defining the concept (chapter 1 )
Funding from a third party is not new. Originally intended to assist corporations that lacked the financial resources to pursue claims, its application has expanded to the point where it has become a fixture of the litigation landscape in a number of jurisdictions. Attracted by the high-value claims, the apparent finality of verdicts, and the enforcement framework offered by the New York Convention, financiers also consider international arbitration. (website)
Chapter 1.1 when is third party funding appropriate?
Funders are unlikely to provide funding for cases that do not involve damages. Given that funders receive their return by reference to recoveries made, they are primarily interested in claims with a damages outcome. As such, funding is generally only available to claimants or to defendants with a monetary counterclaim.
Funding an arbitration matter is a high risk investment, and funders will require a certain investment to quantum ratio. Unless they specialise in funding smaller claims, funders will generally only fund one-off cases where likely damages are assessed at £10 million plus.
Funders will require good prospects of success. They will undertake their own separate analysis of the claim and only fund it if they have confidence in it and the way it is being advanced.
Chapter 2 Compare Singapore and Hong Kong regulations (case study)
The two laws in two different jurisdiction Hong Kong and Singapore are both similar and different in important ways. When you compare the two laws, it’s easy to see that they both took a light-handed approach. But they need to be looked at more closely to find out where they are different and how much they are different. In this section, similarities come first, then differences.
The firs difference is
This is a very important distinction between the jurisdictions. Even though they both adopted a light-touch approach, there is a significant difference with regard to non-compliance between Hong Kong and Singapore. In Singapore, non-compliance has serious consequences for funders since they would lose their rights under the funding agreement by default,57 while in Hong Kong, non-compliance does not lead to any serious consequences by default. Moreover, it is explicitly stated that non-compliance with the Code of Practice itself does not render any person liable. Even non-compliance with Division 5 of the Hong Kong Ordinance, which is about the disclosure requirements, does not itself render any person liable. This shows that, in Hong Kong, the Ordinance and the Code of Practice are more flexible and not mandatory. They only act as guidelines for the market. However, any compliance or non-compliance can be taken into account, as explained in the Code of Practice. This means that, even though non-compliance itself does not render any person liable, the Code of Practice encourages funders to comply according to the wording of Section 98S of the Ordinance. Parties in any proceedings can use both the Code of Practice and the compliance or non-compliance of the funder as admissible evidence. Inevitably, the Code of Practice will play an important role in proceedings by providing measures and safeguards concerning the TPF of arbitration, as stated under the purpose of the Code of Practice in Section 98E of the Ordinance. We might infer that Hong Kong chose to be more flexible and not to dictate any requirement upon the funding market, apart from offering the best practice as a guide- line. Its Ordinance brings more detailed rules and a separate Code of Practice. Most of these rules are only a reference for the funding market to consider. Singapore, on the other hand, chose to bring a threshold for funders and some standards for the funding market, and those standards in the Singapore law are mandatory. Nonetheless, Singapore’s TPF law is considerably shorter than Hong Kong’s. This might be the reason why Singapore did not create a long list of rules and a detailed code of practice, as did Hong Kong. The short law in Singapore sets forth rules on the fundamentals of the funding process. While this is the chosen method in Singapore, it is reasonable for rules in the city–state to be mandatory. Yet, in Singapore, a funder who breaches the CLAA can seek relief against the disability imposed by his or her breach. Therefore, in Singapore, the rules have some flexibility as well. The difference in each jurisdiction lies in the funder’s default position. In Hong Kong, a funder who breaches the Code of Practice is not liable by default; in Singapore, failure to comply with the CLAA results in the disability imposed by CLAA Section 5B(4).
The second difference
The two jurisdictions define ‘third-party funder’ differently. According to the CLAA, a third-party funder must possess specific qualifications. That the business place can be outside Singapore, and the capital requirement of at least SGD5 million are the important features of Singapore’s rules for third-party funders. If those two conditions are not met, the funder does not have any enforceable right in Singapore, according to Section 5B(3) of the CLAA. In Hong Kong, the Code of Practice brought a capital adequacy requirement of maintaining access to a minimum of HKD20 million. However, this is again not mandatory, but rather a guide for funders operating in Hong Kong. Section 98J of the Hong Kong Ordinance states that the funder is any person who is a party to the funding agreement and does not have any other interest apart from the funding agreement. Thus it is a very broad definition of a funder. This means that it is essential in Hong Kong that funders do not have any interest other than under the funding agreement. In Singapore, by contrast, there are certain requirements relating to capital and the principal business of the funder. Therefore, we can conclude that the definition of a third-party funder and the requirements to be qualified as a third-party funder are substantially different as regards the two legislative frameworks.
The third difference
Comparing the two jurisdictions, the Hong Kong Ordinance brings more definitions of other terms related to TPF. On the other hand, the Singapore Regulations refer to the Sin- gapore International Arbitration Act when defining many terms such as arbitration agree- ment, award, foreign award and international arbitration proceedings. It seems that there is no major difference in the way these terms are defined in the two jurisdictions; however, even though the differences seem minor, they can have significant conse- quences. However, one of the important differences presents itself in the definition of ‘funding agreement’. The Singapore Regulations state that a funding agreement is a con- tract between two parties to cover the partial or entire costs of the arbitration in return for remuneration from the award. This definition excludes the possibility of funders funding a party without expecting any financial return, which has happened in some cases. In Philip Morris v Uruguay, for example, the Uruguayan government was funded by the Bloomberg Foundation for a good cause: a tobacco-free-kids campaign. Therefore, according to the Singapore definition, this cannot qualify as TPF. Even though it is difficult to imagine that this kind of funding would be illegal, it is still important to determine how TPF is defined and what its scope is. Apart from the definition of funding agreement, there is also no form requirement in Singapore. However, in Hong Kong, a TPF agreement has to be made in writing and after the commencement date of Division 3, which means after 1 February 2019. Thus it can be accepted as a narrower definition than that of Singapore due to the ‘in writing’ requirement. We can summarize that the Hong Kong Ordinance has more definitions than the Singapore law, while Singapore refers to the Singapore Arbitration Act for some definitions. Generally speaking, Hong Kong uses more flexible language without limiting the definition of any terms.
