Litigation Funding in Arbitration Cases

For many centuries, maintenance and champerty are prohibited under common law. The restrictions arose to combat abuses in medieval England. Unscrupulous nobles and royal officials would lend their names to bolster the credibility of doubtful and fraudulent claims in return for a share of the property recovered.

Per Lord Justice Steyn:

In modern idiom maintenance is the support of litigation by a stranger without just cause. Champerty is an aggravated form of maintenance. The distinguishing feature of champerty is the support of litigation by a stranger in return for a share of the proceeds.

Since then, there have been many changes to the laws applicable to maintenance and champerty around the world. Many common law countries have either explicitly (through changes in legislations) or implicitly (changes in the courts’ stance) allowed litigation funding to be provided to litigation parties.

Today, litigation funding has become a feature in other leading arbitration centres, including London, Paris and Geneva.

In this part of the region, Singapore has, on 10th January 2017, abolished the common law tort of champerty and maintenance in Singapore. CIVIL LAW (AMENDMENT) BILL 2016 further provides that third party funding will only be permitted for international arbitration proceedings (and related court and mediation proceedings).

In Malaysia, there hasn’t been any development in the area of litigation funding, although some judges have mentioned this briefly in a few cases. Given the recent development in Singapore, we are confident that Malaysia is soon adopt the same stance as Singapore in relation to litigation funding. Otherwise, the Kuala Lumpur Regional Centre for Arbitration will most likely lose out in terms of being the preferred centre for arbitration.

Having said that, companies in Malaysia may still obtain litigation funding in respect of international commercial arbitration cases in countries outside of Malaysia (and now, that includes Singapore).

There has been further positive development in England in relation to litigation funding in respect of arbitration cases.

A High Court Judge in a recent English case had to decide whether “other costs” awarded by an arbitrator can include the costs of obtaining litigation funding. In Essar Oilfields Services Limited v Norscot Rig Management PVT Limited [2016] EWHC 2361, the Judge held that litigation funding costs were “other costs” for the purposes of s59(1)(c) of the English Arbitration Act and therefore recoverable from Essar. This decision was subsequently upheld by the Commercial court on appeal. Please see below for the full case.

Maintenance and champerty is definitely an evil past and litigation funding is recognised as a form of legitimate funding to assist parties in litigation to have access to justice.

essar-oilfields-v-norscot-15-09-16jud-1-2.pdf by BIK Consulting on Scribd