Third-party funding regulation impeding Asian legal market

THIRD-PARTY funding - which offers an alternative way to fund a legal claim - has traditionally been met with suspicion and scepticism. Third-party funding allows a commercial fund with no prior connection to the case (the "third party") to finance the cost of legal proceedings, whether in litigation or arbitration. In return, they receive a share of any damages. This is contrasted with traditional funding methods, in which the party or a related company pays these costs.

For hundreds of years, funding another party's claim was a crime, with concerns that the third party in question may take the opportunity to inflame damages, suppress evidence or suborn witnesses. The notion of a party "gambling" on the outcome of litigation was considered problematic, as third-party funding could distort justice and damage the integrity of the judicial process. While England abolished the common-law crime in 1967, it remained largely unlawful in Singapore and Hong Kong.

In recent years, we have seen this type of funding become increasingly popular across jurisdictions in Europe, the United States and Australia. One argument in favour of third-party funding is that it provides access to justice by enabling a party to enforce its rights in a dispute. Even when a party to a dispute is solvent, this funding method offers commercial options for how risk is allocated, and the claim is collateralised. This frees up capital which may have been tied to the dispute for other business objectives.