[From Singapore Office] Singapore Court permits litigation funder’s undertaking as form of security for costs

Litigation funding in Singapore

Litigation funding is an arrangement in which the costs of entering into a legal dispute are paid not by the plaintiff themselves but by a third-party litigation funder, usually in exchange for a share of the proceeds recovered from the resolution of the dispute. The provision of litigation funding is seen to improve access to justice – litigation funding allows plaintiffs the chance to have their day in court and pursue their rightful claims against well-resourced opponents, especially if they would not normally have had the resources to do so on their own.

Traditionally, litigation funding was prohibited in Singapore. This changed in 2017, when amendments were made to the Civil Law Act to make such acts no longer unlawful. This first round of amendments permitted litigation funding only for international arbitration and related proceedings.

In 2021, this was further broadened by a second round of amendments to the Civil Law Act, which additionally permitted litigation funding for domestic arbitration and related proceedings, proceedings commenced in the Singapore International Commercial Court, and mediation proceeding related to either of the above. The Ministry of Law in its press release explaining this second round of amendments stated that the intention behind broadening the scope of permitted disputes was to offer businesses “an alternative avenue to fund meritorious claims”.

Security for costs

Security for costs is a form of interim relief awarded by the Singapore Courts, whereby the plaintiff is ordered to provide security for the potential costs that may be incurred by the defendant in the course of the proceedings. Traditional forms of security for costs include the provision of a bank guarantee by the plaintiff, or the provision of a solicitor’s undertaking by the plaintiff’s solicitors.

The purpose of security for costs is to protect defendants against the risk that they may succeed in their defence but then be unable to recover their costs from an impecunious plaintiff.

Procedural history of the case

In Hyflux, there had been an application by the defendant for a number of the plaintiffs to provide security for costs. At first instance, the Registrar ordered that the plaintiffs should provide security:

• a. In the form of an undertaking by the plaintiffs’ litigation funder, on terms satisfactory to the defendant;
• b. If not the undertaking, then in the form of a banker’s guarantee on terms satisfactory to the defendant;
• c. If not either of the above, then in the form of a solicitor’s undertaking, on terms satisfactory to the defendant; and
• d. If parties were unable to agree, then in the form of payment into Court.

The plaintiffs appealed the decision, seeking to restrict the form of the security for costs to the undertaking by the litigation funder only, rather than having the form of security rest solely upon the defendant’s wishes.

In the appeal to the High Court, two questions lay before the Judge for decision:

• 1. Whether the plaintiff was restricted to any fixed form of security, and
• 2. Whether the undertaking provided by the litigation funder was adequate for the purposes of security.

The Court’s decision

The Court allowed the plaintiffs’ appeal, and ordered that the plaintiffs were entitled to propose security in the form of an undertaking by their litigation funder; and further that the form of the undertaking that had been provided was adequate for the purposes of security for costs.

In coming to its decision, the Court noted that the plaintiff should not be restricted in the form of security they elect to provide so long as the security itself is adequate. In this respect, the Court held that “the court will not insist on a fixed form of security for costs”, especially as there is no express wording in the Singapore Rules of Court to this effect.

Applying this principle, the Court held that the fact that the undertaking provided as security was in the form of an undertaking from the plaintiff’s litigation funder did not make the undertaking an inadequate security. Rather, whether or not the undertaking would be considered inadequate was a question to be determined on the unique facts of each case, and the plaintiff would bear the burden of proving that the security it had provided was adequate. In this respect, the Court did note that certain forms of security, such as a bank guarantee or solicitor’s undertaking, may be “more readily characterised as being adequate” due to their historical usage; however, this does not prevent less ‘traditional’ forms of security from being considered adequate on the facts of their own unique cases.

In Hyflux itself, the Court considered the undertaking from the litigation funder to be an adequate security, as it “provides a fund or asset against which the defendant can readily enforce an order for costs if necessary”. The factors the Court took into account in coming to this conclusion included:

• 1. The nature of the undertaking as an “irrevocable and unconditional promise” by the funder to pay the secured amount, which made it “akin to a bank guarantee”.
• 2. The sufficiency of the funder’s assets to pay the secured amount.
• 3. The low risk of the funder defaulting on the undertaking, given that in the business of litigation funding failing to honour such undertakings would not endear them to clients.
• 4. The ease of enforcing the undertaking, as one of the funders was based in Singapore, and the other was based in a jurisdiction (Australia) that permitted the enforcement of Singapore judgments with “relative ease”.
• 5. The undertaking also included an obligation to notify the defendant in the event of a termination of the litigation funding agreement with the plaintiff.

Insights

The clear and concise judgment of the Court in Hyflux shows clearly the growing importance and role of litigation funding in the dispute resolution landscape in Singapore. The Court has indicated that the door is open to such ‘non-traditional’ forms of security, providing plaintiffs with more options when faced with an order for security for costs.

The Court’s judgment also highlights that a separate inquiry into whether or not the security is “adequate” would be required, and the factors examined by the Court in Hyflux should serve as a useful guide to parties, who consider using a litigation funding and seek to put up security for costs, to show what the Court would be looking out for in determining that security is adequate.