The employment of such funding arrangements has grown significantly in the conduct of international commercial arbitration, particularly in major seats of arbitration including, amongst others, England & Wales, Hong Kong, Singapore, and Australia. That said, the judiciary in many of these common law jurisdictions was not always so receptive to TPF in dispute resolution and thwarted such arrangements by creating the doctrines of maintenance and champerty. Lord Justice Steyn defines the said doctrines as follows:
“In modern idiom maintenance is the support of litigation by a stranger without 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 proceed.”2 An overarching concern when it came to the scrutiny of TPF was the risk that such arrangements would give rise to abuses and thus would be contrary to public policy. Lord Denning summarised such a concern in stating:
“The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses.3”
That said, the above stance and concerns with regards to TPF in dispute resolution and the doctrines of maintenance and champerty have in recent times been regarded as outdated in many common law jurisdictions. In Hong Kong, for example, the Court of Final Appeal in
Unruh v Seeberger & Anor suggested a more nuanced and modern approach to the question of public policy in relation to TPF, which included, amongst other things, as follows:
“[
100] In the first place, the traditional legal policies underlying maintenance and champerty continue to apply although they must substantially be qualified by other considerations. Thus, the mischief to be discouraged by the law of maintenance is still ‘officious intermeddling’ in litigation…
…
[102] Secondly, the fact that an arrangement may be caught by the broad definitions of maintenance or champerty is not in itself sufficient to found liability. The totality of the facts must be examined asking whether they pose a genuine risk to the integrity of the court’s processes.
[103] Thirdly, countervailing public policies must be taken into account, especially policies in favour of ensuring access to justice and of recognising, where appropriate, legitimate common interests of a social or commercial character in a piece of litigation.”4
From the above, it can be seen that the modern approach to the question of TPF and the bounds of the doctrines of maintenance and champerty is a more methodical one, in that other public policy concerns, such as the access to justice and common commercial interests, feature in the balancing exercise against the specific concern of the risk of third-party intermeddling.
In the context of international arbitration, the stance towards TPF and the doctrines of maintenance and champerty in Hong Kong also appears to have taken a more methodical approach, recognising the differences between court litigation and arbitration and the various considerations which feature in the latter. This is demonstrated by the Hong Kong High Court case of
Cannonway Consultants Ltd v Kenworth Engineering Ltd, where Kaplan J held (citing
Giles v Thompson) as follows:
“It is clear from the observations of both the Court of Appeal and the House of Lords in Giles v Thompson that in the light of the history of champerty it is not appropriate to extend the doctrine. If it were to apply in the present case, it would be extending champerty from the public justice system to the private consensual system which is arbitration. The trend in recent years has all been the other way. The role of the courts in relation to arbitration has been substantially diminished since 1979 in England when provisions requiring leave to appeal an arbitral award were introduced. In Hong Kong, similar provisions were introduced in 19821 and by 1990 Hong Kong had in force the UNCITRAL Model Law which gives supremacy to the doctrine of full party autonomy and substantially curtails the powers of the court in relation to arbitration proceedings.
…
It seems to me unwise to make any extension to the law of champerty given that the reasons for its introduction have long since passed.
Parties choose arbitration in order to keep out of the public justice system save where some support for the arbitral process is required from courts.”5
What is notable from Kaplan J’s judgment is the importance given to central principles of international arbitration when discussing the appropriateness of the doctrines of maintenance and champerty in Hong Kong’s international arbitration framework. Particular regard is given to the consensual nature of arbitration, where party autonomy is accorded paramount importance. In this regard, parties to an arbitration are free to decide on the procedural framework of the arbitration.
That being said, the choice of the parties to keep their dispute
“out of the public justice system” should not mean that important considerations such as the integrity of the process and the avoidance of intermeddling should be ignored. Although the Court in
Unruh (supra) was discussing the doctrines of maintenance and champerty generally, the integrity of the arbitral process is equally important. This is clear from the high importance placed on principles such as natural justice and the impartiality and independence of the arbitrator, both of which go towards legitimising international arbitration as a dispute resolution mechanism. With this in mind, it is helpful to look at the way in which Hong Kong has incorporated TPF into its international arbitration framework.
HONG KONG’S APPROACH TO TPF
On 1 February 2019, the Hong Kong Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (‘TPF Ordinance’) came into force. The TPF Ordinance provides that the common law offences and torts of maintenance and champerty do not apply in relation to third-party funding of arbitration.
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Together with the Code of Practice for Third Party Funding of Arbitration (‘Code of Practice’), which was issued by the Secretary for Justice earlier on 7 December 2018
7, the TPF Ordinance sets out a modern framework of TPF in international arbitration. Importantly, significant safeguards are included which seek to address concerns that may arise in TPF, particularly with regards to the integrity of the arbitral process.
Regulation of control exercised by third-party funders
Where Hong Kong is the seat of an international arbitration, the above framework lends confidence to both the parties to an arbitration as well as to the judiciary in relation to the integrity of arbitral proceedings involving TPF. With regards to the judiciary, such confidence is especially important given that modern seats of arbitration strive to minimise the intervention of its courts and instead seek that its courts exercise a supervisory function in relation to matters in arbitration.
THE POSITION IN MALAYSIA
For the purposes of this article, the above discussion of Hong Kong’s approach to TPF in international arbitration is particularly illuminating in that it suggests that Malaysia, as a common law jurisdiction with imbedded recognition of the doctrines of maintenance and champerty, can follow suit and implement TPF in its international arbitration framework.
The doctrines of maintenance and champerty remain very much alive in the Malaysian dispute resolution sphere, as well as the prohibition of TPF agreements pursuant to the said doctrines and the public policy concerns regarding the risk of a perversion or abuse of justice. For example, in the Malaysian High Court case of
Amal Bakti Sdn Bhd & Ors v Milan Auto (M) Sdn Bhd & Ors, Hamid Sultan JC (as he then was) held that
“it is trite that court will not entertain champerty agreements or its like on public policy grounds, etc.”8 This is reflective of section 24(e) of the Malaysian Contracts Act 1950 (“Malaysian Contracts Act”), which provides that a contract which is
“opposed to public policy” is to be declared void. That being said, in similar vein to the Hong Kong Court of Final Appeal in
Unruh, the Malaysian High Court in
Amal Bakti acknowledged that a champertous agreement is not necessarily void, but rather it is the offending of public policy which causes such an agreement to be declared void.
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Based on the current standing of Malaysia’s international arbitration framework, the authors are of the view that there is scope for the acceptance of TPF within that framework. Malaysia, as a model law country, adopted the UNCITRAL Model Law on International Commercial Arbitration and enacted its Arbitration Act 2005 (“Malaysian Arbitration Act”). As such, the central pillars of international commercial arbitration are given due consideration and importance in Malaysia, such as the importance of party autonomy and the limitation of court intervention into the arbitral process. In the recent decision of
Master Mulia Sdn Bhd v Sigur Rus Sdn Bhd10, the Malaysian Federal Court (our apex court) discussed the UNCITRAL Model Law at length in interpreting certain provisions of the Malaysian Arbitration Act. Recognition and importance were paid to key principles such as party autonomy and the
“freedom of the parties … to tailor the ‘rules of the game’ to their specific needs”11, as well as the importance of
“limited and clearly defined instances of court intervention into the arbitration process”12. The recognition of the importance of such features in the Malaysian international arbitration framework provides a basis for parallels to be drawn with the judgment of Kaplan J in
Cannonway Consultants (supra).
A more pertinent question to ask however is in what context the question of public policy arises in Malaysia’s international arbitration framework. The issue of whether a TPF agreement is to be declared void under the Malaysian Contracts Act under section 24(e) of the Malaysian Contracts Act is one that would arise where it is the TPF agreement itself which is the subject of a dispute (e.g. a dispute between the third-party funder and the funded party based on the terms of the TPF agreement). However, in comparison, the question of public policy in Malaysia’s international arbitration framework arises in different contexts, namely (1) the arbitrability of the subject matter of the dispute; and (2) applications to set aside an arbitral award and challenges to the recognition and enforcement of an arbitral award.
Arbitrability of the subject matter of the dispute
Section 4(1) of the Malaysian Arbitration Act provides that
“any dispute which the parties have agreed to submit to arbitration under an arbitration agreement may be determined by arbitration unless the arbitration agreement is contrary to public policy”.
Although section 4(1) stipulates that it is the arbitration agreement which will be assessed in order to determine whether it is contrary to public policy, this must be understood in the context of the question of the arbitrability of the subject matter of a dispute. Section 4(1) aims to assess whether the private agreement of the parties to arbitrate a particular subject matter is contrary to public policy. By way of example, in the Malaysian Federal Court case of
Arch Reinsurance Ltd v Akay Holdings Sdn Bhd13, the Court held that the arbitration agreement in question was contrary to public policy as it sought to curtail a chargee’s right to apply to court, under the provisions of the relevant legislation of Malaysia (i.e. the National Land Code), for an order for sale of the charged security in the event of the default of the chargor. Such a determination went to the subject matter of the dispute between the parties to the arbitration agreement.
In the context of a TPF agreement, such an agreement would not go towards the subject matter of the dispute between the parties. Therefore, the question of arbitrability, and the consideration of public policy, should not arise.
Setting aside or challenging the recognition and enforcement of an arbitral award
Section 37(1)(b)(ii) of the Malaysian Arbitration Act states that an award may be set aside by the Malaysian High Court if
“the award is in conflict with the public policy of Malaysia.” Section 37(2)(b) provides one example of where an arbitral award may offend the public policy of Malaysia, namely where
“a breach of natural justice has occurred (i) during the arbitral proceedings; or (ii) in connection with the making of the award.”
In the context of challenges to the recognition and enforcement of an arbitral award, section 39(1)(b)(ii) of the Malaysian Arbitration Act similarly states that recognition or enforcement of an arbitral award may be refused where the party against whom the award is invoked proves that
“the award is in conflict with the public policy of Malaysia.”
Section 37(1)(b)(ii) was considered by the Malaysian Federal Court in
Jan De Nul (M) Sdn Bhd & Anor v Vincent Tan Chee Yioun & Anor14, where the Court stated as follows:
“… in applying the concept for the purpose of setting aside an award under s. 37 of the AA 2005, the concept of public policy ought to be read narrowly and more restrictively. The court’s intervention should be sparingly used … As clearly stated by the Court of Appeal in Sigur Ros (with which we agree): ‘The concept of public policy must be taken in the higher sense where some fundamental principle of law or justice is engaged, some element of illegality, where enforcement of the award involves clear injury to public good or the integrity of the court’s process or powers will be abused.” (emphasis added)
Similarly with regards to section 39(1)(b)(ii) of the Malaysian Arbitration Act, the Malaysian High Court in
Open Type Joint Stock Co Efirnoye (‘EFKO’) v Alfa Trading Ltd15 cited with approval the Hong Kong Court of First Instance case of
Xiamen Xinjingdi Group Ltd v Eton Properties Ltd16, where it was held as follows:
“[46] The Court’s role is essentially that of an overseer. This ‘overseeing’ essentially consists in ensuring that an arbitration is conducted fairly and in lending the means at the Court’s disposal (for example, interlocutory injunctions, orders for security for costs, orders for the enforcement of an award as a Court judgment) to make an award effective.
[47] To that extent, I would wholly accept Gross J’s observation that the Court should not second guess an arbitration award. Its role should be, although by no means entirely ‘mechanistic,’ as ‘mechanistic as possible’.”
What can be gleaned from the above is that in considering whether an arbitral award is in conflict with the public policy of Malaysia, a large focus of the Malaysian courts will be devoted towards the integrity of the arbitral process, such as the observance of natural justice as provided for in section 37(2)(b) of the Malaysian Arbitration Act. In this regard, sections 37(1)(b)(ii) and 39(1)(b)(ii) of the Malaysian Arbitration Act pose greater concern with regards to the incorporation of TPF into Malaysia’s international arbitration framework. The issue here is that, as alluded to above, the public policy of Malaysia recognises the dangers and risks that a champertous agreement can have on the integrity of a dispute resolution process. Furthermore, with the doctrines of maintenance and champerty firmly in place in Malaysian jurisprudence, it is entirely possible that the Malaysian courts would take the view that the arbitral process itself involved or is affected by some element of illegality.
It is for this reason that the authors suggest that a solution to such concerns would be to adopt an approach similar to that taken by Hong Kong in its TPF Ordinance and Code of Practice. Firstly, legislation which would exclude the application of the doctrines of maintenance and champerty in the context of arbitration in Malaysia would dispel any
prima facie concerns as to the legitimacy of the arbitral process for arbitrations seated in Malaysia. Secondly, and most importantly, with the procedural flexibility that can be taken advantage of by parties in an arbitration, concerns as to the integrity of the arbitral process can be dealt with by enacting legislation which would provide for similar safeguards and procedures as found in the TPF Ordinance and Code of Practice. Devising a clearly defined structure for the regulation of TPF which ensures that the integrity of the arbitral process remains respected would go a long way towards instilling the confidence necessary to incorporate TPF into Malaysia’s international arbitration framework and allow TPF in arbitrations seated in Malaysia. Such a regulatory framework would ensure the observance of important features which go towards the integrity of the arbitral process and thus contribute towards legitimising arbitration as dispute resolution mechanism, such as the observance of natural justice as well as the impartiality and independence of an arbitrator.
CONCLUSION
The authors are therefore of the view that the enactment of provisions similar to those of the TPF Ordinance and the Code of Practice into the Malaysian international arbitration framework, and the Malaysian Arbitration Act or into separate legislation supplemented by a practice code, would be a welcome addition. Malaysia’s international arbitration framework continues to grow, and the appropriate foundations for the implementation of a TPF regime therein are in place. In taking such a step, Malaysia would be following a trend of viewing public policy, in the context of international commercial arbitration, from all angles, including with the recognition of modern commercial realities and solutions. Furthermore, such a step would enhance the attractiveness of Malaysia as a seat of arbitration for parties to a multinational commercial dispute. Most importantly however, it is clear that in incorporating TPF into Malaysia’s arbitration framework and reaping the benefits thereof, it is possible that the integrity of the arbitral process can be preserved. The authors are hopeful that the international arbitration framework of Malaysia can evolve in such a way.
Postcript
From 28 June 2021, Singapore will permit third-party funding of domestic arbitration proceedings, proceedings in the Singapore International Commercial Court (SICC) and related mediation proceedings. Before this, Singapore permitted third-party funding only for international arbitration proceedings and related court and mediation proceedings. In expanding the areas where third-party funding is permitted, the Singapore Government is demonstrating its willingness to respond to the needs of international commercial parties who are considering Singapore for the resolution of their disputes, whether in mediation, litigation or arbitration. The authors believe that these developments suggest that Singapore is satisfied that the risks posed by TPF have been effectively managed under their third-party funding framework.
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Article by Anita Natalia (Senior Associate) and Arif Umar Faruq Bin Faiz (Associate) of Skrine