Third party funding for arbitration in Malaysia

Abstract

It is submitted that currently arbitration cost is no longer inexpensive. The School of International Arbitration, Queen Mary University of London, had in 2015 carried an international arbitration survey that showed „cost‟ is the worst feature of arbitration. As such, some claimants or respondents are unwilling to participate in arbitration unless there is likelihood of success or option to mitigate the financial risks. The current trend is that the third parties help to fund claimants or respondents their arbitration costs. Although initially third party funding is practised in litigation, there is now a growing tendency to expand its scope into arbitration. Generally such funding involves an agreement between the claimant or the respondent and the funder whereby the funder agrees to fund the arbitration proceeding in return for a share of the remedies recovered therefrom. The legal position of this practice is that it is illegal under the common law doctrine of champerty and maintenance. It appears that the tendency to tolerate third party funding in dispute resolution system is unavoidable and irresistible; as such there are jurisdictions such as the United Kingdom, Australia and Singapore that have legalised third party funding by making changes to their laws. It is submitted that the practice is still illegal in Malaysia. Thus, the objective of this research is to identify a framework to legalise third party funding in Malaysian arbitration process. The method used in carrying this research is by examining the approaches taken by those countries, mainly the United Kingdom, Australia, Singapore and Hong Kong that have legalised third party funding. The finding of the examination of the approaches, it is found that there are four steps in legalising third party funding: firstly is to pass a statute that abolishes the civil liability and tortious of maintenance and champerty principle; secondly is to develop mandatory rules and practices for arbitration practitioners; thirdly, to legalise third party funding agreements, and fourthly is to build up statutory provisions that regulate third party funding practice in arbitration. It is suggested that Singapore‟s framework is just simple and clear to be emulated. In conclusion, this study established a general framework to legalise third party funding for arbitration under this rapid changing environment, and a legal reform is an essential.