No Recovery, No Problem? The Singapore International Commercial Court on the Recoverability of Third-Party Funding Costs

Absent special circumstances, the principle that costs follow the event governs recovery in international arbitration. Of late, however, the advent of third-party funding (“TPF”) has ignited important questions regarding the recoverability of TPF costs. This concern is aggravated when an impecunious claimant enters into a funding agreement. For such claimants, onboarding a funder may be the difference between fighting a claim or conceding. But even assuming an impecunious claimant succeeds, they may nevertheless be saddled with TPF costs that dwarf the substantive award. The only way to offset this asymmetry is to seek TPF costs from the unsuccessful party. Should then, a tribunal’s decision to decline TPF costs of an impecunious but meritorious claimant be subject to a public policy challenge? In DTH and another v DTF and others [2026] SGHC(I) 5 (“DTH”), the Singapore International Commercial Court (“SICC”) held that no public policy challenge could be sustained, and that under Singapore law, a successful party may not necessarily be able to recover TPF costs from an unsuccessful party. This post explains the SICC’s ruling and provides a critical analysis of the decision.

Background of the case

The Applicants had entered into a joint venture with the First and Second Respondents for the provision of financing technology services as shareholders in the Third Respondent. When disputes arose between the parties, an arbitral tribunal (“Tribunal”) seated in Singapore was constituted under the Arbitration Rules of the SIAC (6^th Edition, 1 August 2016) (“SIAC Rules”). The Applicants sought an order that the First Respondent buy out the Applicants’ shares in the Third Respondent for approximately US$65m.

In a partial award, the Tribunal ruled in favour of the Applicants, finding that the Respondents had breached the agreements between the parties and acted in a manner oppressive to the Applicants. The majority of the Tribunal (“Majority”) ordered a buyout at the sum of US$14.7m. In its final award on costs (“Costs Award”), the Majority found the Respondents liable for the Applicants’ legal costs and disbursements, but not the TPF costs, which amounted to around US$14.6m.

In arriving at this conclusion, the Majority provided three reasons: first, the 2017 legislative amendments liberalising TPF in Singapore did not positively permit recovery of TPF costs; second, the power to award TPF costs could not be derived from Rule 37 of the SIAC Rules because section 12(5) of the International Arbitration Act 1994 (“IAA”) limited the tribunal’s power; third, as not all the claimed costs were strictly “for the purpose” of funding the Applicants, the TPF agreement was potentially unenforceable, thereby precluding cost recovery. An earlier blog post commenting further on the Costs Award can be found here.

The outcome of this decision was that the Applicants’ payment of TPF costs to the funders would effectively leave them with no recovery from the substantive claim. Aggrieved by this ruling, the Applicants applied to the SICC to set aside the Costs Award or remit the Costs Award to the Tribunal. The Applicants raised two grounds: first, the decision was contrary to public policy (Article 34(2)(b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”)); and second, the Tribunal erred in disregarding Rule 37 of the SIAC Rules 2016 and, in doing so, contravened the procedure agreed upon by the parties (Article 34(2)(a)(iv) of the Model Law).

The challenge on public policy grounds

The Applicants argued that the applicable public policy engaged was that of ensuring access to justice for impecunious but deserving parties with meritorious claims in arbitration. They contended that if parties were unable to recoup TPF costs, their ability to pursue a meritorious claim might be restricted. While the SICC acknowledged the potential benefits of recoverability in expanding access to justice, it found that the policy concerns of a class of impecunious but deserving arbitrants seeking recovery of TPF costs were too narrow to be characterised as “public” in nature. At best, the SICC opined, such concerns were social policy issues that failed to meet the threshold of a public policy challenge as articulated in PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597.

Refusing to limit its public policy analysis to this extent, the SICC further insulated claims for recovery of TPF costs for four reasons. First, the SICC explained that whether an issue engages public policy cannot be determined by reference to the “fruits of success” in a case. The fact that the Applicants only obtained a pyrrhic victory is a product of the risk undertaken in filing a claim, which may not always yield the desired outcome (also discussed here). Second, relying on VV and another v VW [2008] 2 SLR(R) 929, the SICC observed that Singaporean public policy does not require costs in a private dispute resolution mechanism to be computed according to any specific principle, including proportionality. Third, the SICC found merit in the Tribunal's analogy between the SICC costs regime and arbitrations administered by the SIAC. Since Order 22 rule 1(5) of the SICC Rules 2021 already expressly prohibits recovery of TPF costs, or costs incidental thereto, Singapore law itself treated non-recovery as entirely permissible. It therefore could not credibly be said that a tribunal's refusal to award TPF costs is in conflict with public policy. Fourth, the SICC also noted that, although liberalising TPF furthered access to justice in Singapore, the recoverability of TPF costs was a distinct question. Paradoxically, mandating recovery may undermine access to justice by discouraging parties from defending claims, for fear of devastating financial liability if they lose.

A bright line rule mandating the recovery of TPF costs for impecunious funded parties is therefore neither desirable nor a matter of public policy in Singapore.

The challenge on procedural non-compliance

Having rejected the public policy challenge, the SICC next turned to the argument that the Tribunal contravened the parties’ agreed procedure in the arbitration. The fulcrum of this argument rested on whether the TPF costs claimed by the Applicants fell within the meaning of "other costs" under Rule 37 of the SIAC Rules 2016, which provides that the Tribunal “shall have the authority to order in its Award that all or a part of the legal or other costs of a party be paid by another party”. This question was not straightforward because part of the TPF costs in the present case were computed as a multiple of the total funded costs or a percentage of the resolution sum, rather than of the principal advanced.

The SICC gave two important reasons for rejecting the Applicant’s submissions. First, relying on CEF and another v CEH [2022] 2 SLR 918, the SICC held that Article 34(2)(a)(iv) of the Model Law is directed only at irregularities in the application of procedural rules agreed by the parties, and does not extend to the determinations of costs, which are the outcome of the arbitral procedure. Second, assuming arguendo that the grievance was procedural, the decision on the application of Rule 37, including whether it authorised the award of TPF costs, went to the merits of the case, and thus was not subject to review.

The SICC also observed, obiter, that even if this argument did not fall at this threshold, the Tribunal’s assessment of the claim as a “success-based return” falling outside the statutory definition of TPF under section 5B(10) of the Civil Law Act 1909 was correct, implying that the funding arrangement was unenforceable.

Commentary

The SICC was correct in declining the public policy challenge to the Costs Award. Although access to justice is undeniably important, its use, of late, to mount attacks centred on the merits of arbitral awards should be discouraged. As the SICC correctly pointed out, public policy is restricted to the most basic and fundamental principles of the seat, such as corruption, bribery or fraud. Expanding its ambit to include social concerns would fundamentally distort the narrow character of this ground of challenge. Moreover, declining the challenge here was particularly warranted, considering compelling evidence within Singapore's own legal framework, which suggested that non-recovery of TPF costs was perfectly tolerable.

There is, of course, another reason for declining the recoverability of funding costs. Holding an unsuccessful party liable for TPF costs, especially when that party is not privy to the funding agreement, causes unfair surprises. Further, it may open a Pandora's box, with the unsuccessful party contending that the funded party could have secured a more cost-efficient funding arrangement on better commercial terms. To address this concern, arbitral institutions could potentially consider rule changes which expressly empower the arbitral tribunal to order disclosure of the terms of the TPF agreement, thereby negating the effect of unfair surprise at the time of a costs award.

On the characterisation of “other costs” as excluding TPF costs under Rule 37, the SICC's reasoning departs from the approach of the High Court of England and Wales in Essar Oilfields Services Limited v Norscot Rig Management Pvt Limited [2016] EWHC 2361 (Comm) ("Essar"), which allowed the recovery of TPF costs, including funding premiums and success fees. However, two key caveats must be noted: first, the SICC did not refer to Essar in its judgment; and second, Essar arose in the context of an ICC arbitration and concerned the interpretation of “other costs” under the English Arbitration Act 1996, rather than the SIAC Rules.

While their methodologies differ, both decisions ultimately insulate costs awards from scrutiny. The SICC achieved this by characterising costs grievances as merits-based, whereas the English court granted tribunals broad discretion when interpreting the phrase “other costs”. Underlying both approaches, however, is the risk that tribunals might expand this definition beyond the governing law and agreement, exercising unchecked discretion.

Conclusion

Third-party funding, once considered prohibited under the common law doctrines of champerty and maintenance, has become a mainstream feature of international arbitration. Yet, as DTH illustrates, the recoverability of TPF costs remains a contentious issue. Left unresolved, such ambiguity risks driving parties away from major arbitral seats like Singapore. In this regard, while the SICC’s ruling provides welcome clarity, it leaves a critical question unresolved: would according arbitral tribunals absolute discretion in the awarding of TPF costs, by characterising the award of costs as a substantive (and not procedural) matter, ultimately undermine the benefits of providing for TPF in the first place? To address this, it is respectfully submitted that the SICC’s reasoning in DTH in this regard warrants reconsideration. Tribunals and supervisory courts alike should recognise that defining what constitutes a recoverable cost is strictly a matter of procedural compliance with the lex arbitri, which is wholly separate from their discretionary power to allocate those costs.