Since days long past, Singapore was a vibrant port and a tapestry of diverse cultures. In more recent years, the harmonious blend of common law traditions and bustling commerce is transforming the Lion City into a beacon of legal excellence. Putro Harnowo reports
As businesses explore the labyrinthine paths of Singapore’s legal landscape, the allure of the city-state becomes clear. The advent of the Singapore International Arbitration Centre (SIAC) in 1991 laid an alternative path for litigation in the region, and subsequently a specialised court and tribunal emerged, boosting Singapore’s position as a regional legal hub.
In 2013, the “little red dot” gracefully unveiled an ambitious plan to become a one-stop shop for resolving disputes across borders, with the launches of the Singapore International Mediation Centre (SIMC) in 2014, and the Singapore International Commercial Court (SICC) in 2015. From the outset, Singapore’s ascent to legal eminence was no mere set of movements. It was a carefully orchestrated symphony, with legal infrastructures harmoniously playing their parts.
Since then, Rachel Eng, the managing director at Eng and Co, a Singapore law firm in the PwC network, witnessed chambers from London setting up in Singapore, and foreign law firms dispatching their litigation partners to market their services and handle arbitration out of Singapore.
“Among Singapore firms, some litigation partners from major full-service law firms were breaking away to form law firms akin to barristers’ chambers, handling pure contentious work,” says Eng. “In the past 10 to 15 years or so, domestic firms have been going regional while foreign firms have been entering into foreign law alliances or joint law ventures to offer local law capability to their clients.”
Foreign law practice licence holders can only offer the full range of legal services in foreign and international law, but cannot practise Singapore law, except for international commercial arbitration. Foreign law firms used to only focus on higher-end regional work, but that is no longer the case with local law firm alliances.
“As a result, many of the firms are competing for the same work,” says Eng. “Apart from certain areas that are not permitted, for example, acting in Singapore court cases that may be carried out by their Singapore partners, the breadth of the licence offered by such combined outfits is more than sufficient to serve the needs of the foreign firms’ global clients in Singapore and the Asian region.”
In terms of talent and resources, Eng observes that while there is a larger cohort of law graduates, the pool of lawyers who want to remain in the profession may not be expanding. Many high-achieving students who do not choose science-related fields often default to studying law but have no intention to practise law.
“The presence of foreign law firms in Singapore has led to intense competition for talent, particularly for associates,” says Eng. “Whenever there are salary hikes in the US, it hits the UK market, which in turn impacts the Singapore market almost immediately.”
Amid the rivalry, certain practice areas and industry sectors have emerged as veritable hotbeds of activity. Dispute resolution, insolvency and restructuring, and funds and family offices, as mentioned by lawyers we talked with, reign supreme in Singapore’s legal market. At the same time the charms of data privacy and cybersecurity, fintech and blockchain, as well as environmental, social and governance (ESG), remain unyielding.
Changing landscape
As the city blossoms into a leading tech, private client and asset management hub, Anthony McKenzie, the managing partner at offshore law firm Carey Olsen’s Singapore office, observes regional, international and offshore law firms fast expanding their footprint or opening new offices in Singapore. The crowded legal market has become saturated with law firms of all shapes, sizes and fee models.
Just this year, Chinese law firm Han Kun Law Offices, London-headquartered firms Trowers & Hamlins and Charles Russell Speechlys, US law firm Baker Botts and South Korea’s Shin & Kim were among those that opened their offices in Singapore. Meanwhile, global law firm Mayer Brown recently launched a joint law venture with Singapore firm PK Wong & Nair.
“Competition is accelerating and an important consideration for firms entering the market is the incumbent position of the existing players, many of whom have been on the ground for decades,” says McKenzie.
“Ultimately, the size and shape of a firm’s Singapore office will be determined by its strategy in targeting defined practices and market segments, and understanding where its existing and potential clients are.”
He adds, “The real challenge for any foreign law firm entering Singapore will be to bring on board the right people, keep standards high and ensure that what you are doing enhances your global brand and provides a good platform for future growth.”
Masataka Sato, a partner at Japanese law firm Nishimura & Asahi in Singapore, shares the same view. The presence of foreign law firms has impacted Singapore’s legal industry and the competitiveness of local lawyers in various ways. While it has increased the diversity and quality of legal services, it has also intensified competition and pressure on fees and talent retention.
“When operating in Singapore, foreign law firms also need to be aware of the key regulations and the risks or pitfalls that they may face,” says Sato. “For example, the rent and human resource costs are higher than in other Asean countries, and young foreign lawyers may have difficulties obtaining employment passes due to the new Complementary Assessment Framework regime, which aims to balance the local and foreign workforce.”
On a positive note, Eng believes the competition benefits clients in choosing from a range of law firms whenever they are faced with a contentious or non-contentious matter. “As many clients in Singapore oversee regional or global operations, they are able to gain access to foreign law firms in the overseas offices based on building their relationships with the representatives of the foreign law firms in Singapore,” she says.
By retaining foreign law firms through the Singapore office, some parts of the legal fees are billed by the foreign law firms via the Singapore office, expanding the country’s services economy. Eng adds that foreign law firms are also more willing to recommend their clients to incorporate arbitration in Singapore for their clients’ contracts in Asia.
Michael Palmer, director at Quahe Woo & Palmer in Singapore, says the presence of foreign law firms has enhanced Singapore’s legal landscape in several ways.
“First, it has introduced an international dynamic to the legal industry, both in disputes and non-dispute areas of the law, which hitherto was limited,” says Palmer. “Second, it has provided our local young lawyers with the ability to work on a far greater range of cases and matters.
“Third, there is now a wide range of job opportunities for younger lawyers in Singapore and the opportunity to gain international experience,” he says. “Fourth, it provides the clients with a far greater range of legal counsel of choice. Finally, it has enabled Singapore to become a legal hub of Southeast Asia and perhaps even Asia.”
Premier arbitration zone
Starting from its vision to host all kinds of international dispute settlement, Singapore’s pursuit of becoming a premier legal hub is bearing fruit. The 2021 Queen Mary University of London and White & Case International Arbitration Survey ranked the Lion City, jointly with London, as the most popular arbitration seat globally.
In 2022, the SIAC was the preferred arbitration seat for 65 jurisdictions, with India, the US and China being the top three users, while Malaysia, Indonesia, Thailand, Vietnam, South Korea, Australia and the UK completed the top 10.
“In the past few years, the disputes landscape has shifted considerably towards arbitration at the SIAC,” says Palmer. “Consequently, there are a number of challenges to jurisdiction and awards being heard in the High Court of Singapore and the SICC.”
However, Palmer believes that the amended Singapore Rules of Court 2021, which came into force last year, has streamlined the litigation process in terms of court management and removed unnecessary and costly interlocutory applications. Singapore courts’ policy in relation to arbitration is also important.
“The policy is one that provides certainty to parties to arbitration such that parties are not left to another round of litigation before the court when any party is not satisfied with the outcome of an arbitral award,” he says. “This provides certainty to all parties concerned and bodes well for Singapore as a business and financial centre. The main aim is to provide stable and certain outcomes in any dispute.”
“Concurrently, the court has also codified the need to have parties try and settle disputes in the new Rules of Court,” Palmer adds. “Parties are, unless circumstances do not permit, required to attempt to settle and mediate a dispute before commencing proceedings.”
Una Khng, director at Singapore law firm Helmsman, notes that the introduction of the SICC Rules 2021, which came into operation on 1 April last year, is another game changer. This is a standalone set of procedural rules applicable to proceedings in the court.
“The SICC Rules 2021 similarly seeks to enhance the dispute resolution process in the SICC with new procedures aimed at the expeditious and efficient administration of justice in respect of international commercial disputes,” says Khng.
On 16 May 2022, Singapore acceded to the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, which will enter into force on 1 December. Khng expects these developments, along with the amendments to the Rules of Court 2021 and the SICC Rules 2021, will streamline the process for the service of the court and related documents in civil and commercial matters overseas, as well as provide greater legal certainty in cross-border litigation.
In addition, the Singapore courts have issued, among others: a series of court guides relating to specialist practices, such as the admiralty court guide; the guide for the conduct of arbitration originating applications; the guide for the conduct of companies, insolvency, equity and trust, and arbitration suits; and the Intellectual Property Court Guide. These set out the case management features that are applicable to, and address the specific needs of, different specialised practice areas.
“These developments send a signal that Singapore recognises the need for the civil justice landscape in Singapore to be progressive, and actively ensures that its court systems remain compatible with and responsive to the rapidly evolving trends and developments including in the commercial world,” says Khng.
On a broad level, Abraham Vergis, managing director at Singapore law firm Providence Law Asia, says that a strong rule of law and the clarity, accessibility and certainty of Singapore laws form a strong foundation for investor confidence by enabling business parties to better assess and plan for litigation risks.
“We envisage that potential reform to enhance judicial co-operation with other states in fraud and asset recovery, insolvency and enforcement of foreign judgments could be on the horizon,” says Vergis. “This would be a continuation of existing trends towards greater co-operation in cross-border insolvency matters and the enforcement of foreign judgments.”
Fixing financial ruin
The pandemic, coupled with recent global macroeconomic trends, have contributed significantly to a rising number of insolvency cases in Singapore. The reduction in liquidity and the hike in interest rates impose greater pressure on companies to secure the requisite funds to function as a going concern.
Citing one noteworthy example, Vergis points to the lead-up to the insolvency of major oil trader Hin Leong, in which the decline in the company’s credit limits with its lenders was partly the cause of its inability to satisfy existing debts and the eventual exposure of underlying fraud.
“In terms of regulations, Singapore’s insolvency regime stands out for its progressiveness and similarities to well-known foreign jurisdictions such as the UK and the US,” says Vergis. “Its significant efforts in enhancing judicial co-operation would naturally make Singapore a more attractive jurisdiction for cross-border insolvency proceedings.”
Such confidence comes with a solid reason. The past few years have seen wide-ranging changes such as the adoption of the UNCITRAL Model Law on Cross-Border Insolvency Law into the Singapore Model Law, and the establishment in 2017 of the Judicial Insolvency Network, which was initiated by the Supreme Court of Singapore, encouraging judicial officers to devise joint solutions to cross-border insolvency matters.
“This may pave the way for a similar model of judicial co-operation to be applied beyond the insolvency and restructuring context, such as fraud and asset recovery,” says Vergis.
Matthew Teo, associate director at Helmsman, agrees that the uptick in insolvency and bankruptcy protection cases in Singapore is probably due, in part, to the expiry of the pandemic-related temporary legislation.
“Certain sectors such as cryptocurrency or commodities have also seen high-profile insolvencies in Singapore, arising from the crypto crash in 2022 and fraud-related cases,” says Teo. “The increase in cases may therefore be a recovery to the normal pre-pandemic levels or the result of sector-specific events. That said, the poor economic outlook and rising interest rates are also likely to be contributors to this trend.”
Being an international trade and financial centre also contributes to Singapore’s attractiveness for companies seeking to restructure, as their creditors are likely to be present in the city for the purpose of participating in, and being bound by, the restructuring proceedings.
At the same time, the Singapore judiciary has taken a robust approach to examining restructuring applications to ensure that its processes are not being abused, says Teo. There have been multiple cases where the courts have refused to avail companies of debtor protection because they took the view that these applications lacked bona fides or had no reasonable prospects of success.
“For cross-border insolvency cases, there remains a question of whether Singapore restructuring court orders would be recognised in other jurisdictions, notwithstanding that Singapore has adopted the UNCITRAL Model Law on Cross-Border Insolvency,” says Teo.
For example, the Scottish courts, in the 2021 case of Chang Chin Fen v Cosco Shipping (Qidong) Offshore, refused to recognise Singapore’s court-ordered moratoria based on the rule in the Gibbs case of 1890, which essentially prevents debt obligations governed by English law from being discharged or compromised without a creditor’s submission to the foreign restructuring proceedings.
“Companies with a high exposure to English law-governed debt may therefore face difficulties in enforcing Singapore restructuring court orders in foreign jurisdictions, particularly the UK,” says Teo.
Treasure haven
A world-class financial centre with favourable tax incentives, Singapore attracts global private banks and investment banks, making it an attractive destination for ultra high-net-worth individuals looking to centralise their fund management. The once humble island now stands as a gleaming jewel of the East.
The Monetary Authority of Singapore (MAS) awarded 1,100 single-family offices tax incentives at the end of last year, an increase from 700 in 2021 and up from 400 in 2020. In total, these offices managed about SGD90 billion (USD66 billion) worth of assets as of 2021.
Ryan Lin, director at Bayfront Law, a formal law alliance of Nishimura & Asahi in Singapore, believes there are several key regulations that have contributed to the increasing number of wealthy families and individuals setting up family offices in Singapore in the past two or three years. Among the main regulations is the Income Tax Act, which includes tax incentives that family offices may apply for.
“In managing their assets, family offices that successfully apply for such tax incentives may render their capital gains and dividends derived from designated investments exempt from tax,” says Lin. “Additionally, Singapore has a wide network of double taxation agreements with various countries, which helps to minimise tax liabilities for family offices with global investments.”
Singapore has also made efforts to create a conducive environment for family offices by introducing regulations accompanying new fund structures. For example, Lin says the Variable Capital Company framework, which was introduced in 2020, provides a flexible structure for family offices to manage their investments.
“The Variable Capital Company framework allows for consolidated reporting and tax benefits, making it an attractive option for wealthy families and individuals,” he says.
The MAS recently implemented several measures to calibrate the establishment and growth of family offices in Singapore. Some of these include minimum assets under management, non-family member investment professionals, and local investments.
“While Singapore offers attractive tax incentives, family offices will now have to commit no less than SGD20 million in assets under management at the time of application,” says Lin. “The MAS has also introduced new measures that require at least one investment professional of the family office to be a non-family member.”
In terms of local investments, Lin says that a percentage of the assets managed by a family office will have to be allocated to local Singapore investment.
“The MAS may further calibrate such measures going forward with the aim of positioning Singapore as an attractive destination for family offices, fostering the growth of wealth management activities and promoting Singapore as a global wealth management hub,” he says.
Rachel Yao, counsel at Carey Olsen in Singapore, observes that the growth of single-family offices has led to significant demand for the full spectrum of legal services, ranging from simple legal opinions and licensing exemption applications to more complex legal advice on the creation and maintenance of sophisticated family office holding structures.
“As single-family offices evolve, they may look to invest in equities, bonds, structured products and financial derivatives. They are also often involved in philanthropic activities,” says Yao. “Such diversified activities of single-family offices bring numerous opportunities to lawyers in private wealth, corporate, funds, immigration, tax planning and dispute resolution practices.”
Apart from tax exemptions on income generated by funds managed by a single-family office, Yao believes that the ability to obtain employment passes under the single-family office, which provides an excellent stepping stone to an eventual immigration plan, has also boosted Singapore’s attractiveness.
“Singapore and Hong Kong have put in place tax incentive schemes designed to encourage high-net-worth families to set up single-family offices, so these two jurisdictions have often been compared to one another,” she says. “There are only minor differences in the tax exemption schemes in these two jurisdictions.”
Yao has observed a trend of wealthy families setting up multiple presences in different jurisdictions to leverage the benefits of local infrastructure and regulations in each jurisdiction.
“We also expect that Singapore will introduce stricter scrutiny over the operations of single-family offices,” she says.
On 31 July 2023, the MAS released a consultation paper on a proposed framework for single-family offices operating in Singapore. There will be qualifying criteria for class exemption from licensing under the Securities and Futures Act, as well as notification and annual reporting requirements.
“The revised framework will introduce a harmonised class exemption for single-family offices with specific requirements to ensure that all single-family offices are subject to anti-money laundering controls,” says Yao.
INVEST AND HARVEST
With its growing capital and legal infrastructure, Singapore has reinvented itself in the realm of private equity and venture capital (PE/VC)
The island remains the dominant choice for venture capital investment in Southeast Asia, surpassing other countries by a wide margin, according to the Singapore Venture Funding Landscape 2022 report co-published by government agency Enterprise Singapore and financial news website DealStreetAsia.
The report said Singapore captured 56% of the total deal volume across the six largest economies in the region, and accounted for 64% of the total deal value in 2022. Singapore had four out of the nine Southeast Asian tech companies that achieved unicorn status (valued at more than USD1 billion). However, this is lower compared to the 2021 figure, when the entire region had a total of 24 unicorns, with 11 from Singapore.
Lam Shiao Ning, managing director at Singapore boutique corporate firm Rubicon Law, says: “The regulatory compliance regime in Singapore for PE/VC companies is not particularly challenging or onerous, mainly pertaining to operational requirements such as ensuring directors or key professionals are qualified and pass the fit and proper test, having necessary internal audit and risk management processes in place, covering relevant anti-money laundering compliance checks, and annual reporting.”
For the tech sector, including blockchain and crypto-related activities, Lam notes that the legal and regulatory development in Singapore has been positive. The country welcomes innovation and digital transformation and wants to attract leading players. At the same time, it wants to build a credible and responsible ecosystem.
Lam says the central bank has implemented regulations to deal with risks posed by the use of digital assets, mainly related to money laundering and terrorism financing, technology and cybersecurity, as well as consumer protection and financial stability.
Activities involving digital assets are regulated under the Securities and Futures Act if an asset presents a security, such as a share or a bond. Where the activity is payment-related involving the use of digital assets, it is regulated under the Payment Services Act, and any digital asset activities involving payment services must be licensed under the act.
“The licence application process is stringent, and the MAS scrutinises applicants’ business models and technologies to better understand the risks,” says Lam. “The regulatory framework is stringent and hence creates trust in the system which in turn allows PE/VC investors to support companies developing and growing in Singapore in this space.”
Fund management activities are regulated by the MAS. A fund manager needs to obtain a capital markets services licence or be registered as a registered fund management company unless exempted.
The MAS introduced a simplified regulatory regime for venture capital fund managers in 2017. Such fund managers can apply for a capital markets services licence under a specific regime with less stringent business conduct requirements (e.g. no qualification requirements for directors and no capital requirements), which makes it easier and cheaper for them to operate.
For the funds themselves, Singapore’s Variable Capital Company framework offers flexibility in fund structure, especially as the funds can be an umbrella with sub-funds that are segregated and can adopt different investment strategies to attract more investors and also facilitate investment in a more diverse array of companies.
“Variable capital companies are not subject to capital maintenance requirements that are applicable to other Singapore companies, which allows for easier distribution of capital,” says Lam.
Since sub-funds can share or consolidate costs and variable capital companies only submit one set of income tax documents regardless of the number of sub-funds, operational costs are reduced and have greater tax efficiency.
“The regulators on the one hand want to promote Singapore as a financial hub to attract fund managers and funds to set up in Singapore,” says Lam. “They also want to make sure that Singapore has a robust and credible legal and regulatory system that creates trust with investors and also protects the consumers.”
