Speech by Law Minister K Shanmugam during the Committee of Supply Debate 2010

11 MAR 2010

11 Mar 2010 Posted in Parliamentary speeches and responses

  1. Sir, I thank the MPs who have spoken. I will respond to Members’ comments on the legal services sector and on international arbitration.

Legal Services Sector

  1. Mr Yeo asked about the effects of our liberalisation measures on the growth of our financial services sector and the impact on local law firms.

Update on the Legal Services Sector

  1. As I have told the House, in December 2008, we awarded six Qualifying Foreign Law Practice Licences and augmented the Joint Law Venture (JLV) Scheme. The legal services industry has since grown. In 2008, the sector grew by 4.2 per cent, while in 2009, the expansion was 4.3 per cent. Considering that the economy as a whole grew only 1.4 per cent in 2008 and actually receded by two per cent in 2009, the legal services sector outperformed the rest of the economy.
  1. With these new opportunities now available, our talent pool has been augmented. The total number of lawyers in Singapore has increased by some 450 between 2007 and 2009. That is about an eight per cent growth. In 2009, 233 students took Part A, compared to the usual 80 or 90 for DipSing previously. Almost three-quarters of them were Singaporeans, and included last year’s top law student from Oxford, as well as New York and English law-qualified lawyers working in international law firms.
  1. The six QFLPs commenced operations fromthe middle of last year. As a whole, they have expanded their offices here and employed 18 per cent more lawyers from a year ago. Some have also started new practice areas, such as arbitration.
  1. A new JLV has been formed between a Beijing-based Chinese firm (Dacheng), the largest firm in Asia, and a local law firm (Central Chambers).
  1. The total number of foreign law firms has also increased. Between 2007 and 2009, the number of foreign law firms grew by about 26 per cent each year. We now have some 100 foreign law firms registered in Singapore.

Effect on Financial Services Sector

  1. There has also been renewed interest in Singapore as a legal services hub for the region. Several foreign law firms, with a number ranked in the global top 50 in terms of gross revenue, have also established offices in Singapore.
  1. In time to come, together with the recovery of the financial services sector, the provision of cutting-edge legal services by law firms should help serve the financial services sector better.
  1. Mr Yeo has raised some specific concerns about liberalisation. His primary point was that SLFs, or Singapore law firms, face stiff competition because work may move to the foreign law firms as the market gets “invaded” by them.
  1. As Mr Yeo acknowledged, he was a member of the Committee that came out with a clear recommendation to open up the market. At that time, I was a member of the profession, but not a member of the Committee. We know that the points made today by Mr Yeo were all made then, and the Committee must have carefully considered them. There is a little reversal of roles here, with Mr Yeo asking me questions on the very policies which had been recommended by the Committee.
  1. In answer to the points made by Mr Yeo, I think it is relevant to quote paragraph 7.28 of the Report:-

One major concern for opening up the Singapore legal market by allowing foreign lawyers and FLFs to practise Singapore law is the potential economic impact on SLFs and the legal market here. These include: (a) the supposed adverse impact on small practices which have a focused domestic practice akin to “general practitioners” in the medical industry; (b) increased competition from FLFs in high-end transactional work; (c) continued upward pressure on salaries; and (d) the impact on court proceedings.

  1. These concerns were considered and the Committee decided that they were not to be given much weight. The report concluded that the potential benefits well outweighed the concerns.
  1. The central point I make is this: The issue now is not whether the opening up may affect some law firms. It conceivably may. The issue is whether it is beneficial first, for Singapore and second, the legal profession as a whole. The answer on both counts is yes. Time does not permit me to elaborate – I have given elsewhere the reasons for saying that.
  1. Mr Yeo also asks if Temasek-linked companies and leading corporates can give work to Singapore law firms. The response of the private sector is likely to be that they will give work based on merit and value, as Mr Yeo acknowledges. It is going to be tough competition.
  1. Mr Yeo also spoke of the difficulties Singapore firms face in going overseas. The Committee at paragraph 7.38 came to the view that liberalising will help Singapore firms export their services and regionalise. At paragraph 7.51, the Committee stated:-

While the concerns of large SLFs – those that are likely to face direct competition from FLFs practising Singapore law – are legitimate, the Committee believes that they will benefit over time from the enhanced competition, be incentivised to regionalise, and also benefit from increased demand in Singapore legal services.

  1. The point, Sir, is that for lawyers as a whole, the options are much greater. But it will require Singapore law firms, in particular the larger Singapore law firms, to prepare themselves for very intense competition. But that must benefit the market as a whole. The Committee certainly did not think that Singapore firms would be left only with litigation and conveyancing, which is one of Mr Yeo’s concerns; and Mr Yeo and others in the Committee know that the examples of Hong Kong and Bangkok were specifically discussed. As to whether there should be reconsideration of aspects of the opening up, I think it is too soon to consider substantive changes to the policy which has only been implemented last year, or even to take a view as to whether the hoped-for returns have or have not materialised.
  1. I will now move to arbitration.

Arbitration

Growth as an International Arbitration Hub

  1. Mr Alvin Yeo also asked about the growth of Singapore as a hub for international arbitration. Mr De Souza asked how the Government will promote Singapore as a seat for arbitration and Singapore law as the choice of law in arbitration clauses.
  1. We are beginning to see clear results from measures taken. Singapore has further anchored its position as the arbitration hub for the region, and I use that phrase advisedly.
  1. Over the decade, the Singapore International Arbitration Centre (SIAC) has grown from strength to strength. Just comparing 2008 to 2009, in 2008 SIAC handled 100 cases, and in 2009, it handled 160 cases – an impressive 60 per cent jump.
  1. More than 70 per cent (114 out of 160) of its cases were international, rather than domestic, cases. This is both a reflection of SIAC’s growing international standing and Singapore’s appeal as a venue for international arbitration. These figures relate purely to arbitration cases and do not include cases involving domain name disputes and mediations. It also does not include cases where only SIAC’s facilities were used for dispute resolution. So the increase in caseload is a reality, not a padded statistic as is sometimes the case with some other places.
  1. SIAC has now positioned itself as a top international arbitral institution of choice. Last year, we saw the appointment of a blue-ribboned board comprising nine international leading arbitrators and arbitration counsel. These appointments bring a new depth of international expertise to SIAC and further boost its reputation as a premier international institution. I am told that the new Board is also updating the SIAC Rules. A draft will go out to consultation next week, and the target date for its publication of the Rules is June.
  1. Mr Yeo mentioned the SIAC conference in Mumbai. I understand from SIAC that many more such conferences are planned. In 2012, the SIAC will host in Singapore one of the most prestigious international arbitration conferences in the world, the International Council for Commercial Arbitration.
  1. A 2008 report by the ICC International Court of Arbitration ranked Singapore the top city in Asia for ICC arbitrations and one of the five most popular venues alongside Paris, London, Geneva and Zurich.
  1. To complete the “arbitration ecosystem”, the Government established Maxwell Chambers, a dedicated state-of-the-art physical arbitration facility. Last July, Maxwell Chambers started operations. By the time it was officially opened in January this year, it had already hosted more than 60 hearings. More than half of Maxwell Chambers’ hearings involved foreign parties and are truly international arbitration cases.
  1. Our efforts have planted Singapore firmly on the world map for international arbitration. The Australians are looking to set up an international arbitration centre in Sydney much like Maxwell Chambers. The vice-president of an Australian arbitral institution has been quoted in an international journal as saying that, “with Maxwell Chambers and the promotion by its government, Singapore will always be the premiere choice because it is the hub between East and West.”

Development Expansion Incentive (DEI) for Legal Services

  1. To further consolidate Singapore’s position as a regional legal services hub and international arbitration centre, the Government has announced a new tax incentive which will confer a 10 per cent concessionary tax rate for five years on incremental income derived from international legal services that are GST zero-rated. Generally, this will include all legal services connected to land and goods outside Singapore, and intangible legal services provided to overseas clients.
  1. Mr Yeo has suggested that the tax incentive for arbitration be applied to all profits instead of only to incremental profits. This may not specifically encourage law firms to undertake more arbitration work. It will mean that law firms can continue to do the same amount of work and still enjoy the tax incentive, which runs counter to the objective of the tax incentive to encourage more arbitration activities, and it will lead to erosion of the tax base. Hence, only the incremental profits will enjoy the tax incentive.
  1. Mr Yeo also suggested giving double tax deductions for the expenses of overseas branches of law firms. There are schemes already in place. IE Singapore, for example administers a Double Tax Deduction for Marketing Development Scheme. We are happy to look at how we can support the internationalisation effort of the local law firms together with the relevant agencies and law firms which are interested.
  1. Although Singapore’s domestic market is small, with the growth of Asia, there is great potential to tap regional opportunities that can be tapped from Singapore. The new tax incentive will push law practices in Singapore to handle more such work. This will further strengthen Singapore’s role as a Global-Asian hub and a nexus for high value-added activities.

Promoting Singapore law as the law of choice

  1. Mr De Souza asked about promoting Singapore law as the law of choice. There is growing support for the use of Singapore law. In 2008, we amended the Legal Profession Act to also allow foreign law practices to participate in Singapore law work through Singapore qualified lawyers wherever arbitration is contemplated. This may also encourage them to use Singapore law as the governing law for arbitration. We have also given parties to an arbitration the flexibility to use any law and employ any arbitrator or arbitration counsel for hearings in Singapore.
  1. Our main objective is to position Singapore as an international arbitration centre. In many cross-border transactions, English or New York law may be used for a variety of commercial reasons. The market will decide these matters, but we want to anchor the arbitration in Singapore as far as possible.

Land Acquisition

  1. Next, I will respond to Mr Zainudin Nordin, who has asked for an update on the Government’s land acquisition policy and whether the philosophy towards acquisition has evolved over time.
  1. The Government acquires land for various public purposes such as for the building of schools, hospitals, MRT, public housing, and industrial parks. This has allowed us to build up our infrastructure rapidly and develop Singapore to what it is today.
  1. The Economic Strategies Committee has highlighted that as Singapore grows, there will be a greater demand on our land resources. We will have to intensify the current land use to make better use of our limited land-stock. We foresee that the power to acquire will continue to be necessary for Singapore’s growth and development.
  1. We are, however, extremely mindful of the impact of any compulsory acquisition on property owners. Wherever possible, the developing agencies will try to minimise the disturbance to existing developments. They will do this through the use of planning and design methodology as well as innovative construction technology. However, in a densely built-up environment like Singapore, it is not possible to completely avoid affecting existing developments.
  1. Where acquisition cannot be avoided; each proposal for acquisition is carefully considered and undergoes a stringent evaluation process by the relevant Government agencies. Every government agency that initiates an acquisition must provide full justification. They have to ensure that approval has been obtained for the intended use of the acquired land. They have to demonstrate that the proposed acquisition is unavoidable and the amount of land to be taken is at the minimum. For major acquisitions, they have to present their proposals to a Ministerial Committee comprising the Ministers for Law, National Development and the Minister-in-charge of the government agency that has initiated the acquisition, for example, the Minister for Transport if the acquisition relates to MRT or a major expressway development. Finally, every proposal for land acquisition must be submitted to Cabinet for approval.
  1. In 2007, we amended the Land Acquisition Act to provide for compensation based on the prevailing market value, for acquired properties. Affected owners will be paid fair compensations.
  1. Sir, thank you and Professor Ho will respond to the other questions.

Annex:
Transcript of Clarifications on Legal Services Sector (0.01MB)

Last updated on 26 Nov 2012