Can You Take a Loan for Legal Fees? Getting Money for Your Lawsuit
Here are various ways you may raise funds, or at least receive some financial support, to bring your claim to court.
1. Legal Aid
The Legal Aid Bureau (LAB) may assist with legal fees. To qualify for legal aid, you must:
- Be a Singaporean or Permanent Resident, or a citizen or resident of a contracting state involved in applications under the Hague Convention on the Civil Aspects of International Child Abduction
- Pass the means test by showing disposable annual income of not more than S$10,000 or a disposable capital of not more than S$10,000.
- Pass the merits test by showing a good reason to bring or defend the case under the law
- Have a claim which is handled by the LAB. For example, the LAB does not handle defamation cases.
Legal aid does not mean all your legal fees are covered. You may be required to contribute towards legal costs in respect of the amount of work done for your case. The contribution payable is assessed based on your financial means, the type of claim you have, the amount of work done for you, and the amount of money recovered in your claim.
Legal aid is also subject to restrictions such as any costs orders that were made in your favour being paid to the LAB , and not to you. Generally, in civil cases, costs orders are made in favour of the “winner” of the case. This allows the “winner” to recover a portion of his or her legal costs from the “losing” party.
After you are granted legal aid, you will be represented by a lawyer until the conclusion of the case or until your legal aid is withdrawn. Legal aid may be withdrawn for various reasons such as:
- Failing to provide any required information
- Giving false information
- When the LAB receives further information showing that you fail the Means Test
You may request for your choice of lawyer but the LAB has final say over which lawyer is ultimately assigned to you.
If you wish to appeal the decision of the court, legal aid may be granted for your appeal if the appeal has merits. If you wish to appeal and require legal aid, you must appeal within the usual 14-day deadline upon the delivery of the decision.
More information about the Legal Aid Scheme can be found on the Legal Aid Bureau website.
Other governmental and non-governmental organisations may have their own schemes or programmes to assist with legal advice, representation and legal fees. The Community Justice Centre is one such organisation.
2. Borrowing Money
Borrowing money is an option to raise funds for legal fees. You can borrow money from friends or family, banks or licensed moneylenders. However, take note that taking a loan in return for a share of the proceeds from your claim is illegal in Singapore.
Borrowing from friends
Everyone can turn to friends or family for personal loans, provided they agree to lend you the money. There is no rule against borrowing money from your friends or family for legal fees. However, you are obviously required to repay the loan according to the terms of the loan. If you fail to do so, your friend might sue you to recover the money.
To ensure both you and your friend are clear about the important terms of the loan (such as the amount and the due date), the terms of the loan should be stated in a written contract, which can be as simple as an IOU. Take note that it is legal for interest to be charged on personal loans.
Borrowing from banks
You may take personal loans from banks to finance your claim. There are fewer restrictions on personal loans and can typically be used to pay for anything you wish. As these loans are generally unsecured, you do not need any collateral to secure the loan.
You will need to meet the eligibility requirements for each bank. For example, you may need to meet a minimum monthly income and be within a certain age group.
Even if you are eligible, the total amount of unsecured loans you may take is restricted to up to 18 times your monthly income. From June 2019, you may only take unsecured loans up to 12 times your monthly income.
Borrowing from moneylenders
Licensed moneylenders may also lend you money for your lawsuit. The amount you can borrow depends on the type of loan. For secured loans, you can obtain a loan of any amount. For unsecured loans, the amount depends on your annual income.
For example, rule 19 of the Moneylenders Rules restricts loans to a maximum of $3,000 if your annual income is less than $20,000. You can also only be charged up to 4% interest per month on the loan and any unpaid and/or late payments.
Licensed moneylenders may also charge administrative fees. For example, for the initial grant of the loan or late fees.
You should ensure that the moneylender is licensed before agreeing to the loan as they are required to comply with the Moneylenders Act and other laws. Unlicensed moneylenders, or more commonly known as loansharks, do not comply with the law and may charge exorbitant interest rates or harass you to recover the loan.
More information about borrowing from licensed moneylenders can be found here.
Borrowing from your lawyer
The Legal Profession Act, which governs legal professionals including lawyers in Singapore, does not outright prohibit lawyers from lending money to their clients for lawsuits.
However, it is uncommon for lawyers to do so as this may conflict with the lawyer’s duty to act objectively in their clients’ best interests.
For example, knowing that the loan is at stake, a lawyer may want to claim for more damages for his/her client to ensure that the loan will be fully repaid, instead of advising the client to accept a fair settlement of a lower amount which may not be sufficient to cover both the legal fees and the loan.
Further, the Legal Profession Act prohibits Singapore lawyers from acquiring an interest in a client’s lawsuit, such that they are able to obtain some or all of the proceeds of the lawsuit. For example, contingency fee arrangements are prohibited, where lawyers charge clients only if the case succeeds.
Defaulting on loans
Legal action can be taken against you if you default on repaying a loan.
The Charities (Exemption from section 39A) Regulations exempts any person who conducts or participates in any fundraising appeal from the prohibition on conducting a fundraising appeal without a permit. This is provided that the whole of the proceeds are to be applied for charitable, benevolent or philanthropic purposes connected with persons, events or objects in Singapore (e.g. Singapore citizens, or a road traffic accident in Singapore).
In other words, persons are allowed to fundraise without a permit if all of the fundraised proceeds will be used for charitable, benevolent or philanthropic purposes relating to persons, events or objects in Singapore.
While it is unclear if crowdfunding for a lawsuit will be considered a charitable, benevolent or philanthropic purpose, people have successfully used crowdfunding to raise funds for their lawsuits without any issue.
You may crowdfund for legal fees by asking the public to donate towards your lawsuit without expecting anything in return. This would require you to attract some sympathy from the public for your lawsuit.
It is also not illegal to provide a “reward” to contributors of your crowdfund, such as a small gift, thank you card, or acknowledgment of donation on a website.
4. Pawning Your Valuables
You may also pawn your valuables to raise money for your lawsuit. Pawning takes the form of you pledging your valuables as security for a loan given to you by the pawnbroker.
The amount you can loan is determined by the pawnshop’s appraisal of your valuables. The valuation must be made known to you before you pawn your valuables.
If you repay the loan plus interest to the pawnbroker within the redemption period, you may redeem your pawned valuables. The redemption period under the law is 6 months, after which your pledge is forfeited and you can no longer redeem your pawned valuables. However, the pawnbroker and you may agree to extend the redemption period.
5. Third-Party Litigation Funding
Litigation funding allows a party to pursue their legal claim without having to pay for all or some of the costs. The claim is funded by a third-party funder in return for a share of the proceeds if the claim is successful. Litigation funding is accepted in Australia, England, and Hong Kong to some extent.
However, in the interest of public policy, Singapore prohibits third-party litigation funding unless your claim involves international arbitration.
If your claim involves international arbitration, third-party litigation funding is an option available to you. There are several well-known commercial funders and the first case of third-party funded arbitration has already taken place in Singapore.
Before You Start Raising Money
You may feel aggrieved about the dispute and want to take action immediately. However, it’s important to consider whether to actually start a lawsuit.
There are many factors to consider when deciding whether to sue. The most important of which probably being whether your claim has a reasonable chance of success. This may appear obvious but will require some knowledge of the law.
For example, in a defamation claim, just because someone has spoken ill of you to someone else does not mean you will succeed in your claim. There are legal requirements which will need to be proven, including whether you have suffered any damage.
Therefore, you should ideally consult a lawyer to understand whether you have a good case. You may also attend legal clinics to obtain free legal advice about your claim’s prospects. Each legal clinic has their own criteria to determine whether you qualify for free legal advice.
If you don’t qualify for free legal advice, you may be required to pay for consultation with a lawyer. However, the cost of the consultation would be far lower than the cost of starting a lawsuit with a limited chance of success and ultimately losing in court.