Hong Kong

Third party arbitration funding gets all clear in Hong Kong

Third party funders operating in Hong Kong are lining up to take on more cases after the government passed a bill that allows third party funding in arbitration.

The bill, passed by the legislative council and announced on 14 June, will come into effect later this year.

The law thus far has only permitted litigation funders to finance insolvency cases, but the recent news will bolster their cause and Hong Kong’s status as a centre for arbitration as the community is no longer held back by legal impediments.

Harbour director of litigation funding Ruth Stackpool-Moore said: “With legislation on third party funding in arbitration now fully approved in both Hong Kong and Singapore, this undoubtedly furthers the interests of arbitration users and contributes to the region’s competitive position as a hub for international arbitration.”

A source with knowledge of the matter said the Hong Kong government was aware that it risked losing its status within the top five for arbitration unless it acknowledged the very real presence of third party funding in the market.

“This bill was just a realisation that if they did nothing, it would be detrimental to Hong Kong.”

The source added that they expected there would be a flurry of work once the law comes into force.

It is likely that the new law will alarm some in Hong Kong”s legal profession, which is known for its conservatism.

Hong Kong inherited the ancient doctrines of maintenance and champerty as part of the legacy left by the British. It has taken until now for the government to decided that those common law doctrines should not apply to arbitration or associated mediation.

The government has been careful to ensure that the legislative change is accompanied by the relevant safeguards to protect the system from potential abuse.

Arbitration has been described as the perfect platform for Hong Kong and Singapore to “test the waters”.

In January, Singapore passed a bill to allow third party funding in arbitration, and  it is thought that both bills relating to arbitration could pave the way for the two jurisdictions to permit litigation funding, a phenomenon that is already threatening to shake up the legal order as we know it.

A spokesperson for Herbert Smith Freehills (HSF) said: “The Hong Kong legal community will be delighted to see third party funding for HK arbitrations pass into law. It is a welcome development, which will help Hong Kpng maintain its status as one of the world’s leading dispute resolution centres. Arbitration attracts sophisticated parties, who seek sophisticated solutions to funding their claims without taking undue risks. Funding is one of those solutions. It is fantastic that there is no longer an obstacle to using it here.”