Newsletters Business Crime & Financial Services 28th Jun 2017

Positive developments in third party funding of arbitrations

Hong Kong’s bid to join Singapore as a leading hub for international arbitration was bolstered by the successful passage of the Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Bill 2016 on 14 June 2017. The passage of the Bill means the amendment of the Arbitration Ordinance and the Mediation Ordinance, and marks the coming into fruition of many of the recommendations made in the Final Report of the Law Reform Commission Sub-Committee in 2016 after a substantial consultation process.

The amendments provide much wanted clarity as to the non-applicability of the common law offences of barratry and champerty, and of the common law tort of maintenance, to arbitrations wherever they are seated, in relation to work done in Hong Kong (s.98K-L). Moreover, the definition of ‘arbitration’ includes other kinds of proceedings within the Arbitration Ordinance, such as court proceedings, emergency arbitrators, and mediation.

Also of interest, particularly to the legal sector, will be the breadth of the definition of ‘third party funder’, which leaves the door open for any (legal) person who does not have an interest recognized by law in a given arbitration to enter into funding agreements under the new regime. One might anticipate that law firms in Hong Kong will follow the example set by their counterparts in other jurisdictions and establish their own funding entities, though they will be prohibited from entering into funding agreements in relation to arbitrations in which they act for any of the parties.

As for the regulation of such funding agreements more generally, the Bill remains faithful to the recommendations of the October 2016 Final Report, which advocated for a ‘light touch’ regulatory framework now familiar in the Hong Kong regulatory landscape. A Third Party Funding for Arbitration Code of Practice, yet to be drawn up, will demarcate the bounds of appropriate conduct. Compliance (or otherwise) with the Code will be monitored by an advisory body to be appointed by the Secretary for Justice. Whilst non-compliance will not per se render a funder liable to judicial or other proceedings, it will be admissible as evidence and may be taken into account by a court or arbitral tribunal where that non-compliance is relevant to a question being decided by that court or arbitral tribunal.

Furthermore, the very fact of the existence of a third party funding agreement must be disclosed both to the arbitral tribunal and the other parties to the arbitration. This, presumably, would also be admissible in evidence, assuming that it became relevant in some way.

Whilst the Code is yet to be drawn up, the Bill is strident in its recommendation of possible areas of concern that such a Code might seek to address. These suggestions range from setting standards relating to promotional material of funders, to providing minimum capital requirements for funders, to requiring that funders submit their annual returns to the advisory body. The details of the eventual contents of the Code must now be put up for further public consultation. Only at the end of that process will the provisions of the Bill come into force. Those in the legal industry with a keen interest in what promises to be a boon for those operating in the arbitration sector, will need to scrutinise whatever comes out of that process in the coming months. For now, confidence can be taken from this clear statement of intent for Hong Kong to remain a key player in arbitration in the Asia Pacific Region and Worldwide.

Paul Renteurs

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