Third Party Funding of Arbitration (and Mediation) in Hong Kong

The Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance was enacted on 14 June 2017 and came into operation on 23 June 2017. Certain key provisions were not implemented pending further consultation and the adoption of a Code of Practice for Third Party Funding of Arbitration in Hong Kong.

Following a consultation exercise, the Code of Practice was published in the Government Gazette on 7 December 2018.

A commencement notice published in the Gazette on 3 December 2018 confirms that the key third party funding of arbitration provisions not yet in force will become operative on 1 February 2019. In short, these provisions concern (among other things):

  • formal confirmation that the common law offences and torts of maintenance and champerty do not apply in relation to third party funding of arbitration;
     
  • third party funding of arbitration by lawyers in certain circumstances; and
     
  • certain formal measures and safeguards regarding funding arrangements and agreements.

Therefore, as from 1 February 2019 third party funding of arbitration in Hong Kong will come into full effect and third party funders are expected to comply with the provisions of the Code of Practice.

A Department of Justice Press Release dated 7 December 2018 suggests that the commencement of certain provisions for third party funding of mediation will be deferred to a date to be announced to allow for further deliberation by the relevant Steering Committee. The intention appears to be to allow for more time so that a further code of practice (on mediation funding) can be consulted upon and issued.

The postponement of the entire framework for third party funding of mediation had been advocated by certain stakeholders. They made the point that there was something rather odd about including mediation in the original legislative proposals in the first place, given that it is not traditionally thought of as a "contentious" proceeding to which the doctrines of maintenance and champerty would usually apply.

Further, mediation is often conducted with respect to "personal injury" claims. Many clients that engage in mediation (as opposed to arbitration) are not commercial parties; rather, they are often individuals and some are vulnerable. The concern is that without a legislative carve out for personal injury mediation, touts and recovery agents may become emboldened.

Notably, when Singapore adopted its legislative provisions for third party funding in March 2017 these were limited to "international arbitration proceedings" (as defined in Singapore's International Arbitration Act) and related court and mediation proceedings. This was for good reasons – both philosophical and practical.

In the local circumstances of Hong Kong (with its relatively generous civil legal aid scheme compared with many other jurisdictions) third party funding is arguably better suited to commercial parties and commercial matters. For non-commercial parties, many would argue that a better way to improve access to justice in Hong Kong is to expand the scheme for supplementary legal aid significantly.

Jurisdictions: 

Partner, RPC