Update on Third Party Funding for Arbitration in Hong Kong

At the time of writing, the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 is making good progress through Hong Kong’s Legislative Council (“Legco”), with its supporters pushing for passage of the Bill on or about 14 June 2017. Whether that date proves to be realistic, given the busy Legco year-end before the summer recess, remains to be seen.

The latest submissions regarding the Bill are available on the Legco website (http://www.legco.gov.hk/yr16-17/english/bc/bc102/general/bc102.htm). They focus on the deletion of s. 98G(2) of the Bill (which purported to exclude third party funding of arbitration by lawyers) and its replacement provision (namely, a new s. 98NA). The new section seeks to exclude lawyers from providing third party funding for arbitrations governed by the Arbitration Ordinance (Cap. 609) where they (or their legal practice) act for any party in relation to the arbitration. The new section appears to have wider support in Legco and among different cross-party groups; realising this, the government’s lawyers have shown themselves willing to compromise.

That said, time for passage of the Bill this Legco term is tight (with a summer recess after 12 July until the new 2017–18 Legco term, starting in mid-October).

Assuming passage of the Bill this Legco term, attention will turn to the Third Party Funding of Arbitration Code of Practice. In particular, interest will focus on the capital adequacy requirements for third party funders under the Code, including the threshold for minimum access to capital and how that capital should be held.

Not to be lost, in all of this, are two important practical points.

First, any party who receives third party funding for an arbitration governed by the Arbitration Ordinance should be required to disclose the fact of such funding to the arbitral tribunal and to the other parties within a stipulated period of time set down by the tribunal or the governing arbitral rules.

Second, many concerns about third party funding of arbitration can be assuaged if arbitral tribunals seated in Hong Kong ensure that funded parties (or their funders) are required to provide fortified security for the other parties’ costs (which, in substantial commercial arbitrations, can run into HK$ millions). Further, the amount of such security should be a realistic proportion of those costs.

In all of this (both now and after passage of the Bill) arbitral tribunals and arbitral institutions in Hong Kong have a huge part to play, as Hong Kong promotes her arbitration capabilities along the Belt and Road.

Jurisdictions: 

Of Counsel, RPC