Market Reaction: Arbitration Third Party Funding Legislation Passed

With the passage of the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 through the Legislative Council of Hong Kong ("Legco") in near record time, we asked the market for some brief observations.

The Bill (passed on 14 June 2017) confirms that the common law doctrines of maintenance and champerty do not apply to arbitrations and mediations governed by the Arbitration Ordinance (Cap. 609).  The Bill becomes an Ordinance on publication in the Gazette (at the time of writing, thought to be on or about Friday 23 June 2017) and its substantive provisions become operative on a day to be appointed by the Secretary for Justice by notice published in the Gazette.

Of particular note is the proposed initial light touch regulatory approach and (of interest to lawyers) "s. 98O", which restricts the provision of arbitration funding by a lawyer who, in the course of their practice, acts for any party in relation to the arbitration.

Attention now turns to the provisions of the draft Code of Conduct (for Third Party Funding of Arbitrations in Hong Kong) and the implementation date for the legislative changes.  In particular, interested parties may wish to note the likely capital adequacy requirements. 

A spokesperson for O'Melveny & Myers' arbitration practice group in Hong Kong commented:

"The legislation basically codifies Hong Kong controlling case law, but is a welcome clarification.  Third party funders (including, interested lawyers) now need to pay attention to the draft Code of Practice and, where appropriate, start preparing for funding plans".

A partner in RPC's disputes practice group in Hong Kong stated that:

"The speed with which the legislation passed through Legco is a credit to the relevant Bills Committee and its Chair.  It also shows what can be done when the different stakeholders come together.  Indeed, the representative for the Legal Sector's functional constituency, the Law Society, the Bar Association and (of course) the HKIAC all deserve much credit.  This is not to forget the Chair and members of the Law Reform Commission Sub-committee, who laid the groundwork with their comprehensive report in October 2016."

A member of Haldanes' Intellectual Property practice group also added:

"Not to be lost in all this is the passage of the Arbitration (Amendment) Bill 2016 on the same day, which clarifies (among other things) that disputes over intellectual property rights may be arbitrated in Hong Kong and that the enforcement of arbitral awards involving intellectual property rights does not contravene the public policy of Hong Kong".