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On the 14th of June 2017 Hong Kong’s Legislative Council passed a law which permits third party funding for arbitrations based in Hong Kong. It does extend to cover arbitrations in other territories where the work associated with the arbitration has been completed in Hong Kong. The law also applies to mediations.

As Hong Kong is one of the world’s most popular arbitral seats it is an inevitable development. Allowing third party funding will ensure Hong Kong retains its status as one of the most popular places for arbitrations.

It is expected that the effects will come into force later this year. The delay is required so a code of conduct can be developed for the funders who participate in this territory.

The change of law began back in June of 2013 when Hong Kong’s Law Reform Commission launched a public consultation on whether they should allow funders to operate in this territory. It is subject to the development of an appropriate regulatory regime within the first three years of the third-party funding being permitted.

Law firm funders.

Hong Kong have not restricted their definition of a third-party funder to include only professional funders. The definition extends to anyone who is a party to a funding agreement. Crucially of course that party is not permitted to hold any interest recognised by law in the arbitration they are funding.

This definition is crucial because more law firms have started to establish their own funding arms. It is a practice that is increasing in the USA and mainland China.

Disclosure

The new law does require that a funded party disclose to other parties to the arbitration and to the relevant court or tribunal:

1.       The fact that a funding agreement is in place;

2.       The name of the funder;

3.       When the funding agreement terminates (other than because the arbitration has ended).

Conclusion

Hong Kong’s decision to allow third-party funding does not come as a huge surprise. Given they are regarded as a leading seat in arbitration it was essential they move with the times to stay competitive. It will inevitably lead to more business and growth for all parties in this territory.