TPF under Hong Kong Law

As with all Common Law jurisdictions, the legal framework in Hong Kong encompasses the antiquated doctrines of maintenance and champerty. Unlike the UK, the United States or Australia however, Hong Kong has yet to clarify its position with regard to the legality of third party funding generally let alone in the context of international arbitration.

There was much hope for swift reform when in 2007, in Unruh v Seeberger, Hong Kong's Court of Final Appeal upheld the validity of a third party-funding agreement for an arbitration conducted overseas. However, the Court did not go any further to deal with arbitration taking place in Hong Kong and quite to the contrary expressly left open the question of whether the doctrines of maintenance and champerty apply to third party agreements for arbitrations taking place in Hong Kong.

Notwithstanding, the Court of Final Appeal did identify three categories in the context of litigation where liability for engaging in maintenance or champerty could be excluded:

  • the "common interest" category, whereby persons with a legitimate interest in the outcome of the litigation are justified in supporting the litigation;
  • cases involving "access to justice" considerations; and
  • a miscellaneous category of practices accepted as lawful such as the sale and assignment by a trustee in bankruptcy of an action commenced in the bankruptcy to a purchaser for value.
The Law Reform Commission's Recommendations

Conscious not only of Hong Kong's unique legal and economic environment but also of its expressed desire to become the preeminent international arbitration seat in the region, the Law Reform Commission unanimously concluded that reform of Hong Kong law is needed to clarify that third party funding is permitted for arbitrations taking place in Hong Kong.

In its press release, the Law Reform Commission explained that:

"The Sub-committee considers that the reform can bring clear benefits to those interested in arbitration in Hong Kong and enhance Hong Kong's competitive position as an international arbitration centre, after conducting a review of the relevant law and practice in Hong Kong and in a number of other jurisdictions where arbitration is commonly used to resolve disputes."

Furthermore the Law Reform Commission also highlighted the growing demand in the context of international dispute resolution of third party funding:

"The Chairman of the Third Party Funding for Arbitration Sub-committee, Ms Kim Rooney, noted that [Hong Kong] is a major international financial and arbitration centre and that parties considering whether to resolve their disputes in [Hong Kong] by international arbitration are starting to take into account, among others, the potential financing options available to them in conducting such arbitrations. Accordingly, clarity and certainty of the relevant law concerning third party funding for arbitration will be desirable."

The Law Reform Commission does not propose to simply legalise third party funding but to do so within the limitations of particular ethical and financial standards.

To that end, the Law Reform Commission has invited submissions on a number of issues, including the following:

  • whether the development and supervision of applicable ethical and financial standards should be conducted by a statutory or governmental body, or a self-regulatory body;
  • how the applicable ethical and financial standards should address matters such as conflicts of interest, confidentiality and privilege, control of the arbitration by the third party funder, and disclosure of third party funding;
  • whether a third party funder should be directly liable for adverse costs orders in a matter it has funded.

Arguably, after months of research and consultation on third party funding as an industry and of the potential areas of issues that may arise, the Law Reform Commission may have made some more particularised recommendations and thereby narrowed the debate (and new consultation) in the interest of speeding up a process that has already been ongoing for almost two years and a half.

That being said, the present consultation period will end on 18 January 2016 and we all await with great anticipation the second consultation paper during the course of 2016.

As a global leader in third party funding across both commercial litigation and international arbitration, Vannin is extremely well-versed in the importance of a sound regulatory environment to support such funding and we are receiving a number of queries from practitioners in the region keen to explore options and understand the benefits of third party funding in anticipation of Hong Kong resolving its own approach.

Notes to Editors:

For more information on Vannin Capital, please contact: Meika Aysal, Marketing at Vannin Capital, T: +44 207 099 5180, E: ma@vannin.com