On 23 June 2017, the landmark Arbitration and Mediation Legislation (third party funding, amendment) Ordinance 2017 was published in the Government Gazette.
The amendment ordinance sets out the framework for third party funding (TPF) for arbitration and mediation in Hong Kong through the introduction of a new part 10A to the Arbitration Ordinance (Cap 609). This opens the way for third party funders to fund arbitration proceedings in Hong Kong in return for a financial benefit, in the event that the arbitration is successful within the meaning of the relevant funding agreement.
Funders will also be allowed to fund services provided in Hong Kong in relation to arbitrations seated outside Hong Kong. While the provisions of part 10A on the general framework are already in effect, the express permission of TPF for arbitrations and provisions on certain measures and safeguards will only come into effect on a date to be announced.
Parties arbitrating in Hong Kong. Corporate and individual parties face continuing cost pressures. It is therefore not surprising that TPF has become increasingly common for arbitrations in numerous jurisdictions such as Australia, England and Wales, and the US. A major benefit of TPF is that it provides parties, irrespective of their financial position, with an additional financing option to pursue their claims, and allows them to share the risk of non-recovery with funders. This takes any potential financial outlay and exposure off the balance books and enables parties to focus their resources on more fundamental areas such as running and growing the business. In the short term, this allows the parties to improve their cash flow.
Amendments to Arbitration Ordinance. The Amendment Ordinance clarifies that TPF for arbitrations in Hong Kong will be permitted. This is necessary, as it was uncertain whether the common law doctrines of maintenance and champerty continued to apply to render TPF a tort and criminal offence in Hong Kong. Such reform is the culmination of a comprehensive review on TPF and recommendations that were put forward by the Hong Kong Law Reform Commission.
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Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at: danian.zhang@bakermckenzie.com
