Hong Kong law should allow third-party arbitration funding, says Law Reform Commission

The Hong Kong Special Administrative Region (HKSAR) has become a major arbitration centre and parties looking to resolve disputes in the region are starting to take funding options into account, a 'third party funding for arbitration' sub-committee of the LRC said in a statement.

Legal doctrines of "maintenance and champerty" prohibit the use of third party funding for litigation in most circumstances, and it has been unclear whether this also applies to arbitration, the sub-committee said.

The current law should therefore be reformed to allow funding by third parties who meet ethical and financial standards, to provide "clarity and certainty" and enhance Hong Kong's reputation as an international arbitration centre, it said.

The sub-committee proposed that Hong Kong's Arbitration Ordinance should be changed to expressly allow third party funding, and asked for submissions on how the ethical and financial standards should be developed, and whether they should be imposed by statute or by self-regulation.

The sub-committee also asked for submissions on the tribunal's powers on adverse cost orders.

"HKSAR should develop its own model of regulation to suit its culture and needs, which will be informed by the experience and approach of other relevant jurisdictions," it said.

Hong Kong-based Peter Bullock of Pinsent Masons, the law firm behind Out-Law.com said "Third party funding was a specific topic at last October's Arbitration Week in Hong Kong. Hong Kong is keen to be seen as a regional hub for dispute resolution, with one eye to Singapore, which has made great strides in recent years, and encouraging third party funding could provide a useful fillip."