Hong Kong and the Growing International Acceptance of Litigation Financing
Hong Kong has recently enacted some legal reform to regulate litigation financing, especially in the arbitration context. This reform effort is noteworthy because Hong Kong is an important forum for commercial arbitration, so its rules governing litigation finance should have extensive influence. In addition, Hong Kong’s reform continues the normalization of litigation finance, demonstrating its increasing acceptance around the world.
As a common-law jurisdiction, Hong Kong inherited the medieval English legal doctrines of champerty and maintenance, which, in some jurisdictions, inhibit the widespread use of litigation financing. While other common-law jurisdictions, such as England, Wales, and Australia, long ago abrogated these doctrines, Hong Kong had resisted the trend until recently, when the Hong Kong Law Reform Commission issued a report recommending that Hong Kong’s Arbitration Ordinance (AO) be amended to permit litigation funding in arbitration.
On June 14, 2017, Hong Kong’s Legislative Council passed the “Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 (Third Party Funding Bill), which amended the AO. The Third Party Funding Bill permits the use of litigation finance in arbitration and related proceedings, including court proceedings, mediation and emergency arbitrations, and parties may also obtain litigation financing in anticipation of arbitration, not just in arbitration matters that are already pending. The bill also requires that all funding agreements be in writing; and
The Third Party Funding Bill also takes a progressive position on the preservation of confidential information in connection with a party’s communication with a funder or prospective funder. Under the amendments to the AO, the strict duties of preserving confidences do not apply where a disclosure of information is made for the purpose of “having or seeking” third party funding. Accordingly, parties may communicate information to a person about their arbitration or potential arbitration, for the purpose of obtaining third party funding without waiving any confidentiality rights in that information.
The amendments also include some limited disclosure obligations. Specifically, funded parties are required to disclose that they are receiving funding, and they must identify who the funder is. This is to avoid any conflicts of interest for members of the arbitration panel.
Topics: litigation finance, legal reform, third-party funding, litigation costs, arbitration, Hong Kong
Works Cited: King & Wood Mallesons, Welcome to the (Third) Party: New Litigation Funding Options and Lessons for Hong Kong, Lexology (July 4, 2017) available at http://www.lexology.com/library/detail.aspx?g=121cf5ff-716e-474a-9717-65e78790c151