Hong Kong Code of Practice for third party funding published

Hong Kong

The Hong Kong Department of Justice (“DOJ”) has published the much-anticipated Code of Practice for third-party funding of arbitration, which will regulate and provide guidance to the arbitration funding industry in Hong Kong. The DOJ has confirmed that the new provisions of the Arbitration Ordinance, which facilitate the funding of arbitration, will come into operation on 1 February 2019.

The DOJ stated that there will be greater certainty that third-party funding of arbitration in Hong Kong is not prohibited by the common law doctrines of maintenance and champerty. This is expected to add to the attractiveness of Hong Kong as an international arbitration hub and follows similar legislative amendments in Singapore.

The legislative amendments in Hong Kong followed recommendations made by the Law Reform Commission of Hong Kong in 2016. The Code of Practice has been published following a period of public consultation.  It includes requirements for third-party funders to:

  • take reasonable steps to ensure that a funded party is made aware of the right to seek independent legal advice on a funding agreement before entering into it;
  • ensure they maintain the capacity to pay all debts when they become due and payable, maintain access to a minimum HK$20 million of capital at all times; and provide the Secretary for Justice, as the authorised body appointed under section 98X(2) of the Arbitration Ordinance with certain financial information; and
  • maintain effective procedures for managing any conflict of interest that arises in relation to the activities undertaken by the funder for the duration of the funding agreement.

Under the Code, funding agreements must state whether, and if so to what extent, the third-party funder is liable to meet any liability for adverse costs, pay any premium for costs insurance and provide security for costs.

Cheng-Yee Khong, who heads up IMF Bentham’s Hong Kong office, welcomed the new Code. She said “We are delighted that the Code of Practice has been published and relevant amendments to the Arbitration Ordinance will come into effect soon.  This will permit us to move forward with enquiries for funding arbitration matters in Hong Kong and further grow our business in Asia.”

Cheng-Yee is an international arbitration specialist. She was formerly the Director and Counsel to the International Chamber of Commerce International Court of Arbitration Secretariat in Hong Kong, where she helped launch the ICC's Asia Office and was in charge of developing and managing ICC arbitrations in the Asia Pacific region. Cheng Yee works closely with IMF Bentham’s Singapore office to assess and manage funded cases throughout Asia, including arbitration, litigation and insolvency claims.  She is also a member of IMF Bentham’s newly established EMEA office based in London.