As recently as 14th June 2017, Hong Kong became the latest jurisdiction to permit third-party funding in international arbitration by passing legislation to amend the Arbitration Ordinance (Cap. 609). The amendment is likely to take effect later this year, giving time for a code of conduct for funders to be developed.
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The law had previously only permitted the funding of insolvency cases, but the recent news will boost Hong Kong’s status as a centre for arbitration and help it compete with local rival Singapore (that similarly liberalised its funding regime earlier this year) and the other major global players: London, Paris, Geneva and New York.
Litigation and arbitration funding is now an established and unremarkable feature in many jurisdictions. The ever-increasing utilisation and understanding of how funding works has led to a real appreciation of its benefits and a realisation that many of the fears around funding are overblown. It is also attracting increasing levels of support from the legal community.
For example, leading global firm Freshfields Bruckhaus Deringer1 last year stated, “Funding is here to stay… Already this year we have seen news of an arrangement to provide litigation funding to a FTSE 20 company. This reflects our own experience of handling funded claims – even large corporations are looking to third-party funding as a form of cash flow management… To our ears, the concern sometimes expressed that funding breathes life into unmeritorious claims rings false. On the contrary, the involvement of a funder adds an additional layer of diligence at an early stage of the process, leading to greater rigour in risk and cost-benefit assessments.”
Creating a level playing field
Initially, third-party-funding was seen as a way of levelling the playing field in ‘David v Goliath’ scenarios where a relatively impecunious claimant with a strong claim was in dispute with a much better resourced defendant. While this provision of access to justice is still a key benefit of funding, well-resourced corporate claimants are increasingly seeing funding as a highly effective risk-management tool that can reduce the need to have working capital tied-up for several years and has significant advantages from an accounting perspective.
Neither Hong Kong nor Singapore has yet embarked upon a comprehensive liberalisation of their local litigation funding regimes. Their reforms, for the time being at least, only permit litigation funding for international arbitration. However, assuming no major problems are encountered with the funding of international arbitration, it is likely that further liberalisation will occur, which will allow litigation funding to be used to support claims brought before the domestic Hong Kong and Singaporean courts. This gradual introduction of litigation funding is unlikely to hinder its success in Hong Kong and Singapore, as higher value disputes in these jurisdictions tend to be subject to arbitration rather than domestic litigation.
Before the recent reforms, Hong Kong was in danger of being ‘left behind’ and seen as increasingly anachronistic as a venue for arbitration. However, with the barriers to funding in Hong Kong and Singapore being gradually dismantled, it is likely that both will become increasingly popular venues for arbitration in the years to come. We do not anticipate an avalanche of funded cases, but rather a slow and steady take-up as we have seen in other jurisdictions which have liberalised their rules. However, until now, an Asian-based corporate may have opted to have its arbitration heard in a venue where funding has long been permitted, such as London or Paris. Now, thanks to the reforms in Asia, that same corporate may prefer to select Hong Kong or Singapore as its venue of choice.
1 International arbitration: 10 trends in 2016, published February 2016