A Quick Guide to third-party funding of litigation and arbitration in Hong Kong – when, and what, is permissible, and what is not.
SHOW NOTES
00:10 Can I obtain third-party funding for litigation?
01:08 When is third-party funding permissible?
02:29 What about contingency fee arrangements?
02:52 Amounts of funding
03:06 Third-party funding in arbitrations
04:04 To sum up
TRANSCRIPT
Can I obtain third-party funding for litigation?
Hong Kong lags behind many other common law jurisdictions in terms of third-party funding for litigation.
While many other jurisdictions – including the United Kingdom – have for some time now abolished the ancient torts of champerty and maintenance – which prohibit third-party funding for litigation – Hong Kong still preserves these doctrines and only permits third-party funding in limited areas.
The rationale is to prevent the “intermeddling” or interference of third-parties in litigation without just cause.
Maintenance is the funding or “maintaining” of litigation. Champerty is an aggravated form of maintenance involving third-parties sharing in the proceeds of litigation in return for funding.
As a result, apart from some narrow exceptions, third-party funding for litigation still attracts potential tortious and criminal liability for champerty or maintenance.
When is third-party funding permissible?
Third-party funding has been legal for arbitration proceedings and mediation since February 2019, following the passing of enabling legislation in 2017.
Otherwise, for litigation – that is cases which are dealt with in the Courts rather than by way of privately administered arbitration – third-party funding is limited primarily to insolvency proceedings where liquidators may seek Court approval for third-party funders to fund proceedings in the insolvency context or for the assignment of claims to third-parties.
Trustees in bankruptcy are also permitted to enter into similar third-party funding arrangements.
Apart from insolvency proceedings, a further exception permitting third-party funding exists where the third-party can demonstrate that it has a legitimate common interest in the litigation.
Lastly, third-party funding is permissible where there are “access to justice” considerations – to assist parties who have meritorious cases but who do not have the resources to fund litigation.
A prime example here would be Legal Aid, where, subject to eligibility requirements, parties to litigation may be assisted by Hong Kong’s Legal Aid Scheme.
Where permissible, third-party funding is available for defendants as well as plaintiffs.
What about contingency fee arrangements?
For the time being contingency fee arrangements are prohibited in Hong Kong.
While the Law Reform Commission conducted a consultation on conditional fees in 2005, it concluded that it would be against the public interest to allow Hong Kong lawyers to charge conditional fees and contingency arrangements.
Amounts of funding
Where third-party funding is permissible, there is no statutory limit to the amounts of funding.
In cases of assignment, the entire cause of action can be assigned to a third-party funder.
Third-party funding in arbitrations
Hong Kong, like several other common law jurisdictions, has adopted a “light touch” or self-regulating approach towards third-party funding in arbitration.
Third-party funders involved in Hong Kong arbitrations are subject to the Code of Practice of Third-Party Funding of Arbitration.
Under the Code, a funder’s main obligations are:
- to ensure that the funded knows it is entitled to take independent legal advice
- to explain clearly the key terms of the funding agreement
- to maintain adequate capital to cover its total funding liabilities for at least 36 months and have access to at least HK$20 million capital
- not to seek to influence the funded party or its lawyers to give control of the arbitration to the funder (except as permitted by law).
The Code is not formal legislation so failure to comply will not attract legal consequences.
Lawyers cannot act as funders in arbitration proceedings in which they are serving.
To sum up
So, in summary, while third-party funding is permitted in Hong Kong, its application is fairly limited – primarily to the areas of arbitration and proceedings brought by liquidators in an insolvency context.
This video is for informational purposes only. Its contents do not constitute legal or professional advice.
