A Brief Note on the Passing of Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill
The Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill (“Bill) was passed by Hong Kong’s legislature on 14 June 2017, following recommendations in the Law Reform Commission’s Report in October 2016.
The Bill, expected to come into effect later this year, seeks to change the outdated (if not antiquated) common law doctrine of maintenance and champerty, which basically bans a third party from providing funding to a litigant in civil proceedings, subject to several narrow exceptions. The Bill amends the Arbitration Ordinance and Mediation Ordinance to provide a carve-out to this rule so that this common law doctrine does not apply to arbitration and mediation proceedings in Hong Kong.
The Bill also contemplates a Code of Practice setting out the practices and standards with which funders are ordinarily expected to comply in carrying on their funding which is currently being developed and will be promulgated later this year.
However, the prohibition on providing funding to court proceedings (other than arbitration and mediation as provided in the Bill) still remains. Also, lawyers acting for a party to the arbitration proceedings cannot take advantage of the protection under the Bill so as to be able to provide the funding themselves.
Hong Kong has lagged behind many other important common law jurisdictions such as Singapore, Australia and England which have already abolished the antiquated common law rule of maintenance and champerty altogether, which is often seen as denying less financially capable litigants access to justice. Therefore, while the Bill only relaxes the rule in relation to arbitration and mediation, it is considered as a welcoming move and has the effect of bolstering Hong Kong as an important arbitration forum
The Bill allows for funding to cover not only the litigant’s own costs in arbitration and mediation but also the costs which he is liable to pay to his opponent in case he loses
For Mainland individuals and companies, it is now even more advisable to insert proper arbitration clause in their relevant agreements to provide for arbitration in Hong Kong, so that they can take advantage of arbitration funding permitted by the Bill, alongside with a more authoritative, impartial and efficient arbitral tribunal in Hong Kong. This is so even the relevant agreements may be governed by PRC law, because since the change of sovereignty in 1997 Hong Kong’s bilingual legal profession having exposure to both the PRC and common law legal system (and some of whom are qualified lawyers in both jurisdictions) is well-equipped to conduct arbitration proceedings relating to, and arbitrate on, disputes governed by PRC law
PRC lawyers when acting for financially weaker parties (such as SMEs and individuals) in negotiating commercial agreements with giant SOEs or multinationals should seriously consider fighting for their clients a clause providing for arbitration in Hong Kong, so as to narrow the disparity caused by financial strength when disputes arise. This is especially so considering that arbitral awards made by Hong Kong arbitration tribunal has long been enforceable in the Mainland, besides other important jurisdictions in the world.
It is expected that with the formal coming into effect of the Bill shortly, a lot of large international litigation funders who has already had an established presence in other jurisdictions will soon enter into the lucrative Hong Kong market to tap into the business opportunities presented by the Bill, especially in relation to the high-value disputes originating from Mainland China. There is therefore no concern that an arbitration party will be unable to access adequate funding, provided that his claim is meritorious.