Third-party funding for arbitration in Hong Kong

CIETAC HKAC’s draft guidelines on third-party funding for arbitration

The draft guidelines on third-party funding for arbitration published by CIETAC’s Hong Kong Arbitration Center will be a helpful resource for parties and tribunals unfamiliar with third-party funding. The draft guidelines define third-party funding and set out best practice and conduct for issues such as confidentiality, due diligence checks on funders, funders’ control over proceedings, conflicts of interest, security for costs, and disclosure of funding arrangements.

In 2015, Hong Kong ranked as one of the world’s most preferred and widely used arbitral seats of arbitration, alongside London, Paris, Singapore and Geneva.¹ In the area of third-party funding, however, the position under Hong Kong law has always differed from its European counterparts. This seems set to change and, in anticipation, CIETAC’s Hong Kong Arbitration Center (CIETAC HKAC) released draft guidelines for third-party funding for arbitration.²

Hong Kong has traditionally been hostile to third-party funding, largely due to concerns over the doctrines of maintenance and champerty. However, a sub-committee of Hong Kong’s Law Reform Commission recently recommended that Hong Kong law be amended to clarify that third-party funding for arbitration is permitted.

It also proposed that a system of safeguards be established to protect against perceived risks of funding. Commonly raised concerns include that third-party funding could give rise to undisclosed conflicts of interest, or lead to breaches of confidentiality or to funders exercising excessive control over proceedings.

CIETAC HKAC’s draft guidelines attempt to address these concerns, setting out best practice and conduct including in respect of confidentiality, due diligence on funders, funders’ control over proceedings, conflicts of interest – both for parties and tribunals, security for costs, and disclosure of funding arrangements. The guidelines offer a practical approach to funding that should, in particular, be a helpful resource for parties and tribunals unfamiliar with such arrangements.

The public consultation period on the draft guidelines concluded on 19 July 2016. CIETAC HKAC is considering the responses received, however, we understand that the responses thus far have been overwhelmingly supportive.