Originally from Handbook on Third-Party Funding in International Arbitration

Definition of Third Party Funding (“TPF”) and Funder

For the purpose of the questionnaire we have treated TPF as a non-recourse loan by a Funder in exchange for a success fee only where monies are recovered. The success fee can be paid in any form, e.g. a multiple of the funding, a percentage of the proceeds, a fixed amount or a combination of the above. The Funder is not a party to the dispute.

When addressing the legal system of Hong Kong, we have also addressed practices of the Hong Kong International Arbitration Centre (“HKIAC”) seated there. 

1.1.   TPF Regime in Hong Kong

1.1.1. Is TPF commonly used in your Jurisdiction? If yes, since when (is it a new trend or a well-established practice)? 

The third party funding industry is at a relatively early stage of development in Hong Kong compared to other major common law jurisdictions such as the UK, the US and Australia. It is most commonly used for the funding of insolvency cases as the funding of such cases has been permitted in Hong Kong since 2010. 

It has been well publicised that the Hong Kong Government accepted the need to become a third party funding tolerant jurisdiction if it was to promote, and uphold, its standing as one of the major centres for international arbitration. Following a public consultation which demonstrated overwhelming support for third party funding (some 97% of those who took part favoured the abolition of the common law torts of champerty and maintenance in relation to arbitration, mediation or proceedings before the court connected to the arbitration), and the Law Reform Commission’s recommendations on 12th October 2016, the Legislative Council passed the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 (“the Bill”) on 14 June 2017.

Arbitration is a good platform to test the waters of funding and it is anticipated that in time further consideration will be given to legalising the use of funding in domestic litigation beyond the current exceptions.

1.1.2. Please shortly describe the TPF market in your Jurisdiction. Is it dominated by local or international Funders, which type of Funders are active, which cases get typically funded? Is there any source on Funders (like the overview published by the German Bar)?

In Hong Kong, funding is typically used in insolvency cases and, going forward, in arbitrations and their related proceedings, including ancillary court proceedings, proceedings before an emergency arbitrator and mediations. Similar to other jurisdictions, funders focus on cases where the claimant has good prospects of success. There are a small number of funders who have established a presence in Hong Kong.