Hong Kong – Third Party Funding For Arbitrations- A Step Closer.

 

2 July, 2016

 

 

Given the current uncertainty about whether Third Party Funding Agreements are permissible for arbitrations conducted in Hong Kong, the Third Party Funding for Arbitration Sub-Committee of Hong Kong’s Law Reform Commission was asked to consider whether legal reforms were needed to clarify such.

 

The Sub-Committee concluded that reform is required and recommended that Hong Kong’s Arbitration Ordinance (Cap 609) be amended to provide that such funding is permitted. The extended consultation period ended in February 2016 and the Sub-Committee’s further report is awaited. No doubt, in anticipation of the Arbitration Ordinance being amended to expressly provide for third party funding in arbitrations in Hong Kong, the CIETAC Hong Kong Arbitration Center has (in May 2016) released its draft Guidelines for Third Party Funding in Arbitration, for public consultation. The consultation period ends on 19 July 2016.

 

Draft CIETAC HKAC TPF Guidelines

 

The introduction to the Guidelines (which are to be cited as “CIETAC HKAC TPF Guidelines”) makes it clear that they are to be voluntary and that parties and arbitrators shall not be deemed to have adopted them simply because they participate in arbitration proceedings in which there is an element of funding. For the purpose of the Guidelines, third party funding (Funding) arises when a professional third party or entity (Funder) contributes funds, or provides other material support to a party in arbitration (Funded Party) and has a direct economic interest in the award to be rendered in the arbitration.

 

The draft Guidelines include the following:-

 

Parties Seeking Funding

 

The Guidelines set out a number of things which the person seeking funding should do, namely:-

 

• Set out in a formal arbitration funding agreement (AFA) the terms and conditions of any Funding agreement.
• Consider obtaining legal advice to establish the permissibility of Funding and to review the terms of the AFA.
• Satisfy itself that any prospective corporate Funder is duly incorporated in accordance with applicable laws.
• Satisfy itself that the prospective Funder has sufficient capital to meet the funding arrangements.
• Consider the effects of any applicable confidentiality provisions or laws and any disclosure relating to the proceedings which a Funder may require.
• Consider, when they enter into a commercial agreement, whether the arbitration agreement should include the extent to which information may be disclosed to prospective Funders.
• Consider entering into a non-disclosure agreement with a prospective Funder.
• Consider whether communications between itself and any prospective Funder may be disclosable in subsequent proceedings and, if necessary, take legal advice before providing confidential information to the prospective Funder.
• Disclose to the arbitral tribunal and other party any possible conflicts of interest arising from the Funding.
• Carefully consider the nature and effect of termination and withdrawal provisions under the AFA.

 

Arbitral Tribunal

 

The Guidelines set out a number of matters which the arbitral tribunal should do, namely:-

 

• Where it considers it appropriate, invite or direct any Funded Party to disclose its Funding.
• Positively consider its own independence and impartiality upon becoming aware of the existence of Funding.
• Consider the nature and extent of a party’s Funding as a relevant factor when considering any security for costs application.

 

It is still not clear when the legislation for third party funding will be in place in Hong Kong. The publication of the draft Guidelines should be welcomed by the users of CIETAC arbitration. It will encourage parties to consider various issues which may arise from third party funding when it is formally recognised as legal in Hong Kong.