On 23 June 2017, the landmark Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (Amendment Ordinance) was published in the Government Gazette.
The Amendment Ordinance sets out the framework for third party funding (TPF) for arbitrations and mediations in Hong Kong. It does this through the introduction of a new Part 10A to the Arbitration Ordinance (Cap. 609). This will open the way for third party funders (Funders) to fund arbitration proceedings in Hong Kong in return for a financial benefit in the event that the arbitration is successful within the meaning of the relevant funding agreement. Funders will also be allowed to fund services provided in Hong Kong in relation to arbitrations seated outside Hong Kong. While the provisions of Part 10A on the general framework are already in effect, the express permission of TPF for arbitrations and provisions on certain measures and safeguards will only come into effect on a date to be announced.
Implications for parties arbitrating in Hong Kong
Corporate and individual parties face continuing costs pressure. It is therefore not surprising that TPF has become increasingly common for arbitrations in numerous jurisdictions such as Australia, England and Wales, and the US. A major benefit of TPF is that it provides parties, irrespective of their financial position, with an additional financing option to pursue their claims and allows them to share the risk of non-recovery with Funders. This takes any potential financial outlay and exposure off the balance books and enables parties to focus their resources on more fundamental areas such as running and growing the business. In the short term, this allows the parties to improve their cash flow.