Third Party Funding in Hong Kong

For those of you who attend regular arbitration conferences, you will know that the topic of arbitration and third party funding (“TPF”) is often a hotly debated topic.  Recent developments in Hong Kong have only increased that focus.

The Hong Kong Law Reform Commission published a consultation paper on 19 October 2015, recommending that the TPF for arbitration taking place in Hong Kong should be permitted under Hong Kong Law.

Third Party Funding

What actually is third party funding?

Historically, the English law principles of “maintenance” and “champerty” have prevented the funding of litigation by third parties. The underlying justification for this was to avoid third parties profiting from litigation in which they had no legitimate interests. However, with the desire to improve justice and the management of costs, the judiciary has now moved away from this position. TPF has now been recognised as having a significant role to play in civil litigation.

Put simply, TPF is the provision of funds by someone not involved in the litigation, to enable a litigant to pursue a claim. It is a contractual relationship between a third party, a funder and a claimant seeking to pursue a cause of action. This application can, in fact, extend beyond litigation and arbitration to all forms of dispute resolution and it is available for a variety of commercial disputes.

Typically the funding will cover the client’s legal costs and counsel’s fees, experts and miscellaneous expenses and an indemnity against any liability to incur costs, including security of costs orders. However, funders may require a cap on funding, based on the estimate provided by the client’s lawyers.

In return, the third party funder will, in the event of success, receive a share of the recoveries in the litigation/arbitration. The return is likely to be a percentage of the proceeds, typically 30-50%.

When is funding appropriate?

As there has to be a net recovery, funding will be

  • available for damages claims only. Given that the third party funders receive a return by reference to the recoveries made, their interest is only in a damages based outcome. There is also a threshold value, usually AUD$5m or £1mGBP.
  • As their result is dependent upon a net return, funders of course require a good prospect of success. This is usually in the region of 70 per cent. The third-party funders will assess the claims in order to decide this on their own basis. Significantly as well, the place of the arbitration can have an influence on this, a successful claim is worthless if it is in a jurisdiction where there is difficulty or uncertainty around enforcing.
  • Therefore, recoverability is very significant to the third party funders. Factors such as assets outside of a jurisdiction, enforceability and nature of the other party are all considerations for the funders.

Advantages of third party funding

  • The inherent risk of costs orders is avoided by the funded party.
  • It does not affect cash flow.
  • Regular funding demands are eliminated.
  • The fact that a claim is funded may encourage early settlement.
  • Claims that could otherwise not be brought by a party are able to be brought.
  • It has also been argued that TPF helps to screen out unmerited, vexacious claims.


  • Third party funding is not usually available to defendants or for non-monetary claims.
  • A successful claimant will have to pay a significant portion of their recoveries to the funder.
  • Although funders are not allowed to control the litigation, there may be some lost autonomy, in particular where considering settlement where funders reserve the right of approval. This is discussed in more detail below.
  • There is a substantial amount of upfront costs. The lawyers involved have to put together a significant number of documents and proposals for the third party funder to consider the claim, for it then to po-tentially be rejected.

Points to note

It is important to bear in mind that third party funding is not just used in the case where a party to an action is unable to afford to bring or defend the action. Third party funding is increasingly used where solvent, cash rich entities do not wait to tie up significant amounts of available funds in litigation and choose to have the litigation third party funded. The obvious consequence being they do not have as great a return on the decision if it is favourable.


There is no formal regulation of funders.


Third party funders are quick to point out that any settlement decision is that of the claimants, and the claimant does not have to involve the funder in anyway. In reality, when initially reviewing whether to take on the claim, the third party funder has reviewed and analysed the file and has discussed settlement options with the claimant, so that all parties have “realistic” figures in mind.


In Arbitration, there has been an increasing number of requests from respondents asking tribunals to order claimants to disclose whether there has been funding and if so, the identity of the funder. The case of Eurogas and Belmont v The Slovak Republic, ICSIO case no. ARB/14114 held that the fact of funding should have no influence on the decision to award security and costs.

Choice of Lawyers

Do the funders have input into the choice of lawyers? The answer is kind of. Though a claimant is free to select any lawyer of their choice, the third party funder has a vested interest in the success of the case. A funder may refuse to fund a good case if it believes that the claimant is not adequately represented.

The Law Reform Commission’s Recommendations

In June 2013, a sub-committee chaired by Ms Kim Rooney was set up to review the positon of TPF in Hong Kong for arbitration for the purposes of considering whether reform was required and if so, to make such recommendations for reform.

On 19 October 2015, the sub-committee released a consul-tation paper.

The Law Reform Commission unanimously concluded that reform of Hong Kong law is needed to clarify that TPF is permitted for arbitrations taking place in Hong Kong, provided the parties comply with appropriate financial and ethical safeguards.

The commission recommended that:

  1. the Arbitration Ordinance should be amended to provide that TBF, for arbitrations taking place in Hong Kong, be permitted under Hong Kong law;
  2. clear ethical and financial standards should be developed for third party funders providing TPF to parties to Arbitrations taking place in Hong Kong.

Further, the Law Reform Commission invited submissions on:

1. Whether the development and supervision of the applicable ethical and financial standards should be conducted by:

a) a statutory governmental body, whether existing or to be established and if so, what type of body; or

b) a self-regulatory body, whether for a trial period or permanently and how any ethical and financial standards should be enforced.

2. How the applicable ethical or financial standards should address any of the following matters or any additional matters:

a) adequacy;

b) conflicts of interest;

c) confidentially and privilege;

d) extent of extra-territorial application;

e) control of the arbitration by the Third Party Funder;

f) disclosure of TPF to the tribunal and other party/parties to the arbitration;

g) grounds of termination of the Third Party Funder; and

h) complaint, procedure and enforcement.

3. Whether or not a third party funder should be directly liable for adverse costs orders in a matter it has funded and if the answer is yes, how should such liability be imposed as a matter of Hong Kong law for the purpose of recognition and enforcement under the Convention for Recognition and Enforcement of Foreign Arbitration Awards (1958).

4. Whether there is need to amend the Arbitration Ordinance to provide for the Tribunal’s power to order Third Party Funders to provide Security for Costs; and finally,

5. If the answer to 4 above is yes, the basis for such power as a matter of Hong Kong law, and for the purposes of recognition and enforcement, under the Convention for Recognition and Enforcement of Foreign Arbitration Awards (1958).

What next?

The consultation period for submissions from the public will end on Monday, 18 January 2016. There is no denying that the possible introduction of TPF for arbitrations taking place in Hong Kong is a significant development. As the sub-committee stated, Hong Kong is one of the major centres globally for international arbitration. As Hong Kong drives to increase its arbitration work, this can only be a positive thing.

Nadine Emsley is Managing Solicitor and Special Counsel in the Kreisson International Arbitration team.