Hong Kong permits third-party funding of arbitrations and mediations

Hong Kong has traditionally been reluctant to allow claimants’ legal costs to be paid by third parties who have no direct legitimate interest in the outcome of the dispute.

By virtue of legislation passed earlier this week, the number of exceptions to the archaic legal principles on which this prohibition is based has been increased to allow the so-called “third-party funding” of arbitrations and mediations. This is a welcome addition to the relatively few occasions on which funding is also permitted in court proceedings, for example in insolvency situations, and will result in improved access to justice, whilst also enabling funders to avoid the risk of incurring civil or even criminal liability.

The new provisions, which amend Hong Kong’s existing arbitration and mediation ordinances, will probably come into force later this year, and will allow parties who have reasonable prospects of success but have inadequate resources to pay their legal expenses, or who want to use funding as a financial or risk management tool, to obtain financial assistance from third party funders in return for a proportion of the recovery.

This is a significant innovation for Hong Kong and enhances its status as a leading international dispute resolution centre.