On December 7, 2018, the Hong Kong Department of Justice released its long-awaited Code of Practice for Third-Party Funding of Arbitration, which can be found HERE. The Code—which takes effect on February 1, 2019—sets out standards of compliance for third-party funders of arbitration and includes a system of supervision by an advisory body (non-compliance will not result in judicial or other proceedings, however). Previously, according to the common law doctrines of “maintenance and champerty,” Hong Kong prohibited third party funding of litigation. The Hong Kong DOJ passed an Amendment Ordinance in June 2017 abolishing the doctrines of maintenance and champerty but decided not to enact the Ordinance provisions until the Code of Practice was developed and released.
The Code of Practice sets forth the following important requirements for third-party funders:
- Ensure that promotional materials are “clear and not misleading.” Section 2.2
- “[T]ake reasonable steps to ensure that the funded party is aware of the right to seek independent legal advice on the funding agreement before entering into it.” Section 2.3(1)
- Maintain access to a minimum supply of capital and provide annual financial statements or other reasonable evidence to the advisory body to ensure compliance with this requirement. Section 2.5
- Manage any conflicts of interest and remind the funded party of its obligation to disclose information about the third-party funder. Sections 2.6, 2.7, 2.10
Hong Kong’s adoption of a Code of Practice follows recent similar approaches in England and Singapore and aims to strengthen Hong Kong’s position as a prominent center for international arbitration. Expect to see an increase in arbitrations seated in Hong Kong as there will likely be a swell of funded arbitrations in the region.