The Law Reform Commission has released a report recommending amendments to clarify the law concerning third party funding of arbitration and associated proceedings under the Arbitration Ordinance.
The proposed reforms are to enhance Hong Kong's competitive position as an international arbitration centre.
The report recommends the Arbitration Ordinance should be amended to state the common law principles of maintenance and champerty, both as to civil and criminal liability, do not apply to arbitration and associated proceedings under the ordinance.
The amendment to permit third party funding of arbitration should also apply to the funding of services provided in Hong Kong for arbitrations taking place elsewhere.
However, third party funding provided either directly or indirectly by a person practising law or providing legal services should not be permitted.
The commission said a party with a good case in law should not be deprived of the financial support it needs to pursue the case by arbitration, and the reforms are necessary to enhance Hong Kong's position as an international arbitration centre.
The report also recommends that clear standards for third party funders should be developed by proposing a "light touch" approach to the regulation of the funding of arbitration for an initial three year period.
Third party funders should comply with a Code of Practice to be issued by a body authorised under the Arbitration Ordinance after consultation with the public.
The standards and practices to be set out in the code include that the third party funder's promotional literature must be clear and that their funding agreements should explain clearly the key features, risks and terms of the agreement.
The third party funder should also take steps to ensure the funded party receives independent legal advice on the terms of the funding agreement before signing it.
Click here for the report.
