November 23, 2016

Hong Kong’s Call for Litigation Funding Disclosure Leads the Way for Global Reforms

By Scevole de Cazotte
Vice President, International Initiatives 

Last month, the Hong Kong Law Reform Commission (LRC) released a Report on Third Party Funding for Arbitration which calls for “light touch” regulation and disclosure of third party funding in arbitration. While this is an important first step and may lead the way to global recognition of the need for meaningful oversight in the litigation funding industry, “light touch” regulation will not suffice. The Hong Kong Legislative Council should strongly consider adopting litigation funding rules that ensure proper enforcement.  

Hong Kong is one of four major global arbitration centers along with London, Paris, and Singapore. As a first-mover on this issue, the Hong Kong LRC report and the Hong Kong Legislative Council’s interpretation of the report have the potential to be particularly impactful in Singapore, where just this month the Singapore Ministry of Law submitted an amendment (Civil Law Amendment Bill 2016) that would enact a framework for third-party funding for international commercial arbitration.

As the Institute for Legal Reform (ILR) has noted in the past, third party funders are pouring unprecedented sums of money into financing litigation and arbitration. Recently, Bentham IMF, a major funder, announced that the firm was hiring John Sulan, former justice in the South Australia Supreme Court, to “help the company vet opportunities to fund commercial litigation and arbitration matters for clients in jurisdictions including the U.S., Australia, Canada, New Zealand, Hong Kong and Singapore.” Although these firms are aggressively involved in all types of litigation and arbitration across the globe, these activities are largely unregulated, making LRC’s recommendation a timely and necessary precedent.

The report released by LRC deals with third party funding in arbitration cases, specifically. It suggests that Hong Kong statutes be amended to authorize the practice of third party funding in arbitration. The report goes on to suggest a number of practical safeguards to ensure third party funding does not become an unruly tool in arbitration cases. These include funders giving notice of funding to arbitrators and parties in the litigation; creating clear and impartial standards of conduct for the funding industry; and that these standards be developed by an independent advisory body instead of by the funders themselves.

Many of the safety measures appear responsive to the comments in support of TPLF disclosures ILR submitted to LRC in early 2016.

LRC’s report is an encouraging first step to ensure that funding is disclosed at the onset of a case and that protocols are in place to ensure the risks associated with funding are mitigated. As Hong Kong’s Legislative Council reviews the report, they ought to consider taking the recommendations one step further by developing an enforcement mechanism for the regulations outlined by LRC.

Hong Kong is uniquely positioned to pave the way for sensible regulations of third party funding. Let’s hope the Legislative Council uses this opportunity to do so.

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