In December last year, after a lengthy period of uncertainty, the Hong Kong Department of Justice issued guidelines around third-party funding of arbitration, setting 1 February as the date for supporting laws to be implemented. For those aware of the growing opportunities in Hong Kong, the news, although expected, came as a relief.
Although the road to third-party funding of arbitration in Hong Kong has been long and winding, the finance hub remains an attractive market. Kim Rooney, an independent arbitrator and mediator in Hong Kong, said she was aware of considerable interest in third-party funding among arbitration users in her local market.
Rooney noted that the code of practice, released last December, outlined financial and ethical standards for third-party funding. Following February’s third-party funding provisions, third-party funders can confidently fund arbitrations and related proceedings under the Arbitration Ordinance in Hong Kong.
The guidelines and supporting laws will serve to “reinforce and enhance Hong Kong’s attractiveness and competitiveness as an international arbitration centre, in the interests of both users of arbitration and in the public interest,” Rooney added.
Hong Kong’s arbitration market has long been weighed as a potential competitor to Singapore, which has been enjoying the benefits of third-party funding in arbitration since bringing it into effect two years ago. At the time, the goal was to strengthen the city-state’s position as a “premier international commercial dispute resolution hub and a key arbitration seat in the world,” according to amendments in the Civil Law (Amendment) Bill 2016, and by many accounts, this had proven successful.
GROWING OPPORTUNITIES
Quentin Pak, director of Burford Capital’s Singapore office, says the global litigation funding firm has witnessed firsthand the growing arbitration opportunities within the market. “Legal finance enables corporations to pursue meritorious litigation and arbitration claims off the balance sheet with the financier bearing any contingent risk — unlocking the value of the claim and its associated assets,” Pak said of the advantages, adding that Burford Capital had received “numerous inquiries about funding in the last 12 months for this reason.”
But given Hong Kong’s emergence on the scene, Pak warns that Singapore should not get complacent with its position. “The availability of third-party financing of Singapore-seated arbitrations adds to its multitude of advantages as an arbitral center, but Hong Kong — which passed its own code of practice for third-party funding of arbitration recently — is rightly seen as a strong regional competitor,” he said.
Roger Milburn, investment manager at LCM finance in Singapore, agreed that Hong Kong’s recent legislative changes had the potential to ruffle feathers in the Singapore market. “Our view is that the change in the law will have a similar impact as the developments in Singapore have had, with the caveat that the level of interest may actually surge more quickly in Hong Kong on the basis that the change has been a longer time coming (Hong Kong started the consultation preceding the legislative process in 2013), and the longer established position in Hong Kong regarding claims of companies in liquidation being financed externally may mean that certain experienced market participants are already more familiar with the third-party funding concept,” he said.
For arbitrators and funders who had been patiently awaiting the formalization of third-party funding, the changes came as an overdue, but welcome update. Said Rooney: “Anecdotally, third-party funders have shown great interest in funding Hong Kong arbitrations once they are clearly permitted to do so.” While the exact scale of this interest remains to be seen, Singapore no longer has such an obvious advantage over its regional competitor.
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