Hong Kong
In court litigation, we are regularly involved in, and have seen an increasing number of credit default and corporate insolvency related matters coming before the Hong Kong Court. Litigation funding is commonly sought by liquidators in this type of cases to pursue claims on behalf of insolvent companies.
In arbitration, there has been an increasing appetite and growth in the use of third-party funding in arbitrations in Hong Kong after the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance came into effect in February 2019.
On cross-border matters between Hong Kong and the Mainland China, we expect there will be more cases utilising the new “Arrangement on Reciprocal Recognition and Enforcement of Civil and Commercial Judgments between Hong Kong and the Mainland”, which came into force on 29 January 2024 and expanded the scope of judgments that can be enforced in cross-border matters between Hong Kong and the Mainland China.
Parties to an arbitration seated in Hong Kong and administered by the Hong Kong International Arbitration can also apply for interim measures (e.g. asset preservation, evidence preservation and conduct preservation) before the courts in Mainland China under the “Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and Hong Kong”.
1. Is third party funding permissible for disputes?
Court litigation
Save for limited exceptions, funding of court litigation is not permitted under Hong Kong law and contrary to the doctrines of maintenance (which prohibits a third party from officiously intermeddling in a legal action in which it has no legitimate interest) and champerty (which prohibits a third party from taking a share of the proceeds of the litigation it has maintained as reward), both of which are torts and also an indictable offences under Hong Kong law.
The exceptions generally fall within the following categories:
- common interest category – where the claimant and the third party providing funding have a legitimate common interest in the outcome of the proceedings;
- cases involving access to justice considerations; and
- a miscellaneous category, including, for example, in insolvency and bankruptcy proceedings
Arbitration
Third party funding for arbitration and related court proceedings has been permitted in Hong Kong since 1 February 2019. Third party funding for arbitration is regulated under Part 10A of the Arbitration Ordinance (Chapter 609 of the Laws of Hong Kong). The Ordinance requires parties in an arbitration to notify each party and the arbitral tribunal about the commencement and termination of a funding agreement. It also expressly prohibits solicitors, barristers and their firms/chambers from acting as funders in cases where they represent one of the parties in the arbitration.
The Code of Practice for Third Party Funding of Arbitration published by Hong Kong’s Secretary for Justice on 7 December 2018 also provides detailed guidance on how funders shall operate in the jurisdiction, including but not limited to obligations around capital adequacy, conflict of interest, financial status, confidentiality, costs and grounds for termination in respect of the funding agreement.
2. Are lawyers able to work on a contingent basis in the jurisdiction and are there any restrictions?
Save as proceedings relating to arbitration as detailed below, in the court litigation context, contingency fee arrangements are prohibited in Hong Kong. While the Law Reform Commission conducted a consultation on conditional fees in 2005, it concluded that it would be against the public interest to allow Hong Kong lawyers to agree conditional fees with clients or put contingency arrangements in place.
There, however, have been significant developments in the field of arbitration, with Hong Kong’s new regime permitting outcome related fee structures (“ORFS”) in arbitration and related court proceedings, which came into force in December 2022.
ORFS is regulated by Part 10B of the Arbitration Ordinance (Chapter 609 of the Laws of Hong Kong) and the Arbitration (Outcome Related Fee Structures for Arbitration) Rules (Chapter 609D of the Laws of Hong Kong). It allows lawyers to enter into (i) conditional fee agreements (“CFAs”) (i.e. a success fee), (ii) damages-based agreements (“DBAs”) (i.e. a percentage of the money sum awarded) and (iii) hybrid damages-based agreements (“Hybrid DBAs”) (i.e. a mix of (i) and (ii) above).
The Ordinance also imposes safeguards to protect the clients’ interests when adopting an ORFS:
- For CFAs, the success fee must not exceed 100% of the base or “benchmark” fee that the lawyer would have charged in the absence of a CFA.
- For DBAs and Hybrid DBAs, the success fee must not exceed 50% of the damages or benefit obtained by the client in the event of a successful outcome in the arbitration.
3. Can the court or tribunal order one party to pay the other’s legal costs?
Yes, Hong Kong courts and arbitral tribunals have broad discretion to award costs orders against a party to cover the opposing party’s litigation costs. The general rule is that the unsuccessful party will be liable to pay the legal costs of the successful party. However, in the event that both parties have achieved some level of success in the proceedings, the courts or arbitral tribunals may make cost orders that reflect the relative success of the litigants.
4. Is insurance available to protect against adverse outcomes for funded litigation?
There are currently no legislative restrictions on parties seeking After The Event (ATE) insurance in Hong Kong to cover adverse costs orders in litigation and arbitration.
Contact
© Eversheds Sutherland. All rights reserved. Eversheds Sutherland is a global provider of legal and other services operating through various separate and distinct legal entities. Eversheds Sutherland is the name and brand under which the members of Eversheds Sutherland Limited (Eversheds Sutherland (International) LLP and Eversheds Sutherland (US) LLP) and their respective controlled, managed and affiliated firms and the members of Eversheds Sutherland (Europe) Limited (each an "Eversheds Sutherland Entity" and together the "Eversheds Sutherland Entities") provide legal or other services to clients around the world. Eversheds Sutherland Entities are constituted and regulated in accordance with relevant local regulatory and legal requirements and operate in accordance with their locally registered names. The use of the name Eversheds Sutherland, is for description purposes only and does not imply that the Eversheds Sutherland Entities are in a partnership or are part of a global LLP. The responsibility for the provision of services to the client is defined in the terms of engagement between the instructed firm and the client.
Share this page