Hong Kong

In 2013, Hong Kong’s Law Reform Commission launched a public consultation on whether to permit third-party funding for international arbitration seated in Hong Kong.

That process culminated in October 2016 with a recommendation to allow it, subject to developing an appropriate regulatory regime within the first three years of it being permitted. On 14 June 2017, following approval of the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2017, a new Part 10A (ss.98E – 98W) was added to the Arbitration Ordinance, and a new s.7A to the Mediation Ordinance. However, although Hong Kong has now formally passed legislation permitting third-party funding for arbitration, the legislation has still not been formally implemented. As matters stand, therefore, funding of arbitration in Hong Kong remains an offence with civil and even criminal penalties.

The Hong Kong judiciary has on occasion shown itself reluctant to permit third party funding even in circumstances where a case appears to fall within one of the permitted exceptions to the prohibition outlined in the case of Seeberger v Unruh. In the 2018 case of Raafat Imam v Life, the claimant sought a declaration from the Hong Kong Court that the funding arrangement he proposed to enter into did not constitute maintenance or champerty or, alternatively, that his claim fell within the access to justice exception identified by the Court in Unruh. The Hong Kong Court of First Instance denied the application and held that the claimant’s application was effectively for a “declaration of non-criminality to fend off potential or possible criminal prosecution” and that such a declaration could only be made in exceptional circumstances. The Court further held that such exceptional circumstances are limited to situations where the integrity of criminal proceedings already instituted is questionable or critical life or death situations, and that neither arose in Raafat’s case.

This decision is disappointing and appears to close the door on the ‘access to justice’ exception, which was the product of careful deliberation of competing public policies by Hong Kong’s highest civil Court in Unruh. Given that there will always be the ‘possibility’ of criminal prosecution as long as champerty and maintenance remains a criminal offence in Hong Kong, and that litigants requiring funding to achieve access to justice are rarely (if ever) likely to fulfil the exceptional circumstances requirement, it is difficult, on the basis of the decision in Raafat, to see how any party will ever be able to avail itself of the ‘access to justice’ exception. Indeed, the Raafat decision appears to undermine the decision in Unruh and render the ‘access to justice exception’ somewhat nugatory. Is the ‘exceptional circumstances’ test really what the Court of Final Appeal intended when it devised the access to Justice exception in Unruh? What if a litigant lacks the financial means to bring a meritorious claim? Does he or she fall within the access to justice exception or does his or her perfectly good claim founder because he or she is not facing a questionable criminal prosecution or in a life or death situation?