HONG KONG SAR, CHINA Law and Practice Contributed by: Lianjun Li, Matthew Townsend, Patrick Chong and Max Lam, Reed Smith
6. Third-Party Funding 6.1 Prevalence of Third-Party Funding Third-party funding is allowed in Hong Kong following the introduction of the Arbitration and Mediation Leg- islation (Third Party Funding) (Amendment) Ordinance 2017. The expectations and standards for third-party funders are also outlined in the Code of Practice for Third Party Funding of Arbitration, which was issued in 2018. However, it is unclear how prevalent such funding is in Hong Kong’s investor–state claims. While third-party funding is becoming more common in international arbitration, specific data on its prevalence in inves- tor–state disputes relating to Hong Kong is not readily available. 6.2 Third-Party Funding Case Law In Hydrotech Waterproofing Solutions Ltd v Shun Yuen Construction Co Ltd [2023] HKCFI 601, the court issued a non-party costs order against an unrelated company that financed litigation. In that case, Hydro- tech, a sub-sub-contractor, was unpaid for construc- tion work after its sub-contractor went into liquidation. It sought payment from the main contractor, Shun Yuen, but lost the trial. During cross-examination, Hydrotech’s witness, Mr Mo, admitted that he and his company, Hop Shing, had funded the claim with a view to recovering HKD3 million in fees owed by Hydrotech. The court agreed that Hop Shing should be joined as a party liable for costs on an indemnity basis, as it and Hydrotech would “stand or fall togeth- er” in the litigation. At the time of writing, there are no Hong Kong cases in relation to third-party funding under the AO. 6.3 Disclosure and Security for Costs Under Section 98U of the AO, a party receiving third- party funding must give to the arbitration body and each other party to the arbitration written notice of the fact that a funding agreement has been made and the name of the third-party funder. However, there is no requirement to provide additional details about the funding agreements.
The existence of third-party funding may be one of the considerations of the tribunal when considering applications for security for costs, although there is no hard-and-fast rule in this regard. 7. Other Procedural and Evidentiary Issues 7.1 Notice of Dispute and Consultation Period Under Hong Kong law, there are no legally mandated procedures for pre-arbitration procedural require- ments. The parties have the freedom to agree upon pre-arbitration procedural steps (such as negotiation or mediation) to be attempted before proceeding to arbitration. In C v D (2023) 26 HKCFAR 216, the Hong Kong Court of Final Appeal held that, in the absence of clear lan- guage to the contrary, issues relating to compliance with pre-arbitration conditions in an arbitration agree- ment go to the admissibility of a claim, and are not subject to judicial intervention. 7.2 Confidentiality and Transparency In Hong Kong, the AO establishes a statutory obliga- tion of confidentiality. Section 18 (1) of the AO pro- vides that, unless otherwise agreed by the parties, no party may publish, disclose or communicate any information relating to (i) the arbitral proceedings under the arbitration agreement or (ii) an award made in those arbitral proceedings. Sections 16 and 17 of the AO also provide for confidentiality in respect of arbitration-related court proceedings. However, Section 18 (2) of the AO sets out certain exceptions to the confidentiality obligation enshrined in Section 18 (1), including (i) during legal proceedings before a court to protect the disclosing party’s legal rights or interests, or for the enforcement of the award; (ii) where there is a legal obligation to disclose the information to a government body, regulatory author- ity, court, or tribunal; and (iii) when the information is shared with a professional or any other adviser of either party. Separately, the 2024 HKIAC Rules also set out the confidentiality obligations in an HKIAC arbitration.
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