Law Reform Commission's new committee seeks to clarify rules around funding for arbitration cases

Hong Kong's decision to review the laws around third-party funding for arbitration has re-ignited debate among the city's lawyers.

The Law Reform Commission (LRC) has established a committee to look into legislation governing arbitration funding and make recommendations if necessary.

While Hong Kong continues to apply maintenance and champerty laws, which explicitly forbid funding in litigation cases, the rules are less clear on arbitration.

Hong Kong barrister Kim Rooney, who is chairing the LRC committee, said there remained a grey area about whether the maintenance and champerty laws also ruled out the use of third-party funding in arbitration cases, as the rules had been inconsistently applied in the past.

"This is a big topic for the LRC to consider," she said when speaking at Hong Kong Arbitration Week last month. 

"It is crystal clear that champerty and maintenance has not been abolished, and so third-party funding in litigation is generally prohibited, bar a few exceptions. But the position for arbitration is not so clear."

The LRC's move has created a buzz among Hong Kong's litigators, but some have questioned the need to clarify rules on arbitration.

"The LRC is asking the wrong question," said a partner at an international firm. "The question should be 'Should we abandon maintenance and champerty?' Arbitration is a private dispute resolution mechanism. 

"It can have nothing to do with principles of public policy relating to maintenance and champerty. In my view, it is allowed in Hong Kong. Otherwise, foreign lawyers not operating here could appear in Hong Kong arbitration on terms more competitively advantageous than those that could be offered by Hong Kong lawyers, and that cannot be right."

Linklaters' global head of litigation Marc Harvey (pictured) added: "I see the point that champerty should apply to legal proceedings. 

"But plainly if the LRC is looking at this, then somebody has taken the view that arbitration falls within legal proceedings. With a view to boosting Hong Kong as a forum for arbitration, one would have thought that the position they would arrive at is that third-party funding, subject to appropriate scrutiny, should be allowed for arbitrations in Hong Kong.

"Certainly, I am a great proponent of greater access to justice. And if third-party funding means more or better justice is administered, then I think that is a good thing."

• Click here for the latest Asia legal briefings from Legal Week Law Asia