11 December, 2013
Legal News & Analysis – Asia Pacific
ADR In Asia Conference
International Arbitration In Asia: A Behind The Scenes Review
Session III: Follow the Money – Third Party Funding
Hong Kong Arbitration Week – 23 October 2013
Hong Kong is becoming a premier choice of forum for arbitration, but the continuing existence of the laws of champerty and maintenance may be holding it back, leading lawyers say.
During a recent round table discussion at the ADR in Asia Conference, panelists agreed that the laws which make third party funding of litigation a criminal offence should be abolished in jurisdictions such as Hong Kong as they have already been in several other mature legal jurisdictions.
“Champerty is on its way out in the United States so far as commercial claims are concerned. It is either dead or on its death bed in most States. And that is precisely where it deserves to be,” said Selvyn Seidel from Fullbrook Capital Management.
The panelists included Clive Bowman, Executive Director at IMF (Australia) Ltd., John Choong of Freshfields Bruckhaus Deringer, Susan Dunn from Harbour Litigation Funding, Michael Lee of 20 Essex Street, Kim Rooney of Gilt Chambers, and Selvyn Seidel from Fullbrook Capital Management.
The prohibition against third party funding is rooted in the common law prohibition against champerty and maintenance and are criminal offences under the laws of Hong Kong. In fact in recent years, two lawyers have been charged and convicted of these crimes in Hong Kong, one of which was reversed on appeal. Historically, the purpose of these laws were to prevent frivolous lawsuits and the intermeddling by a disinterested party to encourage a lawsuit. Modernly, many of the concerns emanate from lawyers offering high contingency fees to at-risk parties and the potential for conflicts of interest between the lawyer, client, and the third party funder.
The advantages of third party funding includes more access to justice, increased certainty regarding financial spending for the claimant, and the ability for a claimant to manage the financial risks of arbitration or litigation. With these obvious advantages, third party funding can be a very attractive option especially if the claimant is unable or unwilling to put forward the capital necessary to proceed with a legitimate case.
While there is potential for abuse, as pointed out by several of the panelists, other jurisdictions have allowed third party funding and contingency fees all while protecting against abuses. During Clive Bowman’s review of third party funding in Australia he stated, “rules of champerty and maintenance need to be up with the times…Courts [in Australia] have said there are other laws in place to protect against abuses.”
Seidel went on to say that while third party funding and contingency fees are allowed in the U.S. with some exceptions, there are ethical rules in place that lawyers must abide by that serve as safeguards. With regards to the issue of control, “Control as a rule is one of the chief enemies of the market and industry in third party funding of commercial claims. It is a general rule in the common law countries that says the transfer of control is generally prohibited, full stop. This rule thwarts the market’s will. With appropriate safeguards, it should be abolished, root and branch,” said Seidel.
There are other concerns as well. Michael Lee stated, “The fact a third party funder can walk away clearly gives it some power.” He pointed out that if the third party funder and counsel disagree with the choice of arbitrator, a party may end up agreeing to an arbitrator that they may not prefer out of fear the funder may walk away. While he did not cite to any specific cases in which this occurred, it does pose a concern with third party funding.
While it is clear that third party funding is prohibited in litigation in Hong Kong, it is not equally as clear if it applies to arbitration since it occurs in a private setting at the consent of the parties involved. In June 2013 the HKLRC established a sub-committee, chaired by panelist Kim Rooney, to review the current position in Hong Kong relating to third party funding for arbitration for purposes of considering whether reform is necessary, and if so, to make any and all appropriate recommendations for reform.
With the growing demand for international arbitration, access to lawful third party funding would be an attractive option for parties and could further elevate Hong Kong as the premier choice of forum for arbitration among parties world-wide.
Session II: Emergency Arbitrator Application, Expedited Procedures, and Joinder and Consolidation
Session III: “Follow the Money” – Third Party Funding
Session IV: In-House Counsel Session
For further information, please contact:
Tara Shah, Reporter, Conventus Law
tara.shah@conventuslaw.com