This article was written by Paul Starr and Suraj Sajnani.
In June 2017, the Hong Kong Legislative Council passed legislation to allow third party funding of arbitration proceedings seated in Hong Kong. Since then, we have received a flurry of inquiries from clients wanting to know more about third party funding, and how it can help their disputes portfolios.
While we have published a detailed guide around the key features of the new legislation, this article answers the top ten questions that clients have been asking us about funding over the past several months.
1. What is third party funding?
In simple terms, this means that an unrelated third party will pay your monthly legal bills and any adverse costs orders for a share of any money ultimately awarded to you. This is currently permitted only in respect of arbitration proceedings and very limited types of court proceedings (such as certain insolvency proceedings).
2. How much of a share will I have to give to the funder?
This depends on the funder and the terms of the funding arrangement. We have seen payment terms ranging from 3x the legal costs actually expended by the funder (provided that more than this amount is recovered by you), to a sliding percentage scale ranging from 7% to 50% of the proceeds. Generally, the earlier you settle, the smaller the share paid to the funder will be.
3. Will my case get funded?
This depends on the merits of the case. Typically, funders will require a memorandum/opinion from your lawyers setting out the strengths, weaknesses and their unbiased view of your case. Based on the merits, the funder will decide whether your case is fit for funding. This often needs to be approved by the funders' internal committees comprised of experienced disputes lawyers. Funders also take into account the chances of recouping awarded funds from the potential respondent, and costs the funders are likely to expend.
4. I have already commenced a case, can I seek funding now?
Yes.
5. What happens if I lose?
With most funders, funding is non‑recourse. This means that if you lose, you do not have to repay any of the legal fees expended by the funder. The funder will also pay all adverse costs orders.
6. I am being sued, can I seek funding?
Yes. Most funders also offer defence funding.
7. As your lawyers, can King & Wood Mallesons fund your proceedings?
No. The new legislation clarifies that lawyers and law firms cannot act as funders when they act for any party in the proceedings.
8. Do I have to tell the opposing side and tribunal that I am being funded?
Yes. The law requires that the fact of funding and the name of the funder be disclosed.
9. Will this make the tribunal think that I cannot afford these proceedings and be swayed by the other side's argument that I should provide security for costs?
No, the fact of funding alone is insufficient for security to be ordered. We have had very solvent clients speak with us about funding, and funders tell us that they have an increasing amount of clients seeking funding for cash flow management purposes, rather than impecuniosity.
10. Can the funder stop funding my case part way through the proceedings?
Only in very limited circumstances. Funding agreements usually set out the circumstances in which a funding agreement comes to an end, such as a material adverse change.
The relevant provisions of the legislation are not yet in full effect, but there is widespread anticipation for these to come into effect before the end of the year.
