01 November 2017

The elevator pitch for third party funding

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?


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.

Download Crossing Borders: International Arbitration Insights - Where will we be in 2028?

Crossing Borders is a periodic review of developments in international arbitration across the world. Included in this special 10th edition, we explore what arbitrations will be like going into 2028 - where, how and by whom disputes will be decided.

Belt and Road Hub

We explore the opportunities the Belt and Road Initiative brings for your business, and provide our comprehensive, professional services to help.

Belt and Road
Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    On the 2 August 2021 Treasury released a consultation paper titled ‘Helping Companies Restructure by Improving Schemes of Arrangement.

    29 September 2021

    In year of record cases and radical reshaping of the class action litigation industry, we are excited to share with you our annual flagship publication The Review: Class Actions in Australia 2020-21.

    22 September 2021

    The Victorian Government has now imposed an industry-wide shutdown of the sector.

    22 September 2021

    On 16 September 2021, the Victorian Government announced a number of changes to the COVID-related restrictions that apply to individuals and businesses in the state.

    20 September 2021

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.