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Submission to the Law Reform Commission of Hong Kong on Third Party Funding for Arbitration
Third party funding should be permitted
- In general, this Council agrees that the Arbitration Ordinance should be amended to provide that third party funding for arbitration taking place in Hong Kong is permitted under Hong Kong law, as long as it may serve the purpose of enhancing the rights of consumers to access for justice.
- We are aware that arbitrations are mainly used in commercial context in Hong Kong. The users of arbitrations are overwhelmingly corporations, partnerships, government departments and similar entities. So far, individual consumers rarely use arbitrations in Hong Kong. Where individuals are involved in arbitrations, the dispute generally involves commercial, contractual or similar issues.
- In the circumstances, it is believed that there is a vacuum for consumer cases in using arbitration in Hong Kong. Consumer arbitration is an area to be explored and developed. One of the reasons and most probably the main reason for consumers not to use arbitration is the costs and the associated financial risks to be incurred. Third party funding may provide a solution to and encourage consumers to use arbitration to resolve dispute with traders in appropriate cases.
- It is noted that costs and expenses associated with arbitration include the fees and expenses of the arbitrators, lawyers, expert witnesses, administrative costs charged by arbitral institution, and expenses of hearing venues, which can be very high. An individual consumer who has a meritorious case may not have sufficient financial means to conduct arbitration, even assuming the traders agree or suggest to do so. It would be an incentive for those consumers who do not have abundant financial resource or under constraint of their own financial arrangement to take part in arbitration if they are supported by third party funding.
- This would enable arbitration to optimize its role as a form of access to justice at the level of consumer protection. In this premise, the Council is of the view that third party funding should be permitted by law in consumer arbitration.
Appropriate financial and ethical safeguards and Regulatory Body
- We consider it pivotal to have clear and high ethical and financial standards for third party funders providing third party funding to parties to arbitration, which should be developed to serve its legitimate purposes as proposed.
- As for whether the regulation of third party funding should be conducted by a statutory or governmental body, or by a self-regulatory body, we tend to support the former. We share the concern that in Hong Kong, there is no critical mass of third party funders, which makes it very difficult to establish an authoritative, reputable and reliable self-regulatory body. On the other hand, we recognize that the establishment of such a statutory or governmental body requires legislative process, much likely, that involves making lengthy subsidiary legislation under the Arbitration Ordinance. Notwithstanding that, since public interest is at stake, we opine that it would worth the effort to pursue the subsidiary legislation so that the public could rely on a statutory or governmental body underpinned by statutory codes or regulations to regulate the funding and related activities.