As noted in our earlier post, Hong Kong published its long-awaited Code of Practice for Third Party Funding of Arbitration on 7 December 2018.
Publication of the Code has removed the final hurdle to third party funding of Hong Kong arbitrations. The law that allows such funding will come into effect on 1 February 2019, via sections 98K – 98O of the Arbitration Ordinance (Cap. 609). These sections abolish the criminal and tortious offences of champerty and maintenance in relation to third party funding of arbitration, as well as arbitration-related court and mediation proceedings. For more detail on the law, click here.
The Code was published by Hong Kong’s Secretary for Justice, Teresa Cheng SC, in her capacity as the “authorized body” under Part 10A Arbitration Ordinance. Compliance with the Code will be overseen by an “advisory body”, consisting of three senior Hong Kong lawyers, whose powers derive from s.98X Arbitration Ordinance.
In its recent judgment in Progas Energy Limited and ors v Pakistan , the English High Court (the Court) granted Pakistan’s request for security for their costs in defending a challenge to an investment treaty award. The Court declined Pakistan’s application for security for its unpaid costs in the arbitration awarded to them by the tribunal. The case is of particular interest because the Court considered the relevance to the applications of the fact that the Claimants were funded by a third-party funder.
An ICSID tribunal has rejected a State's application for security for costs in circumstances in which the other party had third-party funding in the form of ATE insurance which specifically provided for cover of the State's costs.
Italy's request for security for costs
The application formed part of arbitral proceedings brought by Eskosol S.p.A. in liquidazione ("Eskosol") under the Energy Charter Treaty and the ICSID Convention against the Italian Republic ("Italy"). Italy sought security for costs in support of its ICSID Arbitration Rule 41(5) application for summary dismissal of Eskosol's claims on the basis that they are manifestly without legal merit.
Hong Kong's Legislative Council today passed a law allowing third parties to fund arbitrations seated in the territory, as well as work done in Hong Kong for arbitrations seated elsewhere, and for mediations. This development has been long anticipated, and will be widely welcomed by Hong Kong's thriving arbitration community, which views it as essential to Hong Kong maintaining its status as one of the world's most popular arbitral seats.
In a resolution adopted on 21 February 2017, the Paris Bar Council (Conseil de l'Ordre) indicated its support for third-party funding. The resolution confirms that third-party funding is in the interests of both clients and counsel, particularly in the context of international arbitration. It is also not prohibited by French law.
On 10 January 2017 the Singapore Parliament passed amendments to the Civil Law Act legalising third-party funding in arbitration and related proceedings in Singapore (the "Amendments"). Following a year of positive developments for arbitration in Singapore, this latest development will open up a significant new market for funders worldwide, further asserts Singapore's eminence as an arbitral centre and paves the way for further and deeper reform.
We previously reported on the introduction of the Civil Law (Amendment) Bill in our blog posts of July 2016 and November 2016. The key features of the Bill were to:
- abolish the common law torts of champerty and maintenance (which currently restrict the use of third party funding);
- confirm that third party funding is not contrary to public policy or illegal, if used by eligible parties in prescribed categories;
- confirm that the prescribed categories of proceedings in which third party funding can be used include international arbitration proceedings and court litigation and mediation arising out of international arbitration; and
- prescribe the qualifications that a third party funder must satisfy in order to fund an arbitration, including a proviso that the funding of dispute resolution proceedings must be the "principal business" of the third party funder.
While the legislation makes the broad legal amendments necessary to facilitate third-party funding, the finer details – such as the precise scope of the permitted arrangements and accompanying regulatory changes – will be dealt with by subsidiary legislation and regulations by the Minister of Law.
Interestingly, early reports of Ministers' comments on the legislation, indicate that the Amendments – currently limited to international arbitration and related proceedings – are very much a first step toward broader reform. Singapore's Senior Minister of State for Law, Ms Indranee Rajah, reportedly stated that "We want to have [third-party funding] tested in a limited sphere … If the framework works well, as and when appropriate, the prescribed categories of proceedings may be expanded". This will be of significant interest to funders and practitioners alike, as it clearly positions Singapore as a growth market.
The English court has refused a challenge under s68(2)(b) of the Arbitration Act 1996 (the Act) and held that a sole arbitrator did not exceed his powers in including the costs of third party funding within a costs award (Essar Oilfields Services Limited v Norscot Rig Management PVT Limited  EWHC 2361 (Comm)). The principle of recovering funding costs has caused significant controversy since it first came to light on 15 September 2016. The transcript of the judgment, and therefore the court's reasoning, was released on 30 September 2016.
This week has seen two major developments in Singapore arbitration. First, Singapore's Ministry of Law has published draft legislation to legalise and regulate third party funding for arbitration (and arbitration-related litigation and mediation) in Singapore. Second, the Singapore International Arbitration Centre (SIAC) confirmed the release of the sixth edition of its Rules: the SIAC Rules 2016, to come into effect on 1 August 2016.
Below we explain briefly the effect of the proposed legislation and the SIAC Rules 2016. More in-depth analysis will follow.
Herbert Smith Freehills Visiting Attorney Elizabeth Chan has published an article titled "Proposed Guidelines for the Disclosure of Third-Party Funding Arrangements in International Arbitration" in the American Review of International Arbitration. This article proposes a set of guidelines for the disclosure of third-party funding arrangements in international arbitration, covering the circumstances when an arbitral tribunal should order disclosure of a third-party funding arrangement and the scope of that disclosure.
To read the full article please click here.
This article is published in Volume 26, No. 2 of the American Review of International Arbitration 2015.
For further information, please contact Elizabeth Chan, Visiting Attorney or your usual Herbert Smith Freehills contact.
On 23 October 2014, the IBA Council passed a resolution adopting the anticipated revision to its “IBA Guidelines on Conflicts of Interests in International Arbitration” (2014 Guidelines), which have been widely used and referred to by practitioners and arbitrators in the decade since their adoption in 2004 (Original Guidelines). A copy of the 2014 Guidelines can be found by clicking here.
The 2014 Guidelines, published on 28 November, do not mark a substantial departure from the Original Guidelines, and instead make refined changes to reflect and inform current debates on issues in modern arbitral practice, and “the increased complexity in the analysis of disclosure and conflict of interest issues“. In clarifying the standards expected of arbitrators and parties, it is the aim of the 2014 Guidelines “that arbitration proceedings are not hindered by ill-founded challenges against arbitrators” or that “the legitimacy of the process [is] not affected by uncertainty and lack of uniformity“.
The 2014 Guidelines were drafted by the IBA Conflicts of Interest Subcommittee (IBA Subcommittee), which was made up of 27 leading arbitrators and arbitration practitioners, including Global Head of Herbert Smith Freehills International Arbitration Practice, Paula Hodges QC. The IBA Subcommittee consulted 150 arbitral practitioners by an online survey, as well as 19 arbitral institutions, and sought to reflect “diverse legal cultures and a range of perspectives, including counsel, arbitrators and arbitration users“.
Paula Hodges QC, Global Head of Herbert Smith Freehills’ International Arbitration Practice, says of the 2014 Guidelines that: “we hope that these new Guidelines will prove useful in providing more clarity and a level playing field to parties and arbitrators, striking the right balance between impartiality and due process on the one hand and unmeritorious challenges on the other”.
Christian Leathley, International Arbitration Partner in Herbert Smith Freehills’ London office, who is a member of the IBA Arbitration Committee, comments: “this is the product of a lot of work and in-depth consideration of the issues facing the sub-committee. It also drew on the practical experience of many arbitrators which helps ensure this is an instructive guide for all arbitration practitioners”.
Some of the key revisions are summarised as follows: