In December 2016, upon the recommendation of the Law Reform Commission, the Chief Executive has tabled two bills in the legislative Council for reading: the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 and the Arbitration (Amendment) Bill 2016. Reform on third party funding is therefore back in spotlight after long years of stalemate. For the first time since the implementation of the British common law in Hong Kong, third party funding has been suggested to be statutorily decriminalized, with the first step landed in the area of mediation and arbitration proceedings. 

Reasons for Reform

• Third party funding for dispute resolution proceedings has become increasingly common in many common and civil law jurisdictions, including U.K., U.S., Australia and certain European countries. Opening up the same in Hong Kong would bring the city in par with international legal standards.
   
• Common law has been unclear as to whether the banning on maintenance and champerty extends to third party funding for arbitrations: See Unruh v Seeberger and Cannonway Consultants Limited v Kenworth Engineering Limited. The reform helps clarify the case law.
   
• Increasing the competitiveness of Hong Kong as an international arbitration and mediation centre. Hong Kong has been competing with Singapore in this particular field, and Singapore has been leading ahead according to an international survey in 2015, ranking third just after London and Paris. Relaxation as to the laws on maintenance and champerty would certainly attract more arbitration applicants who did not have the means to try their cases in Hong Kong with the assistance of funding bodies. It would also encourage parties to settle their cases by way of mediation.
   
• Limited effect on the legal system. One traditional explanation on the banning of maintenance and champerty is the fear of opening the floodgates for litigation. By limiting the reform to mediation and arbitration, the government can monitor closely whether the reform is appropriate to be introduced to other areas of dispute resolution someday.
   
• Reduced workload for the judiciary. An increase in demand for arbitration and mediation may in turn reduce the need for parties to deal with their disputes by way of litigation, hence saving the judiciary's time and costs.

Contents of the two Bills

• Third party funding for arbitration and mediation taking place in Hong Kong would be legalized under Hong Kong law. Lawyers are allowed to represent parties in arbitration proceedings and mediation funded by third party funders without suffering civil or criminal liability under the traditional common law doctrines. Lawyers are however prohibited from acting as third party funders themselves.
   
• Non-Hong Kong arbitration proceedings and mediation are subject to benefits of the Bills provided that the funding of costs and expenses of services are provided in Hong Kong.
   
• An independent advisory or authorized body would be nominated by the Secretary for Justice to regulate the implementation of the reform. The body shall issue a Code of Practice setting out practices and standards for third party funders to follow when they carry on activities in connection with third party funding for arbitration. The body may also amend or revoke the Code of Practice. The Code would cover regulations over funding agreements, grounds for termination of third party funding, capital adequacy requirements (a minimum of HK$20 million of capital), complaint procedure and enforcement etc.
   
• Failure to comply with the Code would not incur legal liability. However, the Code would be admissible as evidence in court or arbitration proceedings and failure to comply with the same would be taken into account by the court or arbitration tribunal when making a relevant decision.