Briefing

Funding options in Hong Kong-seated arbitrations

Background

While arbitration is widely considered to be more time and cost-effective than litigation, the costs involved in arbitration can still be significant and, in common law jurisdictions, the parties to a dispute need to consider the potential legal fees and outlays that they will incur, the costs (if any) that they may recover from the counter-party and the risk of adverse costs being awarded against them.

Financial considerations and cash flow issues can, therefore, discourage parties from pursuing a meritorious claim (or defence), unless they have access to funding from an alternative source, such as a third-party funder who has no connection to the claim, or their lawyer is willing, and legally permitted, to share the financial risks.

Historically, Hong Kong did not permit disputes to be funded by third-parties or via alternative arrangements due to the prohibition on champerty and maintenance:

Maintenance was prohibited to ensure that an “outsider” to the litigation, someone who has no legal interest in the outcome, could not meddle in the case by, for example, providing funding to one party.
Champerty is a specific form of maintenance in which the outsider provides funding to one of the parties in exchange for a share of their winnings (the proceeds of the litigation). In recent years, Hong Kong has relaxed its approach to champerty and maintenance in the arbitration context.

While many jurisdictions allow third party funding in arbitration (and more widely), and the arbitral rules adopted in some jurisdictions share certain features, the approach is not uniform. When negotiating a dispute resolution clause in a contract, it is therefore important to understand the funding options in the proposed seat of arbitration. When a dispute arises, it is also prudent to check whether funding rules have changed since the arbitration agreement was entered into.

Third-party funding in Hong Kong-seated arbitrations

The Arbitration Ordinance (Cap. 609) (Ordinance) and Code of Practice for Third Party Funding of Arbitration (Code) govern Hong Kong’s third-party funding regime (together, the TPF Regime).

On 1 February 2019, amendments to the Ordinance came into effect which disapplied the common law prohibition against champerty and maintenance in Hong Kong-seated arbitration, including related court proceedings; proceedings before an emergency arbitrator; and mediation proceedings. The TPF Regime extends to arbitrations seated outside Hong Kong where costs are incurred in Hong Kong (e.g. locally prepared and translated evidence).

The Code: The Code which accompanies the Ordinance regulates the way in which funders conduct themselves, seeking to protect funded parties, address the imbalance of bargaining power and prevent the mischief that led to the prohibition against champerty and maintenance (e.g. confidentiality, the risk of privilege inadvertently being waived, conflict of interest between the funder and the funded party and, as noted above, control of the arbitral proceedings).

The funding: The TPF Regime is set out in Part 10A of the Ordinance and allows a third-party funder to provide funding to a party to an arbitration (Funded Party) in order to pay for “any costs” of the arbitration. Third-party funding can be provided before the arbitration has commenced and can include the fees and expenses of the arbitral institution. The TPF Regime does not limit the sums charged by funders in exchange for providing funding. The Hong Kong legislature left this open to the parties to agree, respecting their contractual autonomy.

The funder: A funder cannot have a legal interest in an arbitration so the law firms, lawyers and barristers who act in the matter are not permitted to provide funding to the parties.

Arbitration funding agreements: Under Hong Kong’s TPF Regime, an arbitration funding agreement must be in writing and the Code requires the funder to take “reasonable steps” to ensure that the funded party is aware that they have the right to take independent legal advice before entering into the agreement. The Code also requires the parties to set out in the funding agreement that the funded party will retain control of the arbitral proceedings and the funder will not seek to influence matters.

Return on the funder’s investment: If the funded party is successful in the arbitration, the funder is permitted to receive a “financial benefit” in return for providing the funding. There is no further guidance on what, exactly, that financial benefit can or ought to be. This gives the parties to the funding agreement contractual autonomy to agree terms which suit the circumstances, making Hong Kong’s TPF Regime flexible and adaptable. For example, the parties could agree that the funder will be paid in cryptocurrency.

Disclosure: The funded party is required by Hong Kong law to disclose the existence of the funding agreement to the arbitration body and to the other parties to the arbitration. The Ordinance also requires the funded party to disclose the funder’s identity and, if the funding agreement terminates prior to the conclusion of the arbitration, the fact that the agreement has come to an end. Other jurisdictions which permit third party funding in arbitration do not require such disclosure and, given the tactical implications of disclosing that funding has been secured (or withdrawn), this aspect of Hong Kong’s TPF Regime is noteworthy.

Hong Kong’s ‘outcome-related fee structures’ regime

An outcome-related fee structures (ORFS) is an agreement between a lawyer and their client under which the lawyer agrees to fund the costs of the dispute in exchange for a share of the sums awarded to the client by the arbitral panel. Hong Kong’s ORFS Regime is set out in Part 10B of the Ordinance and accompanying rules: the Arbitration (Outcome Related Fee Structures for Arbitration) Rules (Cap. 609D) (ORFS Rules). Hong Kong’s ORFS Regime has been operational since December 2022 and, like the TPF Regime, disapplies the prohibition against champerty and maintenance in limited circumstances.

Under Hong Kong law, an ORFS can be a:

conditional fee agreement (i.e. the lawyer is paid a fee for their work on the arbitration in the event that the client is successful);
damages-based agreement (e.g. the lawyer is paid a percentage of any sums paid to the client by the opposing party); or
hybrid damages-based agreement (i.e. the lawyer is paid fees for the work carried out on the arbitration as the matter progresses (which can be a discounted fee rate) plus a damages-based fee).

The ORFS Regime, which operates in a similar fashion to the TPF Regime, permits ORFS for arbitration matters if the fee structure meets certain general conditions set out in the Ordinance (for example, ORFS are not permitted where the client is seeking damages for personal injuries) and the further conditions and safeguards set out in the ORFS Rules (e.g. the ORFS agreement must be in writing and the lawyer must inform the client of their right to seek independent legal advice on its terms).

The ORFS Rules go on to deal in more detail with how conditional fees, damages-based fees and hybrid damage-based fees should be structured and/or calculated, placing limits on uplifts and percentages etc.

As with Hong Kong’s TPF Regime, the funded party must disclose the existence of the ORFS to the other parties to the dispute and to the arbitral institution.

Other options: After-the-event insurance

In addition to the legal fees and disbursements which will be incurred during the life of an arbitration, and which are the focus of third-party funding and ORFS, a party to an arbitration should also be mindful of the risk that the arbitral panel could order them to pay costs to the opposing party (Adverse Costs). Adverse Costs can be significant. Generally speaking, “costs follow success” in common law jurisdictions and a judge or tribunal will therefore award the costs of the entire case (less any awards made along the way) to the winning side.

After-the-event insurance (ATE Insurance) is an insurance policy purchased after a legal dispute arises to cover some or all of the insured party’s legal fees and disbursements and the Adverse Costs awarded to the opposing party. ATE Insurance does not involve champerty or maintenance and Hong Kong does not have special rules to regulate the ATE Insurance market (i.e. with safeguards like those seen in the TPF Regime and ORFS Regime). However, ATE Insurance is regulated, like any other insurance product on offer in Hong Kong, including the usual protections for consumers.

Third-party funding provides a ‘war chest’: liquid funds which are available to pay for the costs of pursuing (or defending) a claim – everything from legal fees, legal expenses (e.g. expert fees), arbitral institution fees, and arbitrator fees. By contrast, ATE Insurance serves a distinct, and more limited, purpose given that it tends to be restricted to the insured’s legal costs and Adverse Costs (albeit some policies can be more generous).

Third-party funding and ATE Insurance are often used together to comprehensively protect the funded party from the financial risks inherent in pursuing (or defending) a claim (as distinct to the risk of being ordered to pay damages etc to the opponent). Indeed, some funders require the funded party to obtain ATE Insurance as a condition of the arbitration funding being provided. Other funders include ATE Insurance in their funding package – with the funded party paying the insurance premium but benefitting from the funder’s buying power when negotiating premium costs.

Market reaction in Hong Kong

When compared to certain other common law jurisdictions, Hong Kong was relatively slow to permit third-party funding in arbitration: By 2018, the ICCA-Queen Mary Task Force on Third-party Funding in International Arbitration (a global survey) reported that 39% of the arbitration practitioners surveyed had encountered third-party funding in their work.

Given the widespread use of arbitration funding in other jurisdictions and, in particular, the use of arbitration funding in jurisdictions with equivalent international finance centres (e.g. London, New York, Singapore) and the lessons learned there, one might expect arbitration funding to be quickly adopted in Hong Kong after the TPF Regime and ORFS Regime were introduced in the late 2010’s and early 2020’s.

Certainly, the introduction of an arbitration funding regime in Hong Kong was eagerly awaited by the arbitration industry. However, data indicates low uptake of arbitration funding in Hong Kong. The Hong Kong International Arbitration Centre (HKIAC) reports that in 2025, one third-party funding agreement was disclosed in relation to an arbitration commenced under the 2024 HKIAC Administered Arbitration Rules and seven ORFS agreements were disclosed.

To put this in context, the HKIAC administered 281 new cases in 2025 and, globally, the litigation finance market grew from USD$18.2 billion in 2022 to USD$27.92 billion in 2025. Given the figures discussed above, Hong Kong appears to buck global trends.

It is difficult to assess the use of ATE insurance in Hong Kong-seated arbitrations because there is no reporting obligation. In our experience, this product is also underused in Hong Kong, despite changes in the global insurance market which have made ATE Insurance more widely available and more affordable than was historically the case. It may be that the price point remains an issue. Local attitudes could also play a part. Anecdotally, it appears that if ATE Insurance cover is secured for a Hong Kong-seated arbitration, it is generally provided by insurers outside Hong Kong.

Our expectation is that, as Hong Kong nears the 10th anniversary of the introduction of the TPF Regime in 2032, we will start to see an increased use of alternative funding, as familiarity and confidence with these options grow.