Where third-party funding for a Hong Kong arbitration stands now

A substantial arbitration claim is an asset. For an Asian group sitting on a credible award or a well-founded claim against a Mainland counterparty, the litigation cost is often the only barrier between the principal and the recovery. That is the commercial question third-party funding answers – and it is no longer a fringe arrangement in Hong Kong. Since the statutory regime came into force, funders, counsel and claimants have been working through what the rules actually require and, critically, where the risk sits when the award is finally in hand and the enforcement route begins.

Third-party funding for a Hong Kong arbitration is expressly permitted under the Arbitration Ordinance (Cap. 609) for arbitration and related proceedings; the regime requires a written funding agreement, disclosure of the funder's identity and interest to the tribunal and to the other parties, and compliance with a code of practice that sets standards for the conduct of funders. The permitted scope includes arbitral proceedings, related court proceedings, and mediations arising from or connected with those arbitrations.

This analysis covers the commercial position, the governing instrument, the cross-border enforcement interface, the comparative read across Hong Kong and the Mainland, and where – in our view – the real risk concentrates for claimants using funding in the Greater China corridor.

What is actually at stake commercially?

Third-party funding changes the cost structure of an arbitration. A claimant with a strong claim but a constrained balance sheet can run a full arbitration without funding the legal costs from its own resources. A funder provides the capital – covering counsel fees, arbitral institution fees and, in some structures, adverse-cost exposure – in exchange for a share of the recovery or a multiple of the funded amount.

For cross-border disputes in the Greater China corridor, this matters acutely. Mainland counterparties are frequently better-resourced and more willing to run a protracted defence. Offshore holding entities on the claimant side may carry limited cash at any given moment, even where the underlying claim is substantial. A funding arrangement levels that asymmetry.

The commercial calculus runs deeper than cost. Funders conduct their own due diligence on the merits, on the enforceability of any likely award, and on the accessibility of the respondent's assets. A funder's willingness to commit is itself a form of independent assessment of the claim's prospects. In our cross-border practice, we see principals treat that assessment as a useful discipline – it forces an early and honest evaluation of the enforcement endgame, not just the merits before the tribunal.

What is the commercial risk if the funding market will not engage? A claimant who cannot attract funding may face a choice between running a claim at an unacceptable cost or accepting a settlement at a discount. That discount is the counterfactual cost of an inaccessible funding market. The existence of a functioning, regulated market in Hong Kong means that discount is now negotiated, not simply absorbed.

The governing instrument: what the Arbitration Ordinance regime actually requires

The Arbitration Ordinance (Cap. 609), as amended to introduce the third-party funding provisions, provides the primary statutory basis. The ordinance adopts a permissive model: funding of arbitration and related proceedings is not maintenance or champerty under Hong Kong law, and a funding agreement is not unenforceable on that ground alone.

Three operative requirements define the regime. First, the funding agreement must be in writing. Second, the funded party is required to disclose the existence of the funding agreement and the identity of the funder to the arbitral tribunal and to every other party to the arbitration as soon as practicable after the agreement is made. Third, funders must comply with the code of practice issued under the ordinance by the authorised body (the code) – a set of conduct standards covering capital adequacy, conflicts of interest, funder conduct during proceedings, and termination rights.

The code of practice is the operational core of the regime. It sets minimum capital requirements for funders – a funder must maintain either a minimum level of assets under management or a minimum level of capital. The capital adequacy standard is designed to ensure funders can honour their commitment through a long arbitration. Specific figures are set out in the code; parties should verify the current position before relying on published summaries.

The HKIAC Administered Arbitration Rules, in their 2024 edition effective 1 June 2024, address third-party funding expressly. A party is required to disclose the existence of a funding arrangement and the funder's identity at the time of filing or promptly thereafter. The tribunal may take the existence of a funder into account when dealing with costs and security-for-costs applications. That interaction – between the funder and the tribunal's procedural discretions – is one of the least understood pressure points in funded proceedings.

What does that mean in practice? The respondent, upon learning of a funder, may apply for security for costs on the basis that the claimant is an impecunious vehicle. The tribunal has discretion. It will look at whether the funder is bound to meet an adverse costs order, and whether the funding agreement contains a termination clause that would allow the funder to walk away before costs are determined. Poorly drafted funding agreements have created leverage for respondents at exactly the wrong moment – after the merits hearing, before the award. This is where structural complexity concentrates.

How does the cross-border interface bite?

A Hong Kong-seated arbitration under the HKIAC rules produces an award that sits inside the New York Convention (the Convention on the Recognition and Enforcement of Foreign Arbitral Awards) for enforcement in most jurisdictions outside the Mainland. For enforcement on the Mainland itself, the applicable regime is the separate Arrangement between Mainland China and the HKSAR on the mutual enforcement of arbitral awards – the Mainland–HK Arrangement – rather than the Convention, because Hong Kong is part of the PRC.

The distinction is not merely technical. It governs the procedural route, the grounds of challenge, and the courts in which enforcement proceedings are commenced. An award creditor seeking to enforce a Hong Kong award against assets on the Mainland applies to the relevant people's court; the Convention does not apply. An award creditor seeking to enforce the same award in a Convention state – say, in the United Kingdom, Cyprus, or the UAE – uses the Convention route, applying to the courts of that state.

Where does third-party funding fit into this picture? Funders price the recovery. Enforcement across multiple jurisdictions is expensive, uncertain as to timing, and subject to the respondent's ability to dissipate or reorganise assets. A funder financing a Mainland-counterparty dispute will want confidence on two questions: first, whether the award will be recognised on the Mainland without significant challenge; and second, whether assets are located in a jurisdiction where enforcement is straightforward under the Convention or another reciprocal regime.

Since 29 January 2024, the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) has been in force, extending mutual recognition to a wider category of civil and commercial judgments between the Mainland and Hong Kong. While that instrument applies primarily to court judgments rather than arbitral awards, its existence signals a deepening of the mutual enforcement infrastructure. For funded arbitration, the practical consequence is that a funder's asset analysis now includes not only the arbitral enforcement route but the wider question of whether any associated court proceedings – for interim measures, enforcement of the award, or ancillary orders – can be recognised across the boundary.

The interim-measures Arrangement, which has been in effect since 1 October 2019, is a further piece of the infrastructure. A party to a Hong Kong-seated HKIAC arbitration may apply to a Mainland people's court for interim measures – including asset-freezing orders – before or during the arbitration. For a funded claimant, this is a significant option. An interim measure obtained early can preserve assets that would otherwise be dissipated before an award is rendered. Funders who understand this route are better positioned to assess the enforceability risk they are taking on.

The comparative read: Hong Kong against the regional alternatives

Singapore is the obvious comparison. Both centres have adopted statutory regimes for third-party funding in arbitration. Both use similar permissive models. The substantive differences are at the margins – in the precise scope of permitted funding, the detail of the code of practice, and the institutional rules. The strategic difference is in the enforcement corridor.

For Mainland-counterparty disputes, Hong Kong has a direct institutional relationship with the Mainland courts – the Arrangement for interim measures, the arbitral-award enforcement regime, and the Cap. 645 judgments mechanism. Singapore has no equivalent bilateral arrangement with the Mainland. A funder financing a dispute where the primary asset pool is on the Mainland will find Hong Kong the stronger seat from an enforcement-access perspective.

For disputes where assets sit primarily in Southeast Asia, the Gulf, or Europe, the difference narrows. The New York Convention applies equally to both seats, and neither has a structural enforcement advantage in those corridors.

What about London? English arbitration under LCIA or ICC rules remains a common choice for European and CIS-origin transactions, and the English legal system has a sophisticated third-party funding market. The difference for a Greater China-connected dispute is enforcement. A London award enforced on the Mainland runs through the Convention; there is no bilateral arrangement. In practice, enforcement of foreign arbitral awards on the Mainland has historically been more consistent when the seat is Hong Kong, given the institutional relationship and the domestic recognition of the Arrangement.

Our desk sees this pattern regularly. An international group with Mainland operations and a European principal often considers London as the default seat because their European counsel is familiar with it. When the analysis turns to the enforcement endgame – where the assets actually sit, how quickly interim measures can be obtained, and which enforcement route is most direct – Hong Kong emerges as the stronger choice for the Greater China corridor.

Where the risk sits now: our read on the current position

Counsel on our desk regularly work through funded matters from inception through enforcement, and the risk concentration has shifted since the regime settled. Three pressure points dominate.

The first is the interaction between the funding agreement and the tribunal's costs discretion. A funder with a broad termination right and no contractual exposure to adverse costs creates a security-for-costs argument for the respondent. Tribunals constituted under the HKIAC rules have discretion to order security where the funded claimant is a shell or a vehicle with no independent assets. A well-drafted funding agreement addresses this directly – either by the funder undertaking to meet adverse costs up to a stated cap, or by the agreement expressly limiting the funder's termination right in a way that closes the security-for-costs window. Agreements that do not address this are structurally weak.

The second pressure point is disclosure timing. The ordinance and the HKIAC rules both require disclosure as soon as practicable. Late disclosure – particularly where the funding arrangement is put in place after proceedings commence – creates a procedural complication that respondents use to question the claimant's good faith. It does not invalidate the award, but it adds procedural friction at a moment when the claimant's position should be clean.

The third is the funder's asset analysis at the enforcement stage. A funder who has not modelled the enforcement route at the time of funding will face a difficult conversation when the award is issued and the asset picture has changed. The Mainland counterparty may have reorganised, moved assets, or commenced insolvency proceedings. The claimant's funded costs have been expended. The funder may then face a choice between funding the enforcement proceedings – which were not necessarily scoped in the original agreement – or allowing the award to sit unenforceable. This structural mismatch between the funded scope and the enforcement requirement is, in our view, the most significant risk in funded Greater China arbitrations.

A micro-scenario illustrates the point. A European manufacturing group funded a HKIAC arbitration against a Mainland supplier in late 2024 – a substantial claim arising from a long-term supply contract. The funder's analysis at inception was strong on merits and asset access. By the time the award was rendered, the counterparty had restructured its holding entities offshore. The award creditor needed to run parallel enforcement proceedings – one in Hong Kong, one on the Mainland via the Arrangement. The funding agreement did not extend to enforcement. The group had to fund enforcement from its own resources, at a point when the commercial rationale for the original funding structure had partially unravelled. The lesson: enforcement scope in the funding agreement is not an optional clause.

A second scenario. An Asian technology group with a BVI holding entity and a Hong Kong-seated arbitration clause in its principal contract sought funding in mid-2025. The funder's due diligence identified that the respondent's accessible assets were primarily in a Convention state. The enforcement route was direct and well-tested. The funder committed on the basis that interim measures under the 1 October 2019 Arrangement would be sought against the respondent's Mainland assets at the same time as the Convention enforcement commenced in the foreign jurisdiction. The parallel approach was the central structural feature of the funding arrangement, not an afterthought.

The objection handlers: what is misunderstood about the Hong Kong regime

There is a persistent view among foreign principals that third-party funding compromises the claimant's control over the arbitration. The concern is that the funder, with a financial stake, will push for settlement at a point that suits its return timeline rather than the claimant's commercial interest.

The code of practice addresses this directly. It prohibits funders from controlling or directing the arbitration, from taking decisions on settlement without the funded party's consent, and from terminating funding arbitrarily at a point designed to prejudice the funded party. The claimant retains strategic control. The funder has information rights and, in most agreements, consultation rights. That is not the same as control.

The second misunderstanding is that disclosure of the funder's identity weakens the claimant's position by telling the respondent that the claimant could not finance the arbitration independently. In practice, disclosure is now routine under both the ordinance and the HKIAC rules. Respondents and tribunals treat it as a standard procedural fact. The stigma attached to funded claims has largely dissipated as the regime has matured and as sophisticated respondents have themselves explored funding on counterclaims.

The third misunderstanding is jurisdictional. Foreign counsel sometimes advise principals that funding agreements entered into offshore – under English law, or under the law of a civil-law jurisdiction – are not subject to the Hong Kong disclosure requirements. That analysis is incorrect where the arbitration is seated in Hong Kong. The disclosure obligation runs from the seat; the governing law of the funding agreement is a separate question. A principal who enters a funding arrangement governed by English law for a Hong Kong-seated arbitration remains subject to the Hong Kong disclosure rules.

The enforcement endgame: from award to asset

The award is the beginning of the enforcement analysis, not the end. For funded claimants in the Greater China corridor, the enforcement endgame determines whether the funding arrangement delivered its intended value.

Hong Kong courts are the primary enforcement forum for a Hong Kong-seated award. Registration of the award with the Court of First Instance is available under the Arbitration Ordinance; the award then becomes enforceable as a judgment of the court. That order can be served on financial institutions holding the counterparty's assets in Hong Kong. For assets on the Mainland, the Arrangement provides the route – an application to the relevant people's court, subject to the established grounds of challenge.

Where assets sit in a third jurisdiction, the New York Convention applies. The award creditor applies to the courts of that jurisdiction. For a Cyprus-holding structure – a common configuration for European and CIS groups with Mainland operations – the route runs from the Hong Kong-seated award through the Convention to the Cypriot courts. For more on the mechanics of that specific route, see our briefing on enforcing a Hong Kong arbitral award in Cyprus.

For a structured analysis of the New York Convention enforcement route through Hong Kong more broadly, our guide to the Convention route through Hong Kong covers the procedural sequence and the grounds of challenge in detail.

The decision matrix for a funded claimant at the enforcement stage runs as follows. Where the primary asset pool is on the Mainland, the Arrangement is the route; interim measures sought under the 2019 Arrangement should have been obtained before the award if possible. Where the primary assets sit in a Convention state, the Convention route applies; the funded scope should cover the enforcement proceedings in that state, not only the arbitration. Where assets are in multiple jurisdictions simultaneously, parallel proceedings – coordinated from Hong Kong as the hub – are the standard response. That coordination, in our view, is where independent international counsel adds most to a funded claimant's position.

The sequence above describes the standard position. Your matter turns on the specific funding agreement, the jurisdictions where assets actually sit, and the order of enforcement steps – and that sequence is where the recovery is won or lost.

For a structured assessment of your funding position and the enforcement route across the relevant jurisdictions, write to us at info@lockhartyip.com.

Where this is heading: the direction of travel

The Hong Kong funding regime is not static. The code of practice is subject to periodic review, and the authorised body has the power to amend it. Since the regime settled, attention in the market has moved to two questions: whether the permitted scope should extend to litigation funding in the courts (as distinct from arbitration funding), and whether the disclosure obligations should be refined to address funded counterclaims and third-party respondents.

On the first question, the current position is that third-party funding of court litigation in Hong Kong remains subject to the common-law rules on maintenance and champerty, save for specific statutory carve-outs. Arbitration funding operates in a separate statutory space. That distinction creates a structural anomaly: a claimant can use a funder to run a Hong Kong-seated arbitration but cannot straightforwardly use a funder to run a parallel enforcement application in the Court of First Instance if that application is treated as free-standing litigation rather than as proceedings arising from or connected with the arbitration. In practice, the connection to the arbitration is almost always present, and tribunals and courts have treated enforcement proceedings as within the permitted scope. But the boundary is not crisp, and a funded claimant should take a clear view before funding enforcement through the courts.

On the second question – disclosure in counterclaim and multi-party situations – the HKIAC 2024 rules have moved toward greater transparency. The trend is toward broader and earlier disclosure, not toward narrowing it. Funders who operate on the assumption that counterclaim funding is invisible to the tribunal are running a structural risk that the market has not yet fully priced.

The wider direction of travel across the Asia-Pacific region is toward greater regulation, not less. Singapore, Australia and Hong Kong have all moved from permissive common-law positions to statutory regimes in the past decade. The next phase, in our read, is likely to involve more detailed conduct standards for funders, more explicit tribunal power over funder conduct, and possibly a registration or authorisation requirement for funders operating in the region. Principals and funders who build their arrangements to the current minimum standard may find that those arrangements require revision as the regulatory perimeter tightens.

If an earlier funding arrangement, enforcement attempt, or security-for-costs application has produced an adverse or stalled result, a second read of the position can identify the structural issue and the routes still available.

To discuss how the third-party funding regime applies to your cross-border arbitration position, contact info@lockhartyip.com.

Related practices

• Disputes & Arbitration – cross-border arbitration, enforcement, and award recognition across Greater China and offshore centres
• Holding Structures – structuring of BVI, Cayman and Hong Kong vehicles to support enforcement and asset-protection objectives

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• Disputes Arbitration
• Enforcing Hong Kong Arbitral Award Cyprus Cyprus Briefing
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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.