Update: third-party funding for a Hong Kong arbitration

Third-party funding for a Hong Kong arbitration is now governed by a statutory regime under the Arbitration Ordinance (Cap. 609), which codifies the permissibility of funding arrangements, imposes mandatory disclosure obligations, and sets conduct standards for funders – a combination that changes the compliance and structuring calculus for any claimant weighing external capital before filing.

The regime did not merely legitimise a practice that once sat in a legal grey zone. It created a defined corridor: funders must meet prescribed standards, disclosure must be made to the arbitral tribunal and to all other parties, and the arbitration agreement itself remains central to whether the funded claim has a realistic enforcement route at the end. For cross-border claimants – a Mainland group pursuing a BVI or Cayman counterpart, a CIS principal with assets in Hong Kong, a European fund with Greater China exposure – the funder's position is now as much a structural question as a financial one.

What changed and why it matters now

Before the statutory regime came into force, third-party funding for arbitration in Hong Kong operated against the background of the common law doctrines of maintenance and champerty (historic prohibitions on funding another's litigation for profit). The Arbitration Ordinance reform addressed this directly, carving out arbitration – and related court proceedings – from the scope of those prohibitions.

The practical consequence is significant. A funder investing in a Hong Kong-seated arbitration under the HKIAC Administered Arbitration Rules now operates within a disclosed, regulated relationship rather than an informal one. The tribunal knows. The counterparty knows. And the funding agreement is subject to scrutiny if a conflict or conduct issue arises during the proceedings.

What has sharpened in our cross-border practice is the interaction between funding and enforcement. A funder advancing capital against an expected award needs to model where that award will be enforced. Hong Kong's mutual-enforcement architecture – including the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645), in force since 29 January 2024, and the long-standing arbitral-award Arrangements with the Mainland – means that the asset jurisdiction is frequently the Mainland, and the sequence of enforcement steps matters as much as the size of the award.

Funders have begun asking for that enforcement map before committing. Claimants who cannot produce one are finding that the window for securing competitive funding terms is shorter than expected.

Who is affected across the corridor

The regime touches any party to a Hong Kong-seated arbitration that is considering, or has been approached to consider, external capital to pursue its claim. That population is broader than it first appears.

Mainland groups with cross-border commercial disputes – particularly those with assets distributed between the Mainland, Hong Kong and an offshore centre – are frequent candidates. A claim that would otherwise be uneconomic to pursue on a self-funded basis becomes viable when a funder absorbs the arbitration costs in exchange for a portion of the recovery. The same logic applies to European or Middle Eastern principals with assets in the Greater Bay Area, and to fund investors with distressed Greater China positions.

The disclosure obligation is the trigger point for many. Once a funding arrangement is in place, it must be disclosed. Parties who have entered informal arrangements without structured documentation, or who have not yet formalised the funder's conduct obligations, face a gap between the regime's requirements and their current position. Closing that gap before the first procedural hearing is the immediate priority.

We regularly advise on matters where the funding question is raised mid-stream – after the arbitration has commenced but before the tribunal has been constituted or the first procedural order issued. That timing is workable but not comfortable. Earlier is better.

The immediate action

Three steps warrant attention now.

First, if external funding is under consideration, the funding agreement should be reviewed against the conduct and disclosure standards set out in the Arbitration Ordinance and any applicable code of practice before the arbitration is filed or the first notice of arbitration is served. The terms of the agreement – particularly the funder's termination rights and the treatment of adverse cost awards – have direct procedural consequences.

Second, the enforcement map should be built before the funding terms are finalised. Where do the counterparty's assets sit? Is the primary enforcement jurisdiction the Mainland, Hong Kong itself, an offshore centre, or a combination? The answer determines whether the award will travel under the arbitral-award Arrangements, under Cap. 645, or under a third-country recognition regime. Funders are pricing this risk; claimants should understand it on the same terms.

Third, disclosure mechanics should be agreed with counsel before the first communication with the tribunal. The Arbitration Ordinance does not leave timing to discretion; the obligation attaches from the moment a funding agreement is concluded. A structured disclosure approach avoids the procedural disruption of a late or contested disclosure.

The sequence described above connects directly to the broader disputes and arbitration position in Hong Kong. For context on how Hong Kong-seated arbitrations interface with Mainland enforcement, see our Disputes & Arbitration practice overview, our analysis of shareholder and joint venture disputes through a Cayman holding structure, and our note on Cyprus-partner joint venture disputes for the European corridor.

Your current position – whether you are a claimant in early structuring, a funder conducting pre-commitment diligence, or an in-house team reviewing an existing funding arrangement – determines which of these steps is most urgent. For a structured read on the funding, disclosure and enforcement position in your matter, write to us at info@lockhartyip.com.

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.