Matter note: third-party funding for a Hong Kong

The assets were real, the claim was well-founded, and the arbitration agreement pointed squarely at Hong Kong. The constraint was equally real: the claimant group had the right to bring the claim but not the treasury to fund a multi-stage international arbitration through to an enforceable award. That gap – between a meritorious claim and the liquidity to pursue it – is where third-party funding enters the picture. And in Hong Kong, the rules governing that entry are specific, reasonably mature, and directly relevant to how a funder evaluates a file.

Third-party funding for arbitration is expressly permitted in Hong Kong under the Arbitration Ordinance (Cap. 609), which was amended to create a regulated space for funding arrangements in arbitral proceedings seated in Hong Kong. The funded party, the funder, and the arbitration agreement all interact with a set of conduct requirements under that statute and the related code of practice for third-party funders, and the overall enforceability of the award depends on keeping that structure clean from the outset.

This matter note sets out the situation, the route chosen, the sequence of steps that resolved a central difficulty, and the lesson that transfers to similar cross-border funding mandates.

What was the situation, and why did the funding gap arise?

The claimant was an operating group incorporated through a mid-tier offshore centre, with a principal place of business in East Asia and contractual exposure to a counterparty registered in the Mainland. The underlying dispute was commercial – a failure of payment obligations under a long-form supply arrangement – and the sums at issue were material by any standard. The counterparty had assets in the Mainland and also, the claimant believed, in Hong Kong and in a second offshore centre.

The funding gap had a structural cause. The claimant group had recently restructured its holding layer. Internal cash was allocated to operational continuity rather than litigation. External bank lines were either fully drawn or conditionally restricted. The claimant had a strong case on the documents. It did not have the liquidity, on a standalone basis, to fund a full arbitration, any interim-measures applications, and a potential enforcement campaign across two or three jurisdictions simultaneously.

The arbitration agreement designated Hong Kong as the seat and the HKIAC as the administering institution. That made the Arbitration Ordinance (the primary Hong Kong statute governing arbitration, modelled on the UNCITRAL Model Law) the governing instrument for procedural questions – including the rules on permitted third-party funding. Choosing a different seat would have meant choosing a different funding regime. The parties had not done so.

What was the central legal issue the funding route had to resolve?

Third-party funding in Hong Kong arbitration operates within a defined perimeter. The Arbitration Ordinance sets out what is permitted; a statutory code of practice for third-party funders sets out how funders must conduct themselves. Two questions were immediately live for the claimant group and any funder it approached.

The first was disclosure. Hong Kong requires the funded party to disclose the existence of a third-party funding arrangement to the arbitral tribunal and to the other parties. That disclosure obligation is substantive, not ceremonial. Failure to disclose at the right point – and the right point is early, not retrospective – creates a procedural irregularity that a well-advised counterparty will exploit, whether in the arbitration or in any subsequent enforcement or setting-aside application.

The second was the champerty and maintenance (historically, the common-law prohibitions on strangers funding litigation for a share of the proceeds) question. Hong Kong law carved out third-party funding of arbitration from those prohibitions – but only within the statutory framework. A funding arrangement that sits outside the statutory perimeter, or that is structured as if it is something other than what it is, does not benefit from that carve-out. The arrangement therefore had to be built within the framework, not around it.

There was a cross-border dimension to the disclosure question. The counterparty's advisers were in the Mainland, and the counterparty itself was likely to argue that any departure from procedural regularity under the seat's rules should inform the enforcement picture in the courts of the Mainland. The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) and the existing Mainland–HK arbitral-award enforcement Arrangements both leave room for an enforcement court to examine procedural regularity. A clean procedural record in the Hong Kong arbitration was therefore not only a matter of internal conduct – it was an asset-side protection against an enforcement resistance argument later.

How was the route structured, and what was the turning point?

The route chosen was to engage a third-party funder formally, document the funding arrangement within the statutory framework, make disclosure at the earliest procedurally appropriate moment – before the first substantive submission – and then build the arbitration strategy with the enforcement endgame in view from day one.

Finding a funder who would engage with a cross-border Mainland-exposure dispute was not straightforward. Some funders in the market treat Mainland-asset recovery as a category too uncertain for their return models. The claimant group and its counsel focused on funders with an established Asia portfolio and a demonstrated willingness to fund through to post-award enforcement rather than solely to award.

The turning point in the funding negotiation – and this is the transferable lesson – was the asset analysis. A funder makes its decision on the basis of: the strength of the claim on the merits; the collectability of the award against the respondent's reachable assets; and the costs of getting to collection. The claimant's team produced a structured asset-side memorandum, separate from the merits brief, that identified the respondent's confirmed Hong Kong assets and the mechanisms available to reach them. Those mechanisms included registration of a Hong Kong-seated award with the Court of First Instance for enforcement within Hong Kong, and the use of the mutual-enforcement Arrangements for any Mainland-based asset recovery.

The interim-measures dimension was also modelled. Since 1 October 2019, a party to a Hong Kong-seated arbitration has been able to apply to the courts of the Mainland for interim measures – including asset-preservation orders – before or during arbitral proceedings. That mechanism, created by the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the HKSAR, is a material tool for a claimant facing a respondent who might dissipate assets ahead of an award. The funder was persuaded that the combination of the interim-measures Arrangement and the dual-track enforcement route – Hong Kong courts for Hong Kong assets, Mainland courts via the mutual-enforcement Arrangements for Mainland assets – created a credible recovery path.

Disclosure was made promptly and in precise terms. The arbitral tribunal noted the disclosure without adverse comment. The counterparty raised the funding arrangement as a procedural objection at a later stage; the tribunal rejected the objection, in part because the disclosure had been made at the first available opportunity and the arrangement was properly documented under the statutory framework.

What was the outcome, and what does it transfer to similar mandates?

The arbitration proceeded to an award in favour of the claimant. The award was rendered within the timeframe applicable under the HKIAC Administered Arbitration Rules (the 2024 Rules, effective 1 June 2024, applied to this matter). The enforcement position, at the time this note is written, remains active across the relevant jurisdictions; a matter note cannot and should not state a concluded recovery figure.

The qualitative outcome was this: a claimant that could not have funded the arbitration from internal resources alone obtained an enforceable award – and did so without any procedural irregularity that could serve as an enforcement-resistance argument for the respondent. The structure held because it was built with both the funding rules and the enforcement endgame in view simultaneously.

Several points transfer directly to similar cross-border mandates.

Disclosure is protective, not merely obligatory. Early, formal, on-the-record disclosure of a funding arrangement removes the most obvious weapon from a respondent's procedural armoury. Advisers who treat disclosure as a formality to be handled when it becomes unavoidable create unnecessary exposure.

The asset-side memorandum is a strategic document, not an administrative one. Funders evaluate collectability as rigorously as they evaluate merits. A claimant that cannot demonstrate a credible recovery path – from award to cash – will not attract funding on acceptable terms, regardless of the strength of the underlying claim. In our cross-border practice, we have seen well-meritorious claims fail to attract funding precisely because the asset analysis was thin or incomplete.

The interim-measures Arrangement changes the risk calculus for Mainland-exposure disputes. The ability to seek asset-preservation orders in Mainland courts before an award is issued is a significant tool. It is not automatic, not cost-free, and not available in every dispute configuration; but where it applies, it materially improves the enforceability picture and, by extension, the funder's willingness to commit.

Finally, the cross-border sequencing matters. Registration of a Hong Kong-seated award with the Court of First Instance for Hong Kong-side enforcement, and simultaneous pursuit of Mainland enforcement via the mutual-enforcement Arrangements, can be conducted in parallel under the rules currently in force. The Mainland–HK arbitral-award enforcement Arrangements (including the 2020 Supplemental Arrangement) permit simultaneous enforcement applications since the 2021 amendment. Coordinating those applications requires a single strategic read across both systems. Dividing the work between a Hong Kong-only team and a Mainland-only team without a unifying cross-border view is one of the more common structural errors we observe on enforcement files.

The sequence above describes the standard position in a well-run matter of this kind. Your own position turns on the specific arbitration agreement, the asset profile, the funder's requirements, and the procedural history to date. Those details determine where the route is won or lost.

If you are managing a similar cross-border funding question or an enforcement campaign following a Hong Kong-seated award, reach us at info@lockhartyip.com.

What foreign counsel most often misread about Hong Kong arbitration funding

Counsel qualified in civil-law systems frequently approach Hong Kong third-party funding as if the primary legal question were the validity of the funding agreement itself. In Hong Kong, the statutory framework resolves that question affirmatively for arbitration: a qualifying funding arrangement is valid and enforceable. The live question is not validity – it is conduct.

Specifically: whether the funder's conduct meets the code-of-practice requirements; whether disclosure was made at the right procedural moment; and whether the funding arrangement was structured so as to remain within the statutory perimeter rather than straddling it. These are procedural and conduct questions, not contract-validity questions. Counsel who have not worked within the Hong Kong framework often focus on the wrong issue and neglect the procedural record.

A second common misread is the relationship between the seat and the enforcement jurisdiction. The seat determines the procedural rules for the arbitration, including the funding rules. The enforcement jurisdiction determines what the award-creditor can actually do with the award. In Mainland-exposure disputes, those two systems – Hong Kong as seat, Mainland courts as enforcement forum – interact via a specific mutual-assistance architecture that is independent of the general international arbitration regime. Counsel who treat the New York Convention as the relevant framework for Mainland enforcement are working from the wrong instrument; PRC–Hong Kong arbitral-award enforcement runs via the Mainland–HK Arrangements, not via the Convention.

We regularly advise international groups and their in-house teams on both points before a matter is filed, because correcting the misread after the first procedural step is significantly more difficult.

For a preliminary read on your matter and the funding or enforcement route, email info@lockhartyip.com.

Related practices

Disputes & Arbitration – international arbitration, cross-border enforcement, and interim measures across Greater China and offshore centres
Holding Structures – offshore and Hong Kong holding entity design for cross-border groups with Greater China exposure

Frequently asked questions

Do I need a Hong Kong adviser for third-party funding for a Hong Kong arbitration?

Yes, and specifically one familiar with both the Arbitration Ordinance (Cap. 609) and the code of practice for third-party funders in Hong Kong. The funding arrangement must sit within Hong Kong's statutory framework for the carve-out from champerty and maintenance to apply, and disclosure obligations are governed by Hong Kong procedural law. An adviser who knows only the funder's home jurisdiction will miss the conduct and disclosure requirements that protect the award's enforceability. We advise on international and cross-border disputes, including third-party funding arrangements for Hong Kong-seated arbitrations, working alongside locally licensed Hong Kong firms on matters of Hong Kong law.

How long does third-party funding for a Hong Kong arbitration usually take?

There is no fixed timetable, because the funder's due-diligence process and the arbitral proceedings themselves vary with the complexity of the dispute. What the HKIAC Administered Arbitration Rules (2024 Rules, effective 1 June 2024) do set out are target periods for specific procedural stages: an emergency arbitrator proceeding is ordinarily completed within 14 days of file transmission, and an expedited procedure award should follow within six months of file transfer to the tribunal. The overall duration of a standard arbitration depends on the issues, the parties, and the case management directions of the tribunal. Funder due diligence typically runs in parallel with the early procedural stages; the funding agreement should be in place before the first substantive submission so that disclosure can be made at the right moment.

Which jurisdiction's law applies to third-party funding for a Hong Kong arbitration?

The law of the seat – Hong Kong – governs the procedural aspects of the funding arrangement, including the disclosure obligation and the conduct requirements for funders under the code of practice issued pursuant to the Arbitration Ordinance (Cap. 609). The funding agreement itself is a commercial contract and may designate its own governing law; in practice, most funders active in the Hong Kong market use Hong Kong law or English law for the funding agreement. Enforcement of the resulting award is governed by the law of the enforcement jurisdiction – which, for Mainland-asset recovery, means the relevant Mainland–HK Arrangements rather than the New York Convention. Parties should obtain advice specific to their situation before committing to any structure.

Speak with Lockhart & Yip

For a scoped view of your matter, contact info@lockhartyip.com. Discuss your matter →

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

Matter note: third-party funding for a Hong Kong arbitration