Laws should be rewritten to allow third-party funding for arbitration in Hong Kong under a Law Reform Commission recommendation, although the same financing arrangement for litigations have remained illegal. The new proposal could “bring clear benefits” to those interested in arbitration and “enhance Hong Kong’s competitive position as an international arbitration centre,” according to the commission’s Third Party Funding for Arbitration Subcommittee, which launched a consultation today. “The sub-committee members are unanimously of the view that the current law in Hong Kong needs to be reformed to expressly permit third party funding for arbitration, subject to compliance by third party funders with appropriate ethical and financial standards,” it stated in a press release. READ MORE: Law Reform Commission urges charity register for more transparency “The Arbitration Ordinance should be amended to expressly provide that third party funding for arbitration taking place in the HKSAR is permitted under Hong Kong law,” it said. Third party funding refers to a contractual agreement between a third party, the funder, and a claimant seeking to pursue legal action. The arrangements are usually motivated by a lack of financial resources but may also be used to mitigate costs and manage the risk of litigation or arbitration. The contract commonly provides that the funder will pay for the costs of the action in return for a percentage of the award should the action succeed. READ MORE: Law Reform Commission calls for change to squatters policy The subcommittee noted that the current offences of champerty and maintenance — which prohibit third party funding of litigation — continue to apply. However, it added that “it is unclear whether the operation of the doctrines of maintenance and champerty in Hong Kong also applies to third party funding for arbitrations taking place” in Hong Kong. The subcommittee left open the question as to whether the ethical and financial measures to regulate third party funding for arbitrations taking place in Hong Kong should be effected by statute or by self-regulation such as by third party funders agreeing to comply with a code of conduct. Hong Kong should develop its own model of regulation to suit its culture and needs, which will be informed by the experience and approach of other relevant jurisdictions, it said.