Consultation on the Proposed Code of Practice for Third Party Funding in Mediation

Consultation on the Proposed Code of Practice for Third Party Funding in Mediation

Consultation on the Proposed Code of Practice for Third Party Funding in Mediation 1400 935 Charing

On 16 August 2021, the Department of Justice launched a two month public consultation to seek comments on the draft Code of Practice for Third Party Funding of Mediation (the “Code”).

The Code proposes several practices and standards that third party mediation funders are ordinarily expected to comply with in carrying on activities in connection with third party funding of mediation in Hong Kong.  A failure to comply with a provision of the Code does not, of itself, render any person liable to any judicial or other proceedings.  A failure to comply with the Code may however be considered by any court or arbitral tribunal if it is relevant to a question being decided by that court or arbitral tribunal.

Summarised below are some of the main standards and practices identified in the Code.

Category Description
Funding Agreement

The third party funder must:-

  • take reasonable steps to ensure that the funded party is made aware of the right to seek independent legal advice on the funding agreement;
  • take reasonable steps to ensure the funded party is advised of the possibility of applying for legal aid;
  • provide an address of service in Hong Kong and mode of services;
  • ensure the funding agreement sets out clearly the key features, risks and terms of the funding arrangement and all matters as may be required under Part 10A of Cap. 609;
  • set out the name and contact details of the advisory body responsible for monitoring the operation of third party funding.
Capital Adequacy Requirements

The third party funder must:-

  • ensure it maintains the capacity to pay all debts when they become due and payable; and capacity to cover all its aggregated funding liabilities for a minimum period of 36 months;
  • maintain access to a minimum of HK$20 million of capital;
  • provide an audit opinion on the third party funder’s most recent annual financial statements or reasonable evidence from qualified third party (e.g. bank) that the third party funder satisfies the minimum capital requirement; and
  • accept continuous disclosure obligation under each funding agreement in respect of its capital adequacy.
Conflicts of Interest

The third party funder must:-

  • maintain effective procedure for managing and disclosing any conflict of interest supported with written procedures which must be reviewed at intervals no greater than 12 months;
  • not take steps that may cause the funded party’s legal representative to act in breach of its professional duties.
Confidentiality and Legal Professional Privilege The third party funder will observe the confidentiality and privilege requirement of all information and documentation relating to the mediation.
Control

The funding agreement must set out clearly:-

  • that the third party funder will not seek to influence the funded party or the funded party’s legal representative to give control or conduct of the mediation to the third party funder except as permitted by law;
  • that the third party funder will not take any steps that will likely cause the funded party’s legal representative to act in breach of professional duties; and
  • the third party funder will not seek to influence the mediator.
Liability for Costs The funding agreement must state whether (and the extent) that the third party funder is liable to the funded party to meet any liability for adverse costs, pay any premium to obtain costs insurance, security for costs and other financial liability.
Grounds for Termination

The funding agreement must state whether the third party funder may terminate the funding agreement in the event that the third party funder:-

  • reasonably ceases to be satisfied about the merits of conducting the mediation;
  • reasonably believes that there has been a material adverse change of prospects to the funded party being able to reach any agreement with the counterparty to the mediation; or
  • reasonably believes that the funded party has committed a material breach of the funding agreement.

The funding agreement must not confer a discretionary power to the third party funder to terminating the funding agreement in absence of circumstances described above.

Complaints Procedure The third party funder must maintain effective procedure for addressing complaints against them.

The consultation period will end on 15 October 2021.  We await to see whether any significant amendments will be made to the draft Code.  Contact us if you would like to find out more about the Code, mediation, or third-party mediation funding.

Back to top
Privacy Preferences

When you visit our website, it may store information through your browser from specific services, usually in the form of cookies. Here you can change your Privacy preferences. It is worth noting that blocking some types of cookies may impact your experience on our website and the services we are able to offer.

Click to enable/disable Google Analytics tracking code.
Click to enable/disable Google Fonts.
Click to enable/disable Google Maps.
Click to enable/disable video embeds.
Our website uses cookies, mainly from 3rd party services. Define your Privacy Preferences and/or agree to our use of cookies.