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

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.

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.

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.

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.

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.