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Updates to Hong Kong Arbitration Ordinance: third party funding and arbitration over IP rights

On Wednesday, 14 June 2017, two sets of amendments to Hong Kong’s arbitration law were passed to clarify that:

  • third party funding of arbitration, mediation and related proceedings is permitted under Hong Kong law, and
  • disputes over intellectual property rights (“IPRs“) can be resolved through confidential arbitration and that it is not contrary to the public policy of Hong Kong to enforce arbitral awards involving IPRs.

The relevant bills were the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 (“Third Party Funding Bill“) and the Arbitration (Amendment) Bill 2016 (“IPR Arbitration Bill“).

Third party funding

The Third Party Funding Bill amends the Arbitration Ordinance and the Mediation Ordinance to make clear that third party funding of arbitration, mediation and related proceedings is permitted under Hong Kong law.

It is now clear that the centuries-old doctrines of maintenance and champerty, which still prohibit third party funding for litigation, do not apply to funding of arbitration and mediation.

The Third Party Funding Bill also provides measures and safeguards aimed at preserving integrity if third party funding is used, including providing for a code of practice for funders (which is still to be developed after completion of a consultation process, which is already underway).

The amendments are expected come into effect later this year, to allow time for the code of practice to be drawn up.

The Third Party Funding Bill closely follows the recommendations made by the Law Reform Commission in the Report on Third Party Funding for Arbitration dated 12 October 2016, save for an amendment that allows third party funding by lawyers and law firms so long as they do not act for any party in the relevant proceedings. (See our earlier note setting out the key points of the Bill here.)

The availability of third party funding is a welcome development for arbitrations seated in Hong Kong, bringing it in line with international developments.  It will allow greater access to justice and provide another option for companies to manage financial risk.

Arbitration of disputes involving IPRs

The IPR Arbitration Bill amends the Arbitration Ordinance to clarify that disputes involving IPRs can be resolved through arbitration under Hong Kong law and that it is not contrary to the public policy of Hong Kong to enforce arbitral awards involving IPRs.

The changes are expected to come into effect on 1 January 2018, following a period of around six months to allow practitioners and others concerned to prepare for commencement of the relevant amendments after yesterday’s passage of the Bill.

The current arbitration law is silent as to the subject matters of disputes that are capable of resolution by arbitration and a clear statement concerning the arbitrability of disputes involving IPRs has been lacking.

Under the IPR Arbitration Bill, arbitration proceedings over IPRs will remain confidential and any awards will only have inter partes effect.  Legal rights of third parties not a party to the arbitration proceedings will not be affected and there will be no requirement for disclosure to or recordal of arbitral awards involving IPRs with the respective Registries of the Hong Kong Intellectual Property Department. In fact, none of the IP related legislation has been amended to make such awards a recordable instrument or event affecting rights in or under a registered IPR / an application for registration.

While expressly providing for arbitration of disputes involving IPRs is a positive step for Hong Kong as an international centre for arbitration, arbitration of disputes involving IPRs is a complex area.  Parties considering arbitration of disputes involving IPRs should seek legal advice about the implications of agreeing to arbitrate, particularly in a cross-border context.