Lessons Learnt From Hong Kong: The Potential For Third Party Funding In Malaysia's International Arbitration Landscape

• Published date: 08 July 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Arbitration & Dispute Resolution
• Law Firm: SKRINE
• Author: Ms Anita Natalia and Arif Umar Faruq Bin Faiz

As we approach two and a half years since the enforcement of the Hong Kong Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017, this article reflects on the issue of third-party funding ('TPF') in international commercial arbitration. The ultimate aim of this article is to evaluate whether the international commercial arbitration framework of Malaysia, as a growing seat of arbitration in the region, is equipped to follow Hong Kong and recognise TPF as a legitimate source of funding for disputants in arbitration.

THIRD-PARTY FUNDING

The International Council for Commercial Arbitration ('ICCA') defines TPF as follows:

" . an agreement by an entity that is not a party to the dispute to provide a party an affiliate of that party or a law firm representing that party,

1. funds or other material support in order to finance a part or all of the cost of the proceedings, either individually or as part of a specific range of cases, and
2. such support or financing is either provided in exchange for remuneration or reimbursement that is wholly or partially dependent on the outcome of the dispute, or provided through a grant or in return for a premium payment."¹

The employment of such funding arrangements has grown significantly in the conduct of international commercial arbitration, particularly in major seats of arbitration including amongst others, England & Wales, Hong Kong, Singapore, and Australia. That said, the judiciary in many of these common law jurisdictions was not always so receptive to TPF in dispute resolution and thwarted such arrangements by creating the doctrines of maintenance and champerty. Lord Justice Steyn defines the said doctrines as follows: "In modern idiom maintenance is the support of litigation by a stranger without cause. Champerty is an aggravated form of maintenance. The distinguishing feature of champerty is the support of litigation by a stranger in return for a share of the proceed."² An overarching concern when it came to the scrutiny of TPF was the risk that such arrangements would give rise to abuses and thus would be contrary to public policy. Lord Denning summarised such a concern in stating: "The common law fears that the champertous maintainer might be tempted, for his own personal gain to inflame the damages, to suppress evidence, or even to suborn witnesses.³"

That said, the above stance and concerns with regards to TPF in dispute resolution and the doctrines of maintenance and champerty have in recent times been regarded as outdated in many common law jurisdictions. In Hong Kong, for example, the Court of Final Appeal in Unruh v Seeberger & Anor suggested a more nuanced and modern approach to the question of public policy in relation to TPF, which included, amongst other things, as follows:

"[100] In the first place, the traditional legal policies underlying maintenance and champerty continue to apply although they must substantially be qualified by other considerations. Thus the mischief to be discouraged by the law of maintenance is still 'officious intermeddling' in litigation. .

[102] Secondly, the fact that an arrangement may be caught by the broad definitions of maintenance or champerty is not in itself sufficient to found liability. The totality of the facts must be examined asking whether they pose a genuine risk to the integrity of the court's processes.

[103] Thirdly, countervailing public policies must be taken into account, especially policies in favour of ensuring access to justice and of recognising, where appropriate, legitimate common interests of a social or commercial character in a piece of litigation."⁴

From the above, it can be seen that the modern approach to the question of TPF and the bounds of the doctrines of maintenance and champerty is a more methodical one, in that other public policy concerns, such as the access to justice and common commercial interests, feature in the balancing exercise against the specific concern of the risk of third-party intermeddling.

In the context of international arbitration, the stance towards TPF and the doctrines of maintenance and champerty in Hong Kong also appears to have taken a more methodical approach, recognising the differences between court litigation and arbitration and the various considerations which feature in the latter. This is demonstrated by the Hong Kong High Court case of Cannonway Consultants Ltd v Kenworth Engineering Ltd, where Kaplan J held (citing Giles v Thompson) as follows:

"It is clear from the observations of both the Court of Appeal and the House of Lords in Giles v Thompson that in the light of the history of champerty it is not appropriate to extend the doctrine. If it were to apply in the present case, it would be extending champerty from the public justice system to the private consensual system which is arbitration. The trend in recent years has all been the other way The role of the courts in relation to arbitration has been substantially diminished since 1979 in England when provisions requiring leave to appeal an arbitral award were introduced. In Hong Kong, similar provisions were introduced in 19821 and by 1990 Hong Kong had in force the UNCITRAL Model Law which gives supremacy to the doctrine of full party autonomy and substantially curtails the powers of the court in relation to arbitration proceedings.

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It seems to me unwise to make any extension to the law of champerty given that the reasons for its introduction have long since passed.

Parties choose arbitration in order to keep out of the public justice system save where...