A study on the effectiveness of third party funding for construction-related arbitration in Hong Kong

Abstract

Traditionally, a third party was prohibited from funding an unconnected party’s arbitration in most jurisdictions with a common law system, as such arrangements are contrary to the legal doctrines of maintenance and champerty. Since the enactment of the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (Amendment Ordinance) in 2019, Third Party Funding for arbitrations and mediations were allowed in Hong Kong. Relevant amendments on the Arbitration Ordinance and Code of Practices were published. However, it is found that the number of arbitration cases using Third Party Funding remained low since the ordinance came into practice. Besides, there is no relevant research or studies that specifically analyze Third Party Funding for construction arbitration in Hong Kong. Therefore, this study aims at bridging the gap between the Amendment Ordinance and construction arbitration in Hong Kong. Moreover, four objectives were set up for this study: 1. To review the legal reform on TPF in the Arbitration practices in Hong Kong. 2. To find out whether third-party funding for construction arbitration can increase the use of arbitration in construction disputes from the views of construction and legal professionals. 3. To evaluate the effectiveness of TPF for construction-related arbitration in Hong Kong. 4. To point out the limitations of the current practice to improve the provisions of TPF for construction-related arbitration in Hong Kong. To achieve the aforementioned objectives, 3 hypotheses were formulated as followed: Hypothesis I: The Amendment Ordinance is effective in achieving its aims and purposes Hypothesis II: TPF for Arbitration can Promote Justice to Parties with less Financial Capability Hypothesis III: TPF is Suitable to construction arbitration in Hong Kong Furthermore, the evaluation and validation of the 3 hypotheses are tested with a mix of quantitative and qualitative research. For quantitative research, online questionnaires were sent to legal and construction professionals who specialized in construction arbitration. For qualitative research, a comprehensive literature review was done to summarize and compare the practice and development of Third Party Funding for arbitration from other jurisdictions. Meanwhile, online interviews were conducted with two focus groups, namely, Construction Practitioners including Main Contractors and Sub-contractors, and Legal Professionals including arbitrators, solicitors, and lawyers. In addition, the collected data was analyzed critically based on the types of data. To illustrate, the quantitative data were analyzed with statistical analysis including reliability test, measures of central tendency, and the effectiveness index. For qualitative data, the coding system was adopted to categorize the insights and comments from seasoned professionals. After the questionnaire and interview analysis, the hypotheses were then tested accordingly. Hypothesis I was supported, while hypothesis II and hypothesis III were not supported. The study also further discussed other factors regarding the low popularity of Third Party Funding for arbitrations and possible improvements of Third Party Funding for construction arbitration in Hong Kong. It is believed that this study can provide useful insights into the effectiveness and suitability of the Amendment Ordinance regarding construction arbitration in Hong Kong. The study also acts as the first step for professional institutions to revise and improve the Amendment Ordinance to further promote and boost the popularity of Third Party Funding for construction arbitration in Hong Kong.