The International Experience on and a Relative Analysis of the Regulation over Third Party Funding of Dispute Resolution

Abstract

Considering the potential adverse effects on litigation and arbitration caused by Third Party Funding, some countries and regions have tried to regulate it. England and Wales has adopted a self-regulation approach, which has two loopholes. The first one is the over-favoring of the interest of the Third Party Funding industry. Consequently, some critical issues such as information disclosure are not fully addressed by the ALF Code. The second one is that the binding effect of ALF Code is limited to ALF’s member companies. The court-directed regulatory approach adopted by Australia effectively resolves the problems caused by Third Party Litigation Funding. However, the problems caused by Third Party Arbitration Funding, such as arbitrators’ conflict of interest, remain to be unsolved. The limited but targeted regulation” newly developed by Singapore tries to achieve a delicate balance between cautiousness and flexibility. At the outset, Third-Party Funding will only be permitted for international arbitration proceedings, which reflects the cautious aspect of the approach. The flexible aspect of the approach embodies in the multiple tiers of legislation. The Civil Law（Amendment）Act clarifies that the common law tort of maintenance and champerty is abolished in Singapore. Meanwhile, the specific regulatory measures are authorized by the Act to subsidiary legislation of the Ministry of Law, who can adjust its regulatory measures corresponding to the temporary features and problems of the Third Party Funding industry. The light touch” approach adopted by Hong Kong resembles but exceeds the self-regulation of England and Wales in three ways. Firstly, the new Arbitration Ordinance drafts a framework for the code of practice, taking into account the protection of the interest of the funded party and the achievement of access to justice. Secondly, the new Arbitration Ordinance encourages the funder to comply with the code of practice by clarifying the liability for breach of the code. Thirdly, the funded party is obliged to disclose relevant information in the arbitration proceeding. Bearing in mind the contribution of Third Party Funding to the achievement of access to justice and to the improvement of regional governance by law, it is necessary to promote the use of Third Party Funding in mainland China. Theoretically, there is no legal constraint to the development of Third Party Funding in mainland China, although there are some doubts to its legality. In practice, both typical and derivative Third Party Funding has been employed in mainland China. However, neither the legislation nor the judicial practice has responded to the potential adverse effects caused by third party litigation funding and third party arbitration funding, leaving their development without any regulation. Mainland China should legalize the use of Third Party Funding to international arbitration right now. Third Party Funding to domestic arbitration or litigation may be legalized in future, depending on its performance in the international arbitration sphere.