Recently, a client asked whether third-party funding was legal in Asia. Jana Karam helpfully compiled the following information, which shows that third-party funding is permissible in the vast majority of jurisdictions, but not in China or Singapore, where it is clearly not allowed. Below is a review of the current status of third-party funding in Asia.
1) Brunei:
Third-party funding is permitted in Brunei. In terms of other funding arrangements, attorneys may also make contingency fee arrangements to receive up to 30% of the damages recovered at the trial court level, or 40 % of the damages recovered after a successful appeal.
2) China:
Third-party funding is prohibited by Article 22 of the Regulations for the Administration of Lawyers’ Charges, which provides that legal service fees must be paid directly to the law firm of a given lawyer.
In terms of other funding mechanisms, China has considered authorizing legal expenses insurance. It has not adopted the “loser pays” rule for attorneys’ fees because it recently changed its system so that the court collects the court fees directly from a losing defendant instead of the defendant reimbursing the winning claimant.
3) Hong Kong:
Third-party funding is allowed in international arbitration in Hong Kong. Insolvency is a notable exception to the prohibition on third-party funding in litigation in that a liquidator or trustee is allowed to assign a chose-in-action to a litigation funder. Jurisprudence shows the relevance of third-party funding and costs in international arbitration, such as In Cannon way Consultants Ltd v. Ken worth Engineering Ltd, where the Court of Final Appeal ruled that the doctrine of champerty did not apply with respect to arbitration. In Siegfried Adalbert Unruh v. Hans-Joerg Seeberger and Another, the Court of Final Appeal ruled that maintenance and champerty prohibitions must be balanced against other public policy concerns. In Re Cyber works Audio Video Technology Ltd, the Court of the First Instance also allowed an assignment of a chose-in-action by a bankruptcy trustee pursuant to a litigation funding agreement. In a recent criminal case, Winnie Lo v. HKSAR, the Court of Final Appeal upheld maintenance and champerty as criminal offenses, but also indicated that there was room for reform of those doctrines with respect to litigation funding. In Chinachem Charitable Foundation Ltd v. Chan Chun Chuen And Another, the court ruled that a party could not recover costs incurred in connection with an agreement that violates public policy, including maintenance and champerty concerns.
In terms of other case-funding mechanisms, Hong Kong courts have discretion to order costs, including attorney fees, under the traditional “loser pays” rule, and the costs payable are called “taxation.”
4) Taiwan:
Third-party funding is not prohibited. In terms of costs, the “loser pays” rule applies to “litigation expenses” but not attorney fees, except in the Court of the Third Instance. Lawyers negotiate their fees directly with their clients to save time. Litigation expenses include court costs, evidentiary costs related to documents and witnesses, transcription, translation, and per diem fees and expenses for witnesses. Court charges are calculated according to a graduated formula based on the price or value of the claim, and the current version of Taiwan’s Code of Civil Procedure derives from the German Code of 1977 and adopts the same procedure.
5) India:
India does not recognize classic third-party funding agreements, but neither does India expressly prohibit them. Attorney contingency or success fee arrangements are illegal, however, so litigants must rely on third-party funding or another financial mechanism if they cannot pay for their case. India follows the loser pays rule, including attorneys’ fees. The claimant may be ordered to provide security for costs, and costs awards may be adjusted in reference to the conduct of the parties in litigating the case. Traditional insurance policies may cover litigation expenses, but separate litigation expenses insurance is uncommon.
6) Indonesia:
There is no text that prohibits third-party funding in Indonesia. However, there appears to be no specific information regarding the perspective and application of third-party funding in international arbitrations implicating Indonesian businesses. In terms of other funding mechanisms, Indonesia allows class actions in a fashion similar to the US model. It also allows contingency and conditional fees.
7) Japan:
There are no statutes or judicial opinions expressly authorizing or prohibiting third-party funding in Japan. The rule is that parties pay their own lawyers’ fees, but the loser may pay remaining costs. The exception is that the winning plaintiff may recover reasonable attorneys’ fees from the losing defendant in certain types of cases related to public interest and certain rights.
8) Korea:
Third party funding is not prohibited in Korea, however, it appears to be little used. Contingency fees are allowed in Korea and more common.
9) Malaysia:
Third-party funding is vulnerable to accusations of maintenance and champerty in Malaysia, particularly if the claimant is not the original title holder to the litigation, and it is unclear whether third-party funding can be used in other situations. Large commercial disputes are typically funded by the parties themselves. Attorneys may not enter into contingency fee or success fee arrangements in Malaysia.
10) New Zealand:
The New Zealand High Court has indicated that “non-party litigation funding” is acceptable. In terms of costs, New Zealand follows the traditional version of the “loser pays” rule (including attorney’s fees). The calculation of costs awarded is based on an “appropriate daily recovery rate” and awarded at the court’s discretion only if they are reasonable according to the court’s perspective.
11) Singapore:
Third-party funding is illegal in Singapore, even in international arbitration. However, in the recent landmark decision of 2015 re Vanguard Energy Pte Ltd, the Singapore High court confirmed that litigation funding may, in the context of insolvency and under the appropriate circumstances, be permitted in Singapore.
12) Vietnam:
Vietnam does not prohibit third-party funding. However, there is no clear text allowing it either. Also, there is no clear jurisprudence describing the perception of Vietnam on third-party funding agreements. Concerning cost awards, Vietnam does not follow the traditional “loser pays” rule, but the winner may be refunded court fees under certain circumstances. There is only exception: the winning party may recover lawyer fees from the losing party in an intellectual property dispute.
– Jana Karam