News
News //
Submitted by // K Bowers, Partner / Solicitor Advocate
20 July 2017


Greenlight for Third Party Funding for ADR in Hong Kong…Finally! 

Note: This is an update to our March 2017 Dispute Resolution Alert. Please see the Alert for more information.

Introduction


The Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill ("Bill") was passed by the Legislative Council on 14 June 2017. Long-awaited by third party funders and other members of the arbitration and mediation sectors, the passing of the Bill means that it will soon be legal for third parties to fund arbitration and mediation proceedings in Hong Kong.

Changes to the Bill

The final version of the Bill contains two changes compared to its previous version, first introduced in December 2016. Firstly, lawyers are now permitted to fund proceedings as third parties. Secondly, there are now more situations where confidential information can be disclosed in mediation proceedings.

Lawyers as third party funders to arbitration & mediation proceedings

The most notable update to the Bill is that lawyers are now permitted to fund arbitration and mediation proceedings as third parties. In the previous version of the Bill, lawyers were restricted from funding third party proceedings due to concerns about conflicts of interests and other professional conduct issues. Under the final version of the Bill, lawyers and law firms are now permitted to do so. However, it is not permitted for lawyers or law firms to fund proceedings if they are acting for any of the parties in the proceedings.

Permitting disclosure of mediation proceedings to seek funding

The second change to the Bill is that there are now more situations in which information can be disclosed for the purpose of seeking third party funding in mediation proceedings. Under s. 8 of the Mediation Ordinance ("MO"), "Mediation Communications" (as defined under the MO1) are confidential and cannot be disclosed except in circumstances provided for by the MO. The Bill introduces an exception to this rule by allowing a party to mediation to disclose Mediation Communications for the purpose of finding third party funding. In the previous version of the Bill, a party must have agreed to mediation before Mediation Communication could be disclosed. The final version of the Bill will allow any person to disclose Mediation Communication for the purpose of finding third party funding, even before having agreed to mediate.

The updated Bill also allows for the disclosure of Mediation Communication for the purpose of obtaining professional advice in connection with third party funding. In addition, it also allows a funded party, or a third party funder, to disclose Mediation Communication in legal proceedings arising out of the third party funding of mediation. However, leave of the relevant court or tribunal must be obtained before the disclosure.

Implementation

Code of Practice for Third Party Funding of Arbitration and Mediation Proceedings

Under the Bill, a Code of Practice will be issued by an authorised body for the purpose of regulating the activity of third party funders in Hong Kong. Whilst an authorised body has not yet been appointed, s. 98Q of the Bill provides a number of suggested practices and standards, which includes rules relating to:-

• the content of promotional materials;
• minimum capital requirements for third party funders;
• conflicts of interests, and
• the content of third party funding agreements, including:-

o the degree of control of third party funders;
o liability of third party funders, and
o the withholding or termination of funding.

The Code of Practice will not be legally binding, but should be admissible as evidence in court or in arbitral proceedings. It should also be taken into account by the court or an arbitration tribunal if it is relevant to a question being decided in these proceedings.

No timeline for implementing the Bill

Whilst the Bill has been passed by the Legislative Council, the operative sections are not yet in force. There is currently no specific timetable for the commencement of the operative sections, particularly in view of the fact that both the advisory body and the authorised body will first need to be appointed. Further, the authorised body will need to draft and publish the Code of Conduct before the commencement of the operative sections.

Comment

The legalisation of third party funding is expected to bring a number of changes to arbitration and mediation proceedings in Hong Kong. In particular, third party funding should help to promote arbitration as a cost-effective method of resolving disputes and lower the barrier to entry for parties seeking to arbitrate. Further, it should give companies greater flexibility in managing their risks by allowing them to offload the cost of arbitration to third party funders.

Overall, the relaxation of the rules against third party funding puts Hong Kong more in line with other major arbitration centres, and should help to enhance Hong Kong's position as a major centre for international arbitration.

Meanwhile, it remains to be seen how effective the new third party funding regime will be in terms of mediation in Hong Kong. The jury is still out on whether the introduction of the Bill will have any material impact upon the volume and frequency of mediation in Hong Kong, which is a voluntary dispute resolution process with mediators applying a facilitative model to achieve financial and other non-financial settlements - something not necessarily in tune with the commercial objectives of potential third party funders.

As the Bill is not yet in operation, parties concerned should keep a close eye on the upcoming details about the implementation of the Bill, such as the date of commencement of the operative sections. Third party funders should pay particular attention to the Code of Practice which will be issued by the authorised body, and for upcoming details of any compliance obligations.

Defined in s. 2 of the Mediation Ordinance as "anything said or done, any document prepared, or any information provided for the purpose of or in the course of mediation, but does not include an agreement to mediate or a mediated settlement agreement."

 

About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; banking; financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.

› read more
› minimize
News //
Submitted by // K Bowers, Partner / Solicitor Advocate
20 July 2017


GET THE EXPERTS IN … QUICKLY!

Missed opportunity to investigate the cause of water seepage

Crystal Bright Holdings Ltd v Allen Industries Ltd - [2017] HKCU 1398

This case concerned a water seepage incident. The Plaintiff was the registered owner of the 3rd floor ("Property") of a building (''Building''), and the Defendant was the registered owner of Flat 4A of the Building ("Flat 4A").

Background

The Plaintiff alleged that water seepage from Flat 4A into the ceiling of the Property on the floor below started during about September 2014 (''Water Seepage''). The area adjacent to the light well of the Property was affected (''Affected Area''), and Flat 4A's toilet was immediately above the Affected Area. 


The two main issues in the case were:-

1. whether Flat 4A was the source of the Water Seepage; and

2. the amount of damages, if the Defendant was found liable.

Source of the Water Seepage

The expert witnesses disagreed about the source of the Water Seepage. The Plaintiff's expert (''P's Expert'') carried out three tests, and thought that the Water Seepage was caused by the leaked waste water pipes and defective waterproof flooring in the toilet of Flat 4A. On the other hand, the Defendant's expert (''D's Expert'') argued that because the dilapidated wall surfaces of the light well had become weak points, which had allowed water to seep inside the Property, this was the "most possible" source of the Water Seepage.

The Court also observed the following two peculiarities:-

(1) neither expert had visited the property of the other side to carry out an inspection; and

(2) both expert witnesses had carried out their surveys at different times.

On issue (1), the Court found that a water seepage survey done without entering the property of the other side was ''undesirable'' and that it would take this into consideration when assessing each side's expert evidence before deciding which version was more probable.

On issue (2), D's expert carried out his survey about 8 months after P's Expert conducted her survey. D's Expert conducted his survey 7 months after the Plaintiff had finished the repair works to the ceiling and walls of the Affected Area, and the Defendant's tenant had also converted the toilet in Flat 4A into storage space in the area immediately above the Affected Area. The Court held that ''…owing to the lapse of time and the aforesaid change of circumstances, D's expert missed the opportunity to carry out tests in Flat 4A to ascertain the source of water seepage'' since D's Expert could only rely upon a visual inspection to finish his survey.

The Court also held that even D's Expert's so-called "most possible" cause of the Water Seepage (through the light well) had never been put to the test, and that consequently, his opinion lacked credibility. Almost none of the tests done or data collected by P's Expert was challenged by D's Expert. The Defendant's main challenge to the Plaintiff based on "no water usage" in Flat 4A was no longer valid after the tenant moved in during September 2014. The Court was therefore of the view that on the whole, the evidence of P's Expert prevailed over that of D's Expert, and found the Defendant liable for the Water Seepage.

Damages - Repair Costs

The Defendant's main challenge to the Plaintiff's claim for repair costs was that there was no evidence of actual payment. Seeing as there was no evidence to contradict the evidence of the Plaintiff's witnesses and its disclosed documents on this issue, the Court was satisfied that the Plaintiff had overcome its burden of proof that (on the balance of probabilities) it had incurred the repair costs. The Court also found the repair costs of HK$121,914 to be reasonable, and that the Defendant was liable to repay this amount to the Plaintiff.

Damages - Loss of enjoyment of the property

The Plaintiff also claimed for loss of enjoyment of the Property. The parties could not agree on whether it was a claim for general or special damages. The Court stated that ''…It is trite law that general damages are usually concerned with non-pecuniary losses like …inconvenience and discomfort in water seepage cases''. Although the Plaintiff used the Property as a warehouse, and its goods (which were previously placed in the Affected Area) were relocated for fear of water damage to the goods, it did not claim that it had incurred additional storage costs due to the relocation exercise.

The Court ruled in favour of the Plaintiff, and held that such a claim for loss of enjoyment should be classified as general damages ''...for the inconvenience it suffered when being deprived from using the Affected Area''. However, in circumstances where there was no evidence of the quantity or volume of goods relocated or the inconvenience caused by the relocation exercise, and where the period of the Water Seepage was no more than 3 months, the Court ruled that the claim was in the least serious category, and awarded a sum of HK$10,000 under this head of loss and damage (far less than the Plaintiff's claim for HK$80,000).

Comment

This case demonstrates that experts engaged to ascertain the cause of water seepage (or any damage to property) should carry out tests as expeditiously as possible to avoid missing the opportunity to do so before any material changes. They should also be given the opportunity of inspecting all of the properties concerned. Furthermore, general damages may also be claimed for inconvenience and discomfort in water seepage cases.

 

About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; banking; financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

› read more
› minimize
News //
Submitted by // K Bowers, Partner; M Withington, Partner
20 July 2017


Insurance Authority Opening for Business

Background

On 26 June 2017, the Office of the Commissioner of Insurance ("OCI") ceased operations to make way for the new Insurance Authority ("IA"). The primary functions of the IA are to regulate and supervise the insurance industry in Hong Kong, to promote the general stability of the insurance market, and to protect policy holders (for further details please visit "Hong Kong's Insurance Regulatory Reform Closer to Completion" published during May 2017 and ILO newsletters during May 2014 and June 2015).

The IA is empowered by the Insurance Ordinance (Cap. 41) ("Ordinance") to:

• supervise compliance of authorized insurer’s and licensed insurance intermediary’s with the provisions of the Ordinance;

• consider and propose law reforms in relation to insurance businesses;

• promote and encourage the adoption of proper standards of conduct and sound and prudent business practices by authorized insurers and by licensed insurance intermediaries;

• review and propose reforms for regulating authorized insurers and licensed insurance intermediaries;

• regulate the conduct of insurance intermediaries through a licensing regime;

• promote the understanding of insurance products and the insurance industry to policy holders and potential policy holders;

• formulate effective regulatory strategies, facilitating sustainable market development and promoting the competitiveness in the global insurance market;

• conduct studies on matters affecting the insurance industry;

• assist the Financial Secretary in maintaining the financial stability of Hong Kong; and

• co-operate with Hong Kong's financial services supervisory authorities.

Dr. Moses Cheng, Chairman of the IA expressed his "…heartfelt gratitude to the Government and the OCI for their guidance and contribution in facilitating a smooth transition from the current regulatory regime to a new regulatory regime with an independent Insurance Authority…"

Dr. Cheng added that "[t]he IA strives to facilitate the sustainable development of the insurance industry and to better protect policy holders with a more holistic and effective regulatory system…" There are various initiatives in the pipeline, such as the development of a Risk-Based Capital regime and a Policy Holders' Protection Scheme
[1] .

To create additional protection for policy holders, the IA will within 2 years take over the direct regulation and supervisory function from the three existing self-regulatory organisations
[2] ("SROs") through a statutory licensing regime. Dr. Cheng explained that "[t]o tie in with the launch of the statutory licensing regime for insurance intermediaries, the IA will also set out conduct requirements and professional standards for practitioners by issuing codes and guidelines." The licensing requirement is estimated to cover roughly 100,000 insurance sales personnel in Hong Kong. The IA will work with the insurance industry before licensing applications begin.

The IA also encouraged insurance companies to develop financial technology. Dr. Cheng said "we are very keen on promoting fintech in the insurance industry. We are not taking a leading role but we plan to help the industry to use technology to enhance their services and better manage risks."

Comment

A newly launched IA website (www.ia.org.hk) acts as an insurance information gateway for insurers and stakeholders. It includes information (as well as videos) on the IA's statutory functions and initiatives.

Guidelines previously issued by the OCI have migrated to the new platform. Insurers authorised to carry out general business should pay close attention to the new prescribed form
[3] . We expect that new codes and guidelines, which set out the conduct and training requirement, and professional standards will follow shortly. Insurers and stakeholders should closely monitor the IA's updates, so that they can make the necessary preparations to respond to IA's requirements and statutory powers.


_____________________________________________________________________________
[1] The protection scheme would compensate policy holders if their insurance company collapses.
[2] The three SROs are the Insurance Agents Registration Board, the Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association.
[3] https://www.ia.org.hk/en/legislative_framework/circulars/reg_matters/files/letter_to_all_GI_insurers_june_2017_r3.pdf


About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; intellectual property; banking; financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.


› read more
› minimize
Publications //
Submitted by // K Bowers, Partner/Solicitor Advocate; M Withington, Partner
05 July 2017

 

ILO Hong Kong and China insurance regulatory bodies team up

Click here to see the International Law Office Article

› read more
› minimize