There has been a resurgence in calls for new rules that would implement mandatory disclosure of litigation funding agreements in US litigation, spurred on by arguments about the influence of…
The Complex State of Third-Party Funding in China
The latest Quarterly Focus from CDR looks at the topic of third-party funding in China, examining how the country’s legal system has continued to demonstrate an openness towards arbitration funding whilst taking a more cautious approach when it comes to litigation funding. The article gathers insights from legal professionals with experience in Chinese disputes, exploring how the country has created both opportunities and hurdles for funders looking to expand into this market.
The publication of the China International Economic and Trade Arbitration Commission (CIETAC) 2024 rules is highlighted as the latest development in China’s arbitration bodies explicitly addressing third-party funding, with the Beijing Arbitration Commission (BAC) and Shanghai Arbitration Commission (SHAC) having taken similar steps in recent years. Addressing how these developments in arbitration rules have evolved, Rachel Turner of Pinsent Masons explains that “China has a number of arbitration institutions that are relatively independent but follow each other quite closely.”
However, whilst commissions have created a structure for third-party funders to operate within, the details of these rules have raised some concerns for funders. Carolina Carlstedt from Litigation Capital Management (LCM) says that rules around disclosure of third-party funding are “rather broad” and could, depending on the interpretation, include a range of sensitive information around the funding arrangement. Carlstedt goes on to suggest that “this level of disclosure is likely to put off the international funders and may even end up detrimental to funded claimants as it would disclose the size of their war chest.”
When it comes to litigation, China’s courts have not shown the same openness that can be seen in the approach of the arbitration commissions, with a 2021 decision from the Shanghai Second Intermediate Court ruling that a funding arrangement was ‘invalid in domestic litigation proceedings.’ Omni Bridgeway’s Ruth Stackpool-Moore and Chee Chong Lau argue that this decision and the broader structural issues have made it “difficult for professional funders to consider the funding of domestic litigation in the PRC.”The full Quarterly Focus, which also analyses the state of third-party funding in Hong Kong and the future of the market in China, can be read here.