Litigation Funding and Alternative Fee Arrangements in Hong Kong (2026): a Practical Guide for Businesses and Fraud Victims

Last updated: 2 October 2026

Litigation funding Hong Kong has moved from a niche financing tool to a mainstream strategic option for businesses and fraud victims facing substantial, cross-border claims in 2026. Rising dispute volumes, increasingly complex jurisdictional questions and a growing wave of sophisticated fraud mean that claimants are actively weighing how to pay for litigation and arbitration without absorbing all the downside risk themselves. Third-party funding, success-based pricing and other alternative fee arrangements now sit at the centre of that conversation. This practitioner-led guide explains how funding works in Hong Kong, what commercial terms to expect, how the courts treat funded claims, and the practical steps a claimant or in-house team should take before signing anything.

Intro and key takeaways

For many commercial claimants, the central problem is not the strength of the claim but the cost and risk of pursuing it to judgment and enforcement. Funding and alternative fee arrangements address that problem by shifting some or all of the financial exposure to a funder or by restructuring how legal fees are charged. The 2026 environment, marked by more cross-border fraud, asset dissipation and multi-jurisdictional enforcement, has sharpened demand for these tools.

At the same time, Hong Kong retains important restrictions rooted in the doctrines of maintenance and champerty. Third-party funding is expressly permitted for arbitration and related court proceedings (following reforms to the Arbitration Ordinance that commenced in 2019) and has long been recognised in certain insolvency and liquidation contexts, but it remains restricted for ordinary civil litigation. Understanding where the lines fall is essential before committing to any arrangement.

• Non-recourse is the norm. Third-party funders typically provide non-recourse capital, if the claim fails, the claimant owes nothing to the funder.
• Returns are substantial. Funders generally recover their outlay plus a multiple of capital deployed or a percentage of the recovery, paid from proceeds via a defined waterfall.
• Control must be protected. Well-drafted agreements preserve the claimant’s authority over settlement and the conduct of the proceedings.
• The permitted scope varies by context. Third-party funding is expressly permitted for arbitration and is recognised in certain insolvency situations, but the champerty and maintenance doctrines continue to constrain funding of ordinary court litigation.
• Contingency fees for lawyers remain tightly regulated. Pure contingency fees are restricted in Hong Kong court litigation, though a range of alternative fee arrangements is available, and outcome related fee structures for arbitration have been introduced.
• Courts scrutinise funded claims. Champerty and maintenance considerations and security for costs applications are the main areas of judicial attention.
• Preparation pays. Early evidence preservation, costs budgeting and a clean funder information pack materially improve both funding terms and litigation outcomes.

What is third-party litigation funding and how it works in Hong Kong

Third-party funding (TPF) is an arrangement under which a party unconnected to the dispute, the funder, pays some or all of a claimant’s legal costs in return for an agreed share of any recovery. If the claim is unsuccessful, the funder ordinarily receives nothing and bears the loss of its investment. This non-recourse feature is what distinguishes genuine litigation finance from a loan.

In Hong Kong, the permitted use of third-party funding depends on the type of proceeding. Following amendments to the Arbitration Ordinance (Cap. 609), third-party funding of arbitration and associated court proceedings is expressly permitted, subject to a Code of Practice issued under that framework. In addition, the courts have long recognised that funding is permissible in certain insolvency and liquidation contexts, where office-holders may fund recoveries for the benefit of creditors. Funding of ordinary civil litigation, by contrast, remains subject to the doctrines of maintenance and champerty and is treated more cautiously. Specific advice should always be taken on whether funding is available for a particular dispute.

Where permitted, funding is used across a range of matters: large commercial and arbitral disputes, insolvency and liquidation claims, and, increasingly, fraud recovery and asset-tracing proceedings. Fraud claims are a natural fit because they are often high value, factually complex, and require significant upfront spend on investigation, injunctive relief and cross-border enforcement before any recovery is realised.

Funding is typically structured in one of two ways. Single-case funding finances one specific claim, with the funder’s return tied to the outcome of that matter. Portfolio funding finances a basket of claims across a business or a law firm, spreading the funder’s risk across several matters and often producing more favourable pricing because losses on one claim can be offset against wins on others. Insolvency practitioners and corporates with multiple recoverable claims frequently find portfolio structures attractive.

Before committing capital, a funder conducts rigorous due diligence. It will assess the legal merits of the claim, the quantum and realistic recovery, the defendant’s ability to pay, the enforceability of any judgment or award (often in multiple jurisdictions), the likely costs exposure including any adverse costs, and the claimant’s own conduct and credibility. The economics only work for a funder if the expected recovery comfortably exceeds the combined cost of funding plus the required return.

Types of funders in the litigation funding Hong Kong market

The funders active in and around Hong Kong fall into several categories. Understanding who you are dealing with affects pricing, speed and flexibility.

• Institutional litigation funders. Dedicated finance houses that specialise in dispute funding, often with large committed capital and established underwriting processes.
• Hedge funds and alternative asset managers. Investors treating litigation as an uncorrelated asset class, sometimes financing larger or portfolio matters.
• Boutique and regional funders. Smaller operators that may offer greater flexibility on terms or focus on particular claim types, including fraud recovery.
• Specialist insolvency financiers. Funders focused on claims arising in liquidation and administration, where office-holders need capital to pursue recoveries for creditors.

Typical funding workflow and milestones

The path from first contact to deployed capital follows a recognisable sequence. A well-prepared claimant can move through it more quickly than one presenting an incomplete picture.

1. Initial approach and information pack. The claimant presents the claim, key documents and a budget estimate.
2. Preliminary review and term sheet. The funder issues an indicative, non-binding term sheet setting out headline economics.
3. Due diligence. Detailed merits, quantum, enforceability and costs analysis, frequently supported by independent counsel opinion.
4. Funding agreement. Negotiation and execution of the definitive agreement, including the budget, waterfall and control provisions.
5. Drawdown and monitoring. Capital is released against milestones, with ongoing reporting to the funder throughout the case.

Contingency fees, conditional fees and alternative fee arrangements, what is permitted in Hong Kong?

Alongside external funding, claimants and in-house teams frequently ask what pricing flexibility their own lawyers can offer. Here the position in Hong Kong is more restrictive than in some other common law jurisdictions, and it is important to separate what is permitted from what is not.

Pure contingency fees, where a solicitor’s remuneration is calculated as a percentage of the sum recovered in contentious litigation, have historically been constrained by the doctrines of maintenance and champerty and by professional conduct rules. Claimants should not assume that a lawyer can simply agree to take a slice of the proceeds in exchange for running court litigation. In the arbitration context, however, a framework for outcome related fee structures for arbitration (ORFSA), including conditional fee agreements, damages-based agreements and hybrid arrangements, has been introduced under the Arbitration Ordinance regime. The regulatory framework and professional conduct expectations must be checked carefully for any given matter, and specific advice should always be taken on whether a proposed fee structure is permissible.

That said, a meaningful range of alternative fee arrangements is available and widely used by businesses seeking cost certainty or risk-sharing. The practical art lies in structuring an arrangement that gives the claimant financial relief while remaining within the professional rules.

Law Society and Bar guidance summary

Fee arrangements for Hong Kong solicitors are governed by professional conduct rules and guidance issued by the profession’s regulatory bodies, The Law Society of Hong Kong for solicitors and the Hong Kong Bar Association for barristers. Claimants and in-house counsel should treat the current guidance of these bodies as the starting point when assessing whether a particular fee model is permissible. Because the rules continue to evolve and because the permissibility of a given structure can turn on whether the matter is court litigation, arbitration or non-contentious, the safe course is to confirm the position for the specific dispute rather than relying on general impressions of what is or is not allowed.

Practical alternatives to pure contingency fees

Where a straightforward percentage-of-recovery arrangement is not available, businesses can still achieve risk-sharing and budget certainty through structures such as the following.

• Fixed fees. A set fee for a defined stage or scope of work, giving the client certainty and transferring overrun risk to the firm.
• Blended rates. A single rate across the legal team regardless of seniority, often reducing overall cost on document-heavy matters.
• Capped fees. Billing on a time basis but subject to an agreed ceiling, protecting the client from runaway costs.
• Deferred fees. Some or all of the firm’s fees are deferred until the conclusion of the matter, easing cash flow during the litigation.
• Success-based uplifts. Where permitted (for example, under the outcome related fee structures framework for arbitration), an additional element payable on a successful outcome, structured to comply with professional conduct requirements.

These arrangements can be combined with third-party funding, for example, a funder covering disbursements and adverse costs cover while the firm agrees a capped or partly deferred fee. The combination can substantially reduce the claimant’s own cash exposure.

Typical commercial terms in litigation funding agreements (model terms and negotiation checklist)

The commercial heart of any litigation funding Hong Kong arrangement is the funding agreement. Claimants who understand the key terms negotiate better deals and avoid the pitfalls that erode recoveries or compromise control. The table below sets out the core terms you should expect to see and the points to scrutinise on each.

Return structures

Funder returns are usually expressed as a multiple of the capital deployed (for example, a stated multiple rising with the length of the case), as a percentage of the net or gross recovery, or as the higher of the two. Portfolio arrangements often price more keenly than single-case funding because the funder’s risk is spread across several matters. Whatever structure applies, the claimant should model the net recovery across a range of outcomes, a return that looks reasonable on a large win can consume most of the proceeds on a smaller settlement. Capped returns, where the funder’s total entitlement is limited to an agreed figure, can protect claimants in high-recovery scenarios.

Control and decision-making

Preserving the claimant’s control is the single most important protection in a funding agreement. The claimant should retain authority over the conduct of the litigation and, critically, over any settlement. A funder may reasonably expect to be consulted and to receive regular reporting, and may seek a mechanism to resolve genuine disagreements, for example, a requirement to obtain counsel’s opinion before rejecting a reasonable settlement. What should be resisted is any term that hands the funder a veto over settlement, allows it to replace counsel at will, or otherwise lets the funder direct the litigation. Beyond the commercial risk, excessive funder control can expose the arrangement to champerty objections.

Termination and step-in rights

Funders protect their investment through termination and step-in provisions. Termination rights typically arise where the merits of the claim materially deteriorate, where the claimant breaches the agreement, or where the budget is exhausted without an agreed increase. From the claimant’s perspective, these triggers should be as narrow and objective as possible, with a fair process, such as independent counsel review, before a funder can walk away mid-case. Step-in rights, which allow the funder to take certain steps on breach or claimant insolvency, should be proportionate and should not operate as a back-door assignment of the claim.

How Hong Kong courts treat third-party funding, champerty and security for costs

No discussion of litigation funding Hong Kong is complete without understanding how the courts approach funded claims. Hong Kong’s position is shaped by the historic doctrines of maintenance and champerty, and funded claimants need to anticipate both champerty objections and security for costs applications. The Hong Kong Judiciary’s published judgments are the authoritative source for the prevailing approach, and specific advice on current case law should be taken for any live dispute.

Champerty and maintenance, legal tests

Maintenance is the support of litigation by a party with no legitimate interest in it; champerty is an aggravated form of maintenance where the supporter shares in the proceeds. These doctrines have deep roots in the common law and continue to form part of the legal landscape in Hong Kong. Their modern application is nuanced: the courts have recognised accepted exceptions, notably funding of arbitration (under the statutory framework) and funding in certain insolvency contexts, while remaining alert to arrangements that improperly trade in litigation or give a funder excessive control. For ordinary civil litigation outside these exceptions, the doctrines continue to apply and funding is treated with greater caution.

In practice, the risk of a successful champerty challenge is reduced where the claimant retains genuine control of the litigation, where the funder’s return is commercially rational rather than exorbitant, and where the arrangement does not amount to the funder effectively buying and running the claim for its own benefit. Careful drafting of the control, settlement and return provisions is therefore not only commercially sensible but also protective against champerty objections. Because the boundaries differ between court litigation, arbitration and insolvency contexts, the applicable rules should be confirmed for each matter.

Security for costs, when ordered and practical responses

Security for costs is the area where funded claimants most often encounter direct judicial scrutiny. A defendant may apply for an order requiring the claimant to provide security, typically a payment into court or a bank guarantee, to cover the defendant’s costs if the claim fails. The existence of third-party funding can be relevant to such an application, particularly where there are concerns about the claimant’s ability to meet an adverse costs order.

Practical responses to a security for costs application include demonstrating the claimant’s own financial standing, offering appropriate adverse costs cover or insurance, and structuring the funding so that the funder’s commitment to meet costs is clear. Claimants should anticipate that a security for costs application may prompt scrutiny of the funding arrangement, and should draft their agreements and prepare their evidence with that possibility in mind. The timing of such applications and the evidence required to support or oppose them are matters on which early tactical advice is valuable.

Cross-border enforcement concerns

Fraud recovery claims rarely end at judgment. Assets are frequently located in other jurisdictions, and a judgment or award is only as valuable as it is enforceable. Funders assess enforceability as a central part of due diligence, and claimants should expect funding economics to reflect the difficulty and cost of enforcing abroad. Where enforcement will span multiple jurisdictions, the funding budget must account for the additional spend, and the fee waterfall should address how post-judgment enforcement costs are funded and prioritised in the distribution of recoveries.

Cost management and budgeting for funded fraud recovery claims (practical roadmap)

Disciplined cost management is in everyone’s interest. The funder wants spend aligned to milestones; the claimant wants to preserve as much net recovery as possible; and counsel needs clarity on what is approved. A structured, staged budget is the mechanism that keeps all three aligned.

Sample cost budget phases

A fraud recovery budget is best broken into discrete phases, each with an estimated cost range and a milestone that triggers the release of the next tranche of funding. A typical structure might run as follows.

• Investigation and evidence preservation. Initial fact-gathering, asset tracing and securing documents.
• Interim relief. Injunctions, freezing orders and other urgent protective steps.
• Pleadings and interlocutory stage. Statements of case, disclosure and interlocutory applications.
• Trial preparation and trial. Witness and expert evidence, and the hearing itself.
• Enforcement. Post-judgment recovery, including any cross-border steps.

Linking each phase to a funding tranche gives the funder comfort and gives the claimant a natural point to review progress, reassess the merits and recalibrate spend. Provisional or capped budgets for each phase help prevent cost overruns from eroding the recovery.

KPIs for funders and claimants

Objective metrics keep a funded case on track and surface problems early. The most useful indicators include:

• Spend versus budget by phase, flagged when variance exceeds an agreed threshold.
• Time to resolution against the projected timetable.
• Recovery exposure, the realistic recoverable sum measured against cumulative spend and the funder’s projected return.
• Settlement value versus cost, regularly tested so that settlement decisions are made on current, not historic, assumptions.

Risks, ethics and due diligence for claimants and funders

Funding introduces its own risks that both sides must manage. For claimants, the principal concerns are loss of control, the dilution of recovery, the solvency of the funder, and the confidentiality of sensitive information shared during due diligence. For funders, the concerns include the enforceability of the funding agreement, conflicts of interest, and compliance obligations such as anti-money-laundering and know-your-client checks on the source and destination of funds.

Due diligence checklist for funders

• Merits and quantum supported where appropriate by independent counsel opinion.
• Defendant solvency and asset position, including the realistic prospect of recovery.
• Enforceability of any judgment or award in the relevant jurisdictions.
• Costs exposure, including adverse costs and the availability of insurance.
• Claimant conduct and credibility, and compliance with AML and KYC requirements.

Red flags for claimants when selecting funders

• Opaque or escalating returns that are difficult to model across outcomes.
• Excessive control provisions or settlement vetoes.
• Weak capitalisation or uncertainty about the funder’s ability to meet its commitment.
• Broad termination rights that leave the claimant exposed mid-case.
• Inadequate confidentiality protection for sensitive case information.

Practical next steps: negotiating, instructing counsel, and a checklist for fraud victims

If you are a business or fraud victim considering funding, early and organised action materially improves both your litigation prospects and the terms you can secure. The following checklist sets out the immediate priorities.

1. Preserve evidence immediately, documents, electronic records and communications relevant to the claim.
2. Engage experienced counsel early to assess merits, quantum and enforceability.
3. Consider urgent relief such as injunctions or freezing orders where assets may be dissipated.
4. Prepare a realistic budget broken into phases and milestones.
5. Assemble a funder information pack, claim summary, key documents, quantum analysis and budget.
6. Confirm that funding is available for your type of proceeding, arbitration, insolvency or court litigation each have a different position.
7. Approach several funders to compare terms and pricing.
8. Negotiate control and return provisions carefully, modelling net recovery across outcomes.
9. Confirm the fee arrangement with your lawyers, ensuring any alternative fee structure is permissible.

Comparison table, litigation funding Hong Kong, contingency fees and AFAs side by side

The three principal routes to financing a claim each carry a different balance of cost, risk and control. The table below summarises how they compare in the Hong Kong context.

Conclusion and further reading

Litigation funding Hong Kong has become an increasingly important part of the strategic toolkit for businesses and fraud victims pursuing significant, cross-border claims in 2026. Used well, third-party funding and alternative fee arrangements let claimants bring strong claims they could not otherwise afford, share the risk, and preserve cash during lengthy proceedings. Used carelessly, they can erode recovery, surrender control and invite avoidable challenges on champerty and security for costs. The difference lies in preparation: understanding where funding is permitted, the permitted fee structures, negotiating the commercial terms with care, preserving control, budgeting rigorously and anticipating how the courts will view the arrangement.

For any claimant weighing these options, early advice from experienced Dispute Resolution, Hong Kong counsel is the surest route to a funding structure that protects both the claim and the recovery.

This guide is general information and not legal advice. The permissibility and effect of any funding or fee arrangement depends on the specific facts and the law in force at the relevant time. Obtain tailored legal advice before acting.

Sources

1. Hong Kong Judiciary, Judgments index
2. Department of Justice, HKSAR
3. e-Legislation (Hong Kong)
4. The Law Society of Hong Kong
5. Hong Kong Bar Association
6. Hong Kong International Arbitration Centre (HKIAC)
7. The Legal Hub (HKSAR)