Amy Chung David Smyth July 26 2016 Court orders disclosure of funding arrangements RPC | Litigation - Hong Kong Amy Chung, David Smyth Litigation IntroductionBackgroundDecisionCommentIntroductionIn an interesting recent case in Hong Kong, the High Court confirmed that principles of open justice usually require a plaintiff to disclose to a defendant all the affidavit evidence filed at court in support of an ex parte (without notice) application. In Enrich Future Ltd v Deloitte(1) the plaintiffs were ordered to disclose to the defendant the redacted parts of evidence filed in support of their ex parte applications to the court to extend time for service of the legal proceedings. This included giving the defendant details of the plaintiffs' corporate restructuring arrangements and the court's previous approval of the plaintiffs' litigation funding arrangements.BackgroundThe plaintiffs included a party to which claims appeared to have been assigned by a company in liquidation. The liquidators commenced proceedings against the defendant (former auditors). While third-party litigation funding is generally unlawful in Hong Kong, it is permitted with court approval in certain circumstances, such as with respect to claims by companies in liquidation.The company commenced legal proceedings (by writ) against the defendant in 2011, but these proceedings were served only in 2015. The original validity of the writ was for one year, that validity having been extended on no less than four occasions between 2012 and 2015 – which the judge noted was "quite exceptional".(2) In order to extend the validity of the writ, the plaintiffs applied ex parte to the court with an affidavit in support giving reasons. Four such affidavits had been sworn on behalf of the plaintiffs and (among other things) these referred to the company's restructuring and the court's previous approval of the litigation funding arrangements. Given that an applicant owes a duty to be full and frank with the court on an ex parte court application, it is no surprise that the plaintiffs' evidence referred to the corporate restructuring and funding arrangements. It can reasonably be assumed that these details were material to their applications to extend the validity of the writ.Following service of the writ, the defendant challenged (among other things) the extensions to the validity of the writ. While the plaintiffs were required to serve the four affidavits on the defendant, they redacted details relating to the corporate restructuring and the litigation funding arrangements in two of the affidavits. The justification for such redaction appears to have been that these details were not relevant to the defendant's challenge and would also give it an unfair advantage.DecisionIn ordering disclosure of the redacted material, the judge acknowledged that disclosure of the litigation funding arrangements might give the defendant some tactical advantage – for example, a better understanding of the plaintiffs' litigation funding reserve (referred to in passing in the judgment as a "war chest").(3)However, that concern did not justify a departure from the cardinal principle of open justice, which includes the right of a party to know in full the evidence which another party has presented to the court in order to obtain ex parte relief. Unsurprisingly, the plaintiffs had referred to the corporate restructuring and litigation funding arrangements in some of their evidence for the very purpose of seeking more time to serve the writ. Therefore, these details were relevant to the defendant's challenge.Given the principle of open justice, particularly in the context of a challenge to an ex parte order, the court ordered that the plaintiffs disclose copies of the redacted material to the defendant.CommentThe court's decision will be welcomed by defendants. While an exercise of discretion, the decision is based on fundamental legal principles.First, the parts of the evidence that the plaintiffs sought to redact appear to have been highly relevant to the defendant's challenge. The plaintiffs chose to refer to the corporate restructuring and litigation funding arrangements in their applications to extend the validity of the writ, no doubt because those details helped to explain (among other things) the delay in service of the writ. On the face of it, it is difficult to see how the plaintiffs could have avoided referring to these details, given their duty to be full and frank on an ex parte application. Had they not done so, the defendant's prospects of challenging the extensions to the validity of the writ would probably have been improved.Second, while the law relating to litigation funding in the context of liquidations in Hong Kong is slowly evolving, it is only fair that there is broader transparency with respect to both the court's approval of funding arrangements and a defendant's right to know. This is especially so where a plaintiff presents evidence to the court as a result of a duty to be full and frank on an ex parte application and in an attempt to influence the court's discretion.For further information on this topic please contact or Amy Chung or David Smyth at Smyth & Co in association with RPC by telephone (+852 2216 7000) or email (amy.chung @rpc.com.hk or [email protected]). The RPC website can be accessed at www.rpc.co.uk.Endnotes (1) Enrich Future Ltd v Deloitte Touche Tohmatsu, HCCL 10/2011, June 22 2016.(2) Supra note 1 at paragraph 2.(3) Supra note 1 at paragraphs 8-9 and noting certain English and Australian cases.