One must first answer the question, “what is litigation funding?”.

Litigation funding is the contribution to the cost and disbursements of litigation by a third party, the funder, in exchange for a percentage of any settlement monies. 

The Courts have historically disapproved of litigation funding.  But, in certain jurisdictions, the law has evolved with the needs of society.  With the sweeping aside of the traditional legal impediments of maintenance and champerty, litigation funding has become well entrenched in Australia where it has underpinned the growth of class actions.

In England, funded actions are broadly permitted; essentially the Australian experience has led the evolution - old law is falling away and the focus is upon upholding the integrity of the litigation process.

Until recently, there has been no case law in Hong Kong regarding the legitimacy of litigation funding.  There continues to be an ongoing concern regarding impact of the principles of maintenance and champerty in Hong Kong.  Maintenance and champerty both remain criminal offences, and civil torts; in 2008, 21 people were arrested for champerty, maintenance and conspiracy. They were recovery agents "helping" accident victims on a "no win no fee" basis. One of the people arrested was a lawyer. (Champerty and maintenance carries a sentence of up to seven years in Hong Kong).  On 25 June 2009, a solicitor, Ms Winnie Lo, was convicted for “conspiracy to maintain” and a recovery agent for “conspiracy to champer”; Ms Lo was sentenced to 15 months' imprisonment.  (Hong Kong did not adopt the UK Criminal Law Act 1967 which abolished the crimes and torts of maintenance and champerty, leaving such contracts to be void).

But even in Hong Kong, the law is developing.  The role of the doctrines of champerty and maintenance in a modern context was considered by the Hong Kong Court of Final Appeal where Ribeiro P.J., delivering the judgment of a unanimous bench in Unruh v Seeberger [2007] 2HKLRD 414, emphasised the need for a balance to be struck between the public policy considerations upon which the doctrines of champerty and maintenance were developed against other countervailing public policy considerations, principally the promotion of access to justice.  As Ribeiro P.J. said:

“It is. . . obvious that [the] access to justice category is not static. The development of policies and measures to promote such access is likely to enlarge the category and to result in further shrinkage in the scope of maintenance and champerty.”

His Lordship summarised the current approach:

  • The traditional legal policies underlying maintenance and champerty continue to apply, although they must be substantially qualified by other considerations.
  • The fact that an arrangement may be caught by the broad definitions of maintenance and champerty is not in itself sufficient to found liability.  The test is whether they pose a genuine risk to the integrity of the process.
  • Countervailing public policies must be taken into account, especially those in favour of ensuring access to justice and of recognising, where appropriate, legitimate common interests of a social or commercial character in a case.
  • “It is important not to confuse related but separate policies with those which properly underlie the operation of maintenance and champerty. For example, an agreement to take a share of any proceeds from an action may be primarily objectionable because it involves the unconscionable exploitation of a vulnerable litigant. Or it may be considered objectionable for solicitors to enter into such an arrangement because it is thought likely to give rise to conflicts of interest. It may be right to strike down the arrangement in some cases but, in others, doing so in reliance on the law of maintenance and champerty may be to use too blunt an instrument as it may result in a litigant being left with no means to pursue a good claim. Resort might more appropriately be had in such cases to other doctrines and remedies more suited to granting relief to the exploited party or to confronting professional misconduct.”

This liberalisation of Hong Kong’s jurisprudential stance to the issue was further developed in Re: Cyberworks Audio Video Technology Limited HCCW 111/2002, 4 May 2010, a decision of the Companies Judge, Mr Justice Harris, summarised as follows:

  • Section 199(2)(a) Companies Ordinance gives a liquidator power to sell the property of the Company.
  • A cause of action is a “chose in action”, therefore s. 199(2)(a) enables a liquidator to sell a cause of action vested in the company.
  • Adopting the UK position, a liquidator has the statutory power to sell a cause of action to a litigation funder, together with a right to commence or continue proceedings, the consideration for which is the funder agrees to pay over a share of any sum recovered.
  • Such an assignment, as part of a funding agreement, is an exception to the prohibition on maintenance and champerty and is lawful.

Now, this relaxation is still some distance from the position prevailing in Australia (Campbell's Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41) or the de facto relaxation in England where funders operate openly and without challenge.   However, it suggests that Hong Kong jurisprudence may evolve to permit litigation funders where the needs of society demand that the law permit this further source of funding (i.e., further to Legal Aid) in order to create additional access to justice.  Whether that evolution continues will be seen by the approach taken by the Court of Final Appeal in Ms Lo’s case.  The Court of Final Appeal ruled in May this year that it would hear her appeal; the appeal is still pending but the CFA may take the opportunity to review thoroughly the law of maintenance and champerty in Hong Kong.