LTTE: On Third Party Funding of Court Cases in Hong Kong

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Denis Brock of O’Melveny & Myers LLP brings another dimension to the question of third party funding of court cases and the issue of modernising our system in his response to Hong Kong’s dated laws re funding legal cases may block access to justice.

In response to: Hong Kong’s dated laws re funding legal cases may block access to justice

The referenced article succinctly sets out the background on third party funding, the law of champerty and maintenance and this is mirrored in the very recent Law Reform Commission (”LARCO”) consultation paper on Third Party Funding for Arbitration (see e.g. § 3.50 – §3.55, §3.59 – §3.66 of that Consultation Paper).  In a summary there is no express abolition of the offences of maintenance and champerty, but the strictures of the law have been relaxed in limited areas, e.g. liquidation cases, where third party funding is allowed.

In respect of third party funding in arbitration, the common law position is tolerably clear. In Cannonway Consultants Limited v Kenworth Engineering Limited [1995] 2 HKLR 475 Kaplan J at p.487 stated:

It follows therefore that having given the matter very careful consideration, I agree entirely with Steyn, L.J.’s obiter dictum in Giles v. Thompson to the effect that the boundaries of the doctrine of champerty exclude arbitration.”

In short, third party funding in arbitration is, per the common law, lawful.  And under our principles of stare decisis, that decision is the law.  

It is noted that neither the referenced article nor, somewhat more importantly, LARCO did not deal with the Cannonway decision.  (LARCO touched on the decision when referring to a Singapore decision where the Singapore court chose not to follow the Hong Kong decision.)  

It is difficult to understand why, when we have clear case law, LARCO chose to ignore that decision.  

It is also odd that LARCO was commissioned (if that is the right word) to report on Third Party Funding for Arbitration when what is really needed is consideration of third party funding in municipal litigation, i.e. before the courts.   Many of the arguments are equally applicable to or could apply mutatis mutandis to litigation funding – e.g. the promotion of Hong Kong as the regional legal hub (vs arbitration centre), the facilitating of case management, the screening of meritorious claims, the risk of money laundering etc.

More importantly, litigation funding already occurs in Hong Kong but, where it is unlawful, it is driven “underground” thus unregulated.  Creating an unfair playing field; those lawyers prepared to flout the law have a competitive advantage over those lawyers who respect the law.  What an odd state of affairs!