Maintenance and champerty – litigation funding agreement and assignment of cause of action – whether champertous
D1–2, a solicitors’ firm and a barrister respectively, were alleged to have rendered negligent advice to a company, C, in about 2005 or 2006. P and C entered into an agreement (the “Funding Agreement”) whereby P agreed, inter alia, to lend $3.4 million to C at an interest rate of 25 percent for a term of two years for an intended litigation against Ds, guaranteed by the recourse to proceeds that C would recover from Ds, and entitling P to 20 percent of any such proceeds. About 14 months after the Funding Agreement, C issued a writ against Ds in the present action. About four months later, C assigned to P the cause of action against Ds and inter alia the right to the proceeds arising from such action (the “Assignment”) for $100,000 and 10 percent of the net proceeds of the action. P also gave notice of the Assignment to Ds and C removed itself substituting P in its place as plaintiff. Ds alleged that the Assignment was champertous. P denied this on the grounds that it was a major creditor of C and its controlling shareholder and so had a genuine commercial interest in the enforcement of the action; but failed to provide supporting documentary evidence. P eventually offered to cancel the Assignment and C would continue with the action. Ds then sought to strike out the action. Before the hearing of the striking-out application, P and C sought leave to add C as a plaintiff in the action. In a first decision (see  2 HKLRD 86) the Judge found that both the Funding Agreement and the Assignment were champertous and struck out P’s action, but deferred drawing up the order until after the joinder application was heard. In a second decision (see  3 HKLRD 292) the Judge refused to join C as a party to the action, finding that the proceedings had been abandoned by C which was the only party with locus to sue, and that the application to reinstate it was time-barred. P appealed against both decisions.
Held, upholding the ruling on champerty, that:
- The finding of champerty would be upheld. All the aspects of the transaction should be taken together for the purpose of considering the single question whether there was wanton and officious intermeddling with the disputes of others in which the maintainer had no interest whatever, and where the assistance he rendered to the one or the other party was without justification or excuse. The Judge had examined the totality of the facts in concluding that the transactions would pose a genuine risk to the integrity of the Court’s processes. There were vastly disproportionate potential returns for the outlay in the Funding Agreement and the Assignment, which was relevant and significant to the genuineness of the impugned transaction. The transaction relied on made no or little commercial sense. The merits of the underlying claim need not always be taken into account in concluding that a transaction was champertous.