Litigation Funding Update

David Smyth, Senior Partner, Smyth & Co in association with RPC

As our previous “Insights” columns in April, May and June 2014 confirm, last year generated a number of headlines about litigation funding in Hong Kong; in particular, convictions for champerty involving (among others) lawyers. Such convictions are an unwelcome distraction from the need for an informed and reasoned debate about the development of third party litigation funding in Hong Kong to assist with access to justice, if she is to maintain her presence as a major disputes resolution centre.

At the time of writing, a Law Reform Commission committee is due to report on third party funding in arbitrations in Hong Kong. While champerty and maintenance still apply as criminal offences and torts in Hong Kong, it is far less clear whether the policy that underpins them should apply (or, indeed, does apply) with respect to arbitration (eg, Cannonway Consultants Ltd v Kenworth Engineering Ltd [1995] 2 HKLR 475; Unruh v Seeberger [2007] 2 HKLRD 414, at para. 123; generally, Lo v HKSAR (2012) 15 HKCFAR 16).

Given Hong Kong’s reputation as a major disputes resolution centre, it also seems rather incongruous that her legal profession should have to keep half an eye open for champerty in the private fora of arbitration in Hong Kong, while arbitration practitioners from many overseas jurisdictions who avail themselves of her arbitral seat apparently do not.

To help lead the way, Ch. 4.17 (“Contingency fee arrangements”) of the Solicitors’ Guide to Professional Conduct could be specifically clarified to make it clear that (as far as professional conduct is concerned) the prohibition on contingency fee arrangements with respect to “contentious proceedings” does not (for this purpose) include arbitration*. The Law Society’s Guidance Committee could issue a Circular (with revised commentary) to this effect. What better way to celebrate the New Year and the forthcoming IPBA Annual Meeting in Hong Kong in May 2015?

The mischief of champerty has its origins in the perceived conflict of interest when an intermeddler helps maintain the prosecution (note) of a suit in return for a share of the spoils. It is difficult to see how that concern should apply to modern day arbitration in Hong Kong; certainly, commercial arbitration which is a pillar of the legal community here.

The Law Reform Commission committee’s report once released should be given suitable attention. Headlines such as a solicitor’s sentence (on appeal**) to three years and two months for multiple alleged offences of champerty are as irrelevant to the debate about the merits of third party commercial litigation funding as they are to what goes on in arbitration in Hong Kong (a largely consensual and private process).

* As many already understand the position to be. Section 2 of the Legal Practitioners Ordinance defines “contentious business” as work done in court.

** Secretary for Justice v Ip Hon Ming & Anor [2014] HKEC 1951, CAAR No. 3 of 2014.