Third Party Funding Update

At the time of writing, the Irish Supreme Court judgment in Persona Digital Telephony & Anor v The Minister for Public Enterprise & Ors is awaited, the final appeal hearing having taken place on 3–4 April 2017. That judgment will examine whether the plaintiffs would contravene Irish laws of maintenance and champerty by entering into a litigation funding arrangement with a commercial litigation funder (see Industry Insights for March 2017).

Similar prohibitions (being torts and offences) survive in Hong Kong, save for those limited exceptions based on principles such as access to justice or having a legitimate interest in the litigation. Save for “pure funders” (for example, no financial motive) these exceptions in Hong Kong are best understood in an insolvency context and are subject to scrutiny by the courts.

In the meantime, related developments in Hong Kong are focused on third party funding for arbitrations, as the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 makes its way through the Legislative Council (“Legco”). The Bill seeks to amend the Arbitration Ordinance and the Mediation Ordinance to confirm that third party funding of arbitration and mediation is not prohibited by the common law doctrines of maintenance and champerty.

At present, a court in Hong Kong is unlikely to strike down a third party funding agreement on the grounds of maintenance and champerty where it relates to judicial or arbitral proceedings in a jurisdiction where no such public policy objections exist. However, the position with respect arbitrations taking place in Hong Kong is apparently less clear; hence, the Bill.

The Bill is due a second reading in Legco; thought to be sometime in May 2017. Interestingly, during a Bills Committee meeting there was a proposal to delete s. 98G(2) of the Bill, which purports to exclude the provision of arbitration funding by any person practising law or providing legal services in Hong Kong or abroad. The proposal (to delete s.98G(2)) appears to have some cross-party support in Legco, which may have taken the Department of Justice somewhat by surprise at the time.

Related issues to look out for include: (i) the relevance of s. 64 of the Legal Practitioners Ordinance and the interaction of Principle 4.17 of the Solicitors’ Guide to Professional Conduct (“Contingency fee arrangements”); and (ii) the draft “Third Party Funding of Arbitration Code of Practice”.

Not to be lost in all of this is the fact that the Bill focuses on third party funding for arbitration; arbitration being a key sector in Hong Kong’s status as an international disputes resolution hub. The Bill does not alter the general common law doctrines of maintenance and champerty with respect to litigation before a Hong Kong court. Indeed, given the local circumstances of Hong Kong, solicitors, barristers and foreign lawyers would do well not to confuse the proposals for third party funding of arbitration with the position as regards litigation, while noting the words of the Court of Appeal in HKSAR v Mui Kwok Keung [2014] 1HKLRD 116 (para. 81):

“However, any member of either profession who enters into the kind of arrangements with which we have been concerned in this case must realise that he or she will, if convicted of a similar offence, inevitably go to prison for a substantial period of time, with the inevitable consequences on their professional careers.”*


* Also see para. 83 of Mui Kwok Keung and Secretary for Justice v Ip Hon Ming, CAAR 3/2014.

Jurisdictions: 

Of Counsel, RPC