Third Party Funding Update

News towards the end of last year that the Grand Court in the Cayman Islands had approved a third party litigation funding agreement is a reminder of the pace of developments in different premier dispute resolution jurisdictions.

In A Company and A Funder (unreported, 23 November 2017), a large Korean company sought a declaration that a third party litigation funding agreement it had entered into with a funder did not contravene the laws of maintenance and champerty (both of which exist in the Cayman Islands). The funding was sought in connection with court proceedings that the company intended to commence in order to (among other things) enforce an arbitral award. In approving the application, the court set out a number of factors which it could take into account in deciding whether to approve a litigation funding agreement.

Given common law developments in this area and the miscellany of exceptions to the crimes and torts of maintenance and champerty in Hong Kong, the decision of the Grand Court is of interest. As with the Cayman Islands, the origins of maintenance and champerty in Hong Kong have their roots in the common law and in neither jurisdiction has there been legislative reform such as that in England & Wales.

It is important to note that in A Company and A Funder the funding was not sought on behalf of a company in liquidation but by a large multinational company with a genuine commercial interest in the outcome of the litigation. This is similar to some of the reasoning in Unruh v Seeberger (2007) 10 HKCFAR 31 which, together with Winnie Lo v HKSAR(2012) 15 HKCFAR 16, sets out the origins of maintenance and champerty in Hong Kong.

The decision of the Grand Court can be contrasted with a decision of the Irish Supreme Court last year. In that case, the Irish Supreme Court refused to grant a declaration that an investment agreement entered into during the course of proceedings and providing for the third party funding of a claim would not contravene the laws of maintenance and champerty (Industry Insights, July 2017, “Tales from the Emerald Isle”). The origins of maintenance and champerty in Ireland have their roots in ancient statute and any reform there (in the foreseeable future) appears to be a matter for legislation. 

For those who consider that common law developments in this area are as likely to bring about change in Hong Kong as legislative reform, the decision of the Grand Court in A Company and A Funder is significant. The decision specifically recognises the need for public policy to evolve with respect to properly regulated commercial litigation funding in international financial centres.

The decision of the Grand Court is also a reminder that in deciding whether a litigation funding arrangement is caught by the laws of maintenance and champerty the crucial factor is whether the arrangement poses a genuine risk to the integrity of the court process.

The factors considered by the Grand Court in approving the litigation funding agreement are also a useful reminder with respect to the Code of Practice for third party funding of arbitration in Hong Kong. The relevant legislation in Hong Kong was enacted approximately eight months ago but some of its key provisions are still not in force (at the time of writing), whereas the relevant legislation with respect to third party funding of international arbitrations (and related court proceedings) in Singapore came into effect almost a year ago*. 

* For more details, please see – https://asianlegalbusiness.uberflip.com/i/880523-september-supplements-rev.

Jurisdictions: 

Partner, RPC