Re A
Read the full judgment text of HCMP 2728/2017 on BabelCite. This High Court CFI judgment was delivered on 19 March 2020.
1. Costs have become a defining feature of modern civil litigation. In deciding whether to pursue a claim, the parties and their lawyers have to assess the substantive merits as well as the economic viability of the claim. This not only affects the parties but also has impact on the civil legal system. There has been concern that legal rights may become illusory if they cannot be enforced as a result of the economic cost of litigating a claim. [1] Some jurisdictions have embraced third party fun
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HCMP 2728/2017 [2020] HKCFI 493 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 2728 OF 2017 ________________________
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_____________ JUDGMENT (1) _____________
I. INTRODUCTION (a) Overview 1.Costs have become a defining feature of modern civil litigation. In deciding whether to pursue a claim, the parties and their lawyers have to assess the substantive merits as well as the economic viability of the claim. This not only affects the parties but also has impact on the civil legal system. There has been concern that legal rights may become illusory if they cannot be enforced as a result of the economic cost of litigating a claim.[1] Some jurisdictions have embraced third party funding for bringing proceedings (ie provision of capital by an unrelated funder, usually on non-recourse basis, to finance all or part of the fundee’s litigation costs in return for a portion of any financial recovery) to address such perceived concern. But such development has excited debate or even controversy (eg fear of exploitation of impecunious litigants and concern over commodisation of litigation to the detriment of proper administration of justice). It is not easy to elicit clear principles relating to third party litigation funding as common law jurisdictions differ widely on how to deal with such practice and market. 2.In Hong Kong, third party funding is still nascent and uncertain. The present proceedings foray into this novel area of the law to search for a uniquely local approach (be it legislative, regulatory and/or judicial) to resolve the tension between (a) the alleviation litigation funding provides for a civil justice system that some say is too expensive and (b) the caution against maintained litigation for protection of the integrity of the court’s process. I start with a brief summary of the background facts. (b) Brief background 3.The Husband and the Wife were married in 2002. In 2015, the Wife petitioned for divorce in the Family Court (“FC”). Among the issues in the underlying matrimonial proceedings (“Matrimonial Proceedings”) were their ancillary relief claims. In 2016, the Husband applied under section 17 of the Matrimonial Proceedings and Property Ordinance Cap 192 (“MPPO”) to set aside certain alleged asset transfer by the Wife to her elder brother (being the 1st intervener in the Matrimonial Proceedings, “Brother”) (“S17 Application”). There was dispute over the beneficial ownership of the subject asset and income therefrom with the Husband arguing (and the Wife and the Brother disagreeing) that such asset/income be regarded as matrimonial property. The FC granted case management directions for the S17 Application, which was subsequently fully pleaded by the Husband (as claimant) and by the Wife (as the defendant) and the Brother (as the 1st intervener). 4.In 2016, the Husband applied to the FC for a litigation funding order against the Wife for his legal costs in respect of the S17 Application. Later that year, the Husband applied for legal aid. The Husband’s applications for legal aid and litigation funding order were refused in 2016 and 2017 respectively. In 2016 the Wife also applied for maintenance pending suit against the Husband for herself and their children, but in 2017 the FC refused such application. 5.In 2016, the Brother applied to transfer the S17 Application to the Court of First Instance (“CFI”). In 2017, the FC ordered such transfer. A pre-trial review of the S17 Application was scheduled to be heard by a CFI judge (“Family Judge”) on 5 March 2020, which hearing has since been adjourned. 6.The Husband claimed that despite his wish to proceed with the S17 Application, his financial resources had been depleted and he had exhausted all avenues of funding, so his only viable financial option for pursuing the S17 Application (which he claimed to be meritorious) was to obtain third party litigation funding. The Husband was eager to seek such funding from an overseas commercial/professional litigation funding company (“Funder”), and for such purpose to obtain prior court sanction of the proposed funding arrangements. II. PRESENT PROCEEDINGS 7.In September 2017, the Husband, who anticipated making an application to the CFI for pre-clearance approval of third party funding for his legal costs in respect of the S17 Application, applied ex parte to the FC for leave to use the pleadings/papers in the Matrimonial Proceedings for such purpose (“FC Application”). In October 2017, the FC granted such leave. 8.On 20 December 2017, the Husband via his solicitors Withers issued the ex parte originating summons in the present proceedings (“OS”) under the inherent jurisdiction of the court for the following reliefs:
9.On the same day, the Husband via Withers issued an ex parte summons for the reliefs in (b)-(c) above. The SCG 1st Aff was lodged (but not filed) with the court. 10.At the hearing of the OS on 12 February 2018, this court raised a number of matters with senior counsel who appeared for the Husband, and eventually adjourned the OS sine die with liberty to restore, but with no order as to costs of such hearing. This court also released the SCG 1st Aff back to Withers for the Husband. 11.More than 4 months later on 21 June 2018, the Husband via Withers filed (a) another ex parte summons for the reliefs in paragraph 8(a) and (c)-(d) above (“Summons”), and (b) the affirmation of his solicitor SCG (with exhibits) in support of the Summons (“SCG 2nd Aff”). On the same day, the Husband via Withers also lodged (but not filed) a confidential memorandum (with annexures) which was said to contain privileged/confidential matters[3] (“C-Memo”). The Summons was returnable before this court on 12 July 2018. 12.On 22 June 2018, Withers gave notice of the OS/Summons to the Secretary for Justice (“SJ”). Correspondence ensued between Withers for the Husband and the Department of Justice (“DoJ”) for the SJ. On 11 July 2018, this court gave written directions for the SJ to attend the hearing of the Summons before this court on the following day. After hearing submissions at such hearing, this court allowed time for the SJ to consider her stance in the matter, and adjourned the Summons for a case management hearing on 14 September 2018 with costs reserved. 13.At the hearing on 14 September 2018, the Husband appeared by senior counsel and the SJ appeared by Mr Smith SC. After exploration of the SJ’s stance and consideration of other case management matters, the Summons was further adjourned for 3 weeks with costs reserved for Withers and the DoJ to jointly write to this court to propose a case management regime for dealing with the OS/Summons. 14.The SJ invited the Husband to withdraw the OS/Summons, but the Husband declined to do so. On 19 October 2018, Withers and the DoJ jointly wrote to the court. The SJ confirmed she would intervene in the present proceedings to make submissions on questions of broad public policy, but as a matter of policy (and to avoid any potential prejudice to her prosecutorial function under article 63 (“BL63”) of the Hong Kong Basic Law (“BL”)), she would not examine specific details of the third party litigation funding agreement (“LFA”) proposed by the Husband or explore whether the funding arrangements would fall within the “access to justice” exception (if applicable) to the laws of champerty and maintenance. In such circumstances, the Husband invited this court to appoint an amicus curiae so that all relevant issues could be comprehensively addressed. 15.On 29 October 2018, by consent of the Husband and the SJ, this court inter alia granted leave for the SJ to join as an intervener in the present proceedings. On the same day, this court also granted written directions requiring the Husband to prepare/submit a list of issues that he considered the court would benefit from assistance by an amicus curiae. On 6 November 2018, Withers put forward such list of issues (with amendments proposed by the SJ on 14 November 2018 as marked up below) (collectively, “Issues”):
16.By written directions to Withers and the DoJ on 15 November 2018, I indicated inter alia that whilst I was minded in principle to appoint an amicus curiae, this court would not be constrained by the proposed Issues,[4] and it was possible the amicus curiae (if appointed) might raise other issues that he/she would consider appropriate for this court’s consideration. 17.On 12 December 2018, this court appointed Mr Wong SC and Mr Lui as amici curiae (“Amici”) to assist the court at the substantive hearing of the OS scheduled to be heard on 25-26 June 2019 (“Hearing”). Case management directions were granted inter alia for lodging/serving a common glossary of acronyms/abbreviations, a hearing bundle, the C-Memo and the submissions/authorities of the Husband, the SJ and the Amici, but without prejudice to any arguments that might be raised as to the propriety or otherwise of the following: (a) having the Hearing not open to the public, (b) requiring the annonymisation of any submissions or reasoned judgment, and/or (c) keeping the contents of the C-Memo secret. 18.On 21 June 2019, the Husband via Withers filed his affirmation to advise his updated financial position (“Husband Aff”). At the Hearing on 25-26 June 2019 (“1st and 2nd Days”), Mr Scott SC appeared for the Husband, Mr Smith SC appeared for the SJ, and Mr Wong SC and Mr Lui were the Amici. 19.As the OS was made ex parte, the court documents, the C-Memo and/or the written submissions were not served on the Wife and/or the Brother. It was the Husband’s stance that (a) the Wife and/or the Brother ought not to be served with such papers and ought not to participate in the present proceedings, and (b) the Husband’s legal privilege (including communications with Withers) should be preserved against the Wife and/or the Brother being the opposing parties to the Matrimonial Proceedings / S17 Application. Given the SJ’s stance as explained in paragraph 14 above, the C-Memo and the written submissions thereon by the Husband and Amici were not served on the SJ. 20.In light of the matters in the above paragraph, the contents of the SCG 2nd Aff and the C-Memo were merely the Husband’s one-sided account of (a) what he perceived to be relevant aspects of the Matrimonial Proceedings / S17 Application, and (b) his proposal for arranging third party litigation funding, but such stance was without prejudice to any future contest that might be raised by (i) the Wife and/or the Brother (if permissible) in the Matrimonial Proceedings / S17 Application,[5] and/or (ii) the SJ in the exercise of her prosecutorial function. 21.I further note that neither Mr Smith SC nor the Amici were privy to the Matrimonial Proceedings / S17 Application (except as disclosed by the Husband). Thus, in rendering assistance to the court, the Amici could only make observations premised on the Husband’s account in the SCG 2nd Aff, the Husband Aff and the C-Memo without the benefit of any full countervailing account. Further, in line with the SJ’s stance explained in paragraph 14 above, Mr Smith SC declined to enter into any debate concerning the Matrimonial Proceedings / S17 Application and/or the Husband’s proposed third party litigation funding arrangements. III. SOME PRELIMINARY MATTERS (a) OS and/or Summons 22.Mr Scott SC’s written submissions stated the matter was brought before this court at the Hearing by way of the Summons. But at the Hearing, all senior counsel agreed the Hearing was the substantive hearing of the OS and not merely the hearing of the interlocutory Summons. That being the case, then subject to the discussions in Part III(e) below, such hearing should be held in open court. (b) Application to amend OS 23.At the Hearing, Mr Scott SC applied to amend the OS in the manner marked in red as per the draft submitted to the court and served on the DoJ and the Amici (marked up in italics below):
In short, the Husband by (a)-(b) above wished for prior court approval of the third party litigation funding that would cover (i) his S17 Application and his ancillary relief claim in the Matrimonial Proceedings (which still remained in the FC) and all related proceedings, (ii) his application in the present proceedings, and (iii) counsel’s fees for the FC Application and the present proceedings. 24.I make 2 initial observations. First, no summons was filed/ served for the Husband’s application to amend the OS nor was any affirmation filed/served to justify the need for such amendment and/or to explain the lateness of such application when the amendments sought to be introduced did not appear to be anything new. The presumption inherent in the manner of the Husband’s application to amend the OS was, to say the least, surprising, especially when the Husband was keenly aware of (a) the novel nature (at least in this jurisdiction) of his substantive application in the present proceedings, (b) the involvement of the SJ and the Amici, and (c) the detailed case management regime that had been put in place to avoid unnecessary and/or late surprises. Secondly, the OS issued on 20 December 2017 had gone through a long gestation period. By the time of the hearings on 12 July and 14 September 2018, the Husband had 5 months and 7 months respectively since the initial hearing on 12 February 2018 to cast his case, and given the novel nature of the present proceedings in this jurisdiction, this court had indulged the Husband by allowing him to freely adopt any procedural and/or substantive stance that he desired (but subject to eventual argument/ debate at the Hearing) to discourage late shifting of litigation goalposts and/or late re-drawing of reliefs sought (“Liberal Approach”). 25.That being the case, the Husband could hardly expect this court to smile kindly on his oral application at the Hearing to amend the OS. Fortunately, Mr Smith SC and Mr Wong SC gallantly rose to the occasion. Mr Smith SC expressed no strong view as to whether this court should formally allow the proposed amendments or treat them as a harbinger of Mr Scott SC’s eventual oral submissions. Mr Wong SC assured this court the Amici would assist the court with their views should the proposed amendments be allowed. 26.In the circumstances, on the 1st/2nd Days, I (a) granted leave for the Husband to amend the OS in the manner set out in paragraph 23(a)-(b) above, (b) directed the Husband to file/serve the amended originating summons (“Amended OS”) within 7 days, but (c) reserved the application to amend the OS in the manner set out in paragraph 23(c) above for consideration/determination after hearing substantive arguments on the Amended OS. On (c) above, the proposed relief in paragraph 23(c) above appeared to suggest that the reliefs sought in paragraph 23(a)-(b) above did not embrace any declaration of non-criminality (ie sanction by the civil court that no criminal liability would arise in Hong Kong by entering into the proposed LFA and/or funding arrangements), but (as seen in paragraphs 83(b)-(c) below) it was the common stance of the SJ and the Amici that such reliefs did involve a declaration of non-criminality. I therefore considered that any decision on whether or not to allow the proposed amendment in paragraph 23(c) above (to be made by way of a re-amended originating summons) should only be made after hearing substantive arguments. On 3 July 2019, the Husband filed his Amended OS. 27.On the 1st Day, Mr Scott SC started his oral submissions on the premise that the 1st/2nd Declarations did not embrace any declaration of non-criminality. But later that day, Mr Scott SC submitted that (a) the Husband’s primary case was the 1st/2nd Declarations did involve a declaration of non-criminality, which declarations were justified as there were “exceptional circumstances”, but (b) if the court were not satisfied there were any “exceptional circumstances” (which proposition the Husband disagreed), the Husband’s alternative case was to rely on the proposed re-amendment to the Amended OS in paragraph 23(c) above by hiving off or removing any declaration of non-criminality from the 1st/2nd Declarations. 28.Mr Scott SC’s revised submissions were quite different from the Husband’s original stance that the 1st/2nd Declarations did not embrace any declaration of non-criminality, which original stance had metamorphosed at the Hearing to become the founding premise for the proposed re-amendment to the Amended OS in paragraph 23(c) above that was now put forward as the Husband’s alternative case. The order in paragraph 26(c) above granted on the 1st Day was perhaps prescient in view of the Husband’s presently altered position. So on the 2nd Day, I set aside such order, and then (a) granted leave for the Husband to amend his oral application to amend the OS made on the 1st Day by replacing paragraph 3 of the draft amended OS submitted to the court (ie the proposed amendment in paragraph 23(c) above) with the following: “alternatively, an order in terms of paragraphs 1-2 above [ie the 1st/2nd Declarations] save that no order is made as to whether the funding of the claim referred to in paragraphs 1-2 above [ie the 1st/2nd Declarations] constitutes a criminal offence”, and (b) directed the amended application in (a) above be reserved for consideration/ determination upon the substantive hearing of the Amended OS. I also reserved the costs of and occasioned by (i) the Husband’s application to amend the OS and (ii) his application to amend the application in (i) above (collectively, “Amendment Costs”). (c) Scope/ambit of 1st/2nd Declarations 29.As pointed out by the Amici, the 1st/2nd Declarations were quite similar to the following reliefs sought in Raafat Imam v Life (China) Company Limited & ors[9]with 1 essential difference as explained in the paragraph below:
30.The declaration sought in Raafat Imam essentially concerned the “proposed [LFA]”, which was necessarily narrower in scope/ambit than the 1st/2nd Declarations that sought not only pre-clearance approval of the proposed LFA and its terms but also the entire “funding arrangement” which necessarily included the circumstances in which the proposed LFA would be made as well as the actual conduct of the Husband and the Funder as to (a) the S17 Application in the CFI, (b) the ancillary relief aspects of the Matrimonial Proceedings in the FC and all “related proceedings”, (c) the present proceedings and “any hearings related thereto” and (d) the FC Application. In the circumstances, given the express terms of the 1st/2nd Declarations, I agree with the Amici that the Access to Justice Exception Issue as framed in paragraph 15(c) above by focusing on “the terms of the proposed [LFA]” was too narrowly formulated. (d) Husband Aff 31.At the Hearing, I granted retrospective leave for the Husband to file/serve the Husband Aff. (e) Open or not open to the public 32.Under the Liberal Approach, the Husband (in line with his stance set out in paragraph 19 above) initially had the Hearing closed to the public with the understanding that the propriety or otherwise of such arrangement would be subject to debate/determination at the Hearing (see paragraph 17 above). 33.In my view, the general practice of the courts is to ensure open administration of justice, and hence court proceedings should only be closed to the public if the court is satisfied there are 1 or more reasons for excluding the press and the public, and such exclusion is necessary to enable justice to be done. The court can also exercise its power differently with regard to different parts of the court proceedings, so the court can close only part of a hearing to the public. In my view, it was for the Husband to demonstrate clear/cogent basis as to why the Hearing should be not open to the public. 34.In this regard, Mr Scott SC reminded that (a) the Husband’s application by the OS (now the Amended OS) required showing to the court documents/materials to which the Wife and the Brother would not be entitled, and (b) senior counsel’s addresses would touch on confidential matters concerning the underlying Matrimonial Proceedings / S17 Application and also the draft LFA (“D-LFA”) and proposed funding arrangements set out in inter alia the C-Memo and the written submissions (both of which were lodged and not filed). Mr Scott SC said this was why the Husband, who was anxious that there be no wavier of confidence and/or privilege, issued the OS (now the Amended OS) / Summons on ex parte basis, and why he carefully asked for them to be heard by a CFI judge who would not be the Family Judge. It was suggested in such circumstances the Hearing should not be open to the public. 35.Both Mr Smith SC and Mr Wong SC were of the view that the Hearing should be closed to the public insofar as it would touch on the contents of the C-Memo, the matters arising from the Matrimonial Proceedings / S17 Application, the terms of the D-LFA and the proposed third party funding arrangements, but they saw no reason for the Hearing on other matters (eg learned debate over legal principles and public policies) not to be conducted in open court with the precaution of using acronyms / anonymised references for the parties. Mr Smith SC submitted that such approach would be in line with that adopted in Raafat Imam,[10] and also with schedules 1-2 of Practice Direction 15.15 (Matrimonial and Family Proceedings – Miscellaneous)[11] and paragraphs 3, 4(a) and 5 of Practice Direction 25.1 (Chambers Hearings in Civil Proceedings in the High Court, the District Court and the Lands Tribunal). Indeed, Mr Wong SC’s written submissions followed the above dichotomy with confidential/privileged matters set out in appendix A to his main submissions (“Appendix A”). 36.I see the force in Mr Smith SC’s and Mr Wong SC’s suggestion that recognised the importance of open justice as explained above and that also addressed the following concerns for the protection of confidence/privilege (as helpfully outlined by Mr Wong SC):
37.After this court explored further with senior counsel at the Hearing, Mr Scott SC got round to acknowledge that the approach proposed by Mr Smith SC and Mr Wong SC would sufficiently address the Husband’s concern to protect his confidence/privilege. But there remained 1 further hurdle to an open court hearing. Since the Husband initially scheduled the hearing to be closed to the public, both bar and bench were not properly attired for an open court hearing. But in my view, the essence of open justice is to have the court proceedings accessible to the public and the press, and any lack of proper court attire (through no one’s fault) should not stand in the way of open administration of justice. I therefore declared the Hearing open to the public. I would say that in any event the absence of proper court attire was more than made up for by the scholarship of senior counsel’s legal debate, which graced my court with the solemnity and dignity worthy of any open court hearing. 38.On the 2nd Day, senior counsel and myself were wigged and gowned for the open court hearing. But midway in the afternoon, I declared the Hearing closed to the public. Mr Smith SC was excused from the Hearing, and Mr Scott SC and Mr Wong SC made submissions that touched on confidential/privileged matters. (f) Anonymisation of parties 39.On 9 February 2018, the Husband via Withers applied for the present proceedings to be listed anonymously and for the Husband’s name to be removed from the daily cause list. On the same day, pursuant to the Liberal Approach, this court directed that the present proceedings be listed in the daily cause list as “Re A”, and left the matter of anonymisation for eventual debate. Although this court did not grant any specific continuing order after 9 February 2018, the present proceedings remained listed as “Re A”. 40.Where proceedings are open to the public, the parties are normally not anonymised unless the court otherwise directs. But as I have determined that the Hearing should be partly open and partly closed to the public, and there were good reasons to keep certain aspects of the proceedings secret, I now direct that the present proceedings shall continue to be listed in the daily cause list as “Re A” unless the court otherwise orders. I also consider that even for the open part of the Hearing and the open part of the judgment now handed down as Judgment (1) (see paragraph 41 below) as well as the relevant court order, the parties to the underlying Matrimonial Proceedings / S17 Application should be anonymised to avoid direct or jigsaw identification. (g) Publication of judgment 41.Given that part of the Hearing was open to the public and the rest of the Hearing was closed to the public, I agree with Mr Wong SC that the approach to publication of the judgment of this court should follow the same dichotomy. To facilitate this, I have divided the judgment into 2 parts, one part for publication (“Judgment (1)”) and other part not for publication (“Judgment (2)”). For the avoidance of doubt, Judgment (1) is handed down to the Husband, the SJ and the Amici and is to be published in due course, but Judgment (2) is handed down to the Husband and the Amici (but not to the SJ) and is not to be published. But Judgments (1)-(2) must be read together for the entirety of this court’s decision on the ex parte Amended OS / Summons, and on the Husband’s application to further re-amend the Amended OS. For convenience of the readers, I set out my final decision / conclusion in Judgment (1). 42.As alluded to in the above paragraph, Judgment (1) (with initial redactions/anonymisations made by this court) is handed down and released to the Husband, the SJ and the Amici on the basis that in due course it will be released for publication. If the Husband, the SJ and/or the Amici consider further redaction/anonymisation are required, he/she/they should write to the court on their views (with copy to the others) within 14 days after Judgment (1) is handed down. After receiving such views (if any), this court may further redact Judgment (1) as deemed fit, and thereafter Judgment (1) will be released for publication in the usual manner. If no request for further redaction/anonymisation is made within the prescribed period, the relevant party(ies) shall be taken to have no objection to the publication of Judgment (1) as initially redacted/anonymised by this court, and Judgment (1) will then be released for publication in the usual manner. (h) Amici not “contradictor” 43.Mr Scott SC’s written submissions asserted this court appointed a “proper contradictor” in the form of an amicus curiae, and he orally referred to the Amici as “opponent”. But I am persuaded Mr Wong SC must be right in saying an amicus curiae, who has no interest in the issues / outcome of the case, cannot be and is not a “contradictor” or “opponent”. Here, the SJ intervened in the present proceedings, but the Amici as appointed by the court were not any intervener. 44.In Raafat Imam, DHCJ Fee said a “proper contradictor” is “one who has a true legal interest in opposing the declaration sought and who thus needs to be bound by the result: see Russian Commercial and Industrial Bank v British Bank for Foreign Trade [1921] 2 AC 438, per Lord Dunedin at p.488” (page 175). Thus, a “contradictor” or “opponent” brings to the court’s attention opposing arguments, but if he fails to persuade the court with his arguments, the court may (not must) accept what the claimant contends. 45.On the other hand, the role/function of an amicus curiae has been explained and re-stated in Cabot Financial UK Ltd v Mcgregor, Gardner and Brown[14] and Grice v R.[15] Cabot Financial UK Ltd concerned undefended proceedings with no contradictor, so an amicus curiae was appointed to advise the court on points of law arising from certain appeals. The Scottish Sheriff Appeal Court said as follows at pages 383-384:
46.In Grice, information was laid for traffic offences and G was summoned to appear at a magistrate’s court in Toronto, Canada. He did not appear but was represented by counsel who as a friend of the court made submissions in respect of the service of the summons on G’s son on G’s behalf. On appeal from a case stated by the magistrate who held that such service was proper, Ferguson J of the Ontario High Court explained the role of the amicus curiae as follows at page 702:
47.Thus, an amicus curiae assists the court impartially and does not represent the interests of any party, consequently his appointment is not an answer or substitute for the absence of any necessary contradictor. In Raafat Imam, it was said the plaintiff “failed to join the DPP [Director of Public Prosecutions (“DPP”)] or the SJ as a formal defendant to fulfil the proper contradictor requirement” (page 177), which was partly why DHCJ Fee refused to grant the declaration sought (pages 175-177). 48.Mr Wong SC explained that here the Amici would assist the court by bringing appropriate matters (especially matters of law and/or issues with a public interest aspect) to the court’s attention, but unlike a true opponent, the Amici (not being privy to the Husband’s financial position or his case in the underlying Matrimonial Proceedings / S17 Application) could only give a neutral appraisal rather than any detailed analysis of the Husband’s one-sided account. On further reflection at the Hearing, Mr Scott SC accepted the Amici were not “proper contradictors”. IV. ISSUES 49.Mr Wong SC structured the Amici’s appraisal on the basis of the 5 Issues (see paragraph 15 above), and Mr Scott SC found it convenient to adopt the same structure to set out his summary of the Husband’s case. Since Mr Smith SC’s position on the broader issues was more akin to the appraisal by the Amici, I propose to set out the views of the SJ and the Amici on one side of the table below and the views of the Husband on the other side of such table:
50.Mr Scott SC suggested this case raised the question whether a LFA that provides for financial gain by an unrelated third party funder in itself will be considered as one that will tempt the maintainer to conduct that will pose a genuine risk to the integrity of the court’s process, but as explained in further detail below, Mr Smith SC and Mr Wong SC suggested this is not the precisely correct question to ask in an application for declarations of non-criminality. Mr Scott SC also submitted that not only is there no overarching objection to third party litigation funding, the defining feature here was the Husband’s impecuniosity that (a) demonstrated the necessity of third party litigation funding for pursuit of his S17 Application and his ancillary relief claim in the Matrimonial Proceedings (collectively, “Husband’s Claims”), (b) amounted to a strong factor for granting of the 1st/2nd Declarations, and (c) distinguished the present proceedings from Raafat Imam where the plaintiff was found to still have financial means. But Mr Smith SC submitted the Husband’s application for the 1st/2nd Declarations was misconceived and against public interest. And on this discordant note, I turn first to the legal doctrines of maintenance and champerty. V. MAINTENANCE AND CHAMPERTY 51.The origin of the laws of maintenance and champerty, which goes back to medieval times, is ancient and obscure, but maintenance and champerty have been held by the Court of Final Appeal (“CFA”) in Unruh v Seeberger[17] and Winnie Lo v HKSAR[18] to continue to apply to Hong Kong (subject to exceptions – see paragraph 55 below) to prohibit third party litigation funding both as torts and crimes.[19] Winnie Lo and HKSAR v Mui Kwok Keung[20] are examples of modern criminal prosecution in Hong Kong based on such antiquated legal doctrines. But the position in England and Wales has been changed by legislation in 1967,[21] so the rules relating to maintenance and champerty now survive in England and Wales only for the purpose of deciding whether contracts are invalidated on such grounds.[22] (a) Unruh 52.In Unruh, the principal asset of ESCT (Mr Unruh’s company) was a licence agreement to manufacture watches for Xs. Xs purported to terminate such licence agreement, so ESCT went into arbitration with Xs in the Netherlands. Whilst the arbitration was continuing, Mr Unruh and Mr Seeberger (through a series of agreements including a memorandum of agreement (“MoA”)) effectively agreed for Egana (Mr Seeberger’s company) to acquire ESCT and for Mr Unruh to use his best endeavours to assist ESCT in connection with the arbitration. Mr Unruh was to be paid a special bonus by Mr Seeberger should the compensation received by ESCT from the arbitration exceeded US$10,000,000.[23] The arbitration/related proceedings were settled by a global settlement agreement with Xs paying ESCT sums over US$10,000,000. No special bonus was made to Mr Unruh, so he sued Mr Seeberger for payment of the special bonus and joined Egana (who would have been liable to pay the special bonus if certain conditions were fulfilled but which never were) as the 2nd defendant in the action. The lower courts found in favour of Mr Unruh and rejected Mr Seeberger’s / Egana’s argument that the MoA was champertous and therefore unenforceable. Mr Seeberger and Egana appealed. 53.The CFA held that the challenge to the MoA failed because (a) Mr Unruh had a genuine commercial interest in the outcome of the arbitration as the means whereby the value of the asset which he had sold to Egana was to be realised, which also meant realising for himself a deferred part of his consideration for that sale[24] (page 70), and (b) an agreement which was to be performed in arbitral proceedings in a jurisdiction where maintenance or champerty did not exist (eg the Netherlands) should not be struck down by a Hong Kong court on those grounds (pages 74-76). 54.Ribeiro PJ explained that (a) maintenance of litigation by an unconnected third party by, say, financial support is directed at “officious intermeddling” in someone else’s litigation (pages 63-64),[25] and (b) champerty (a form of maintenance that involves a third party paying all or part of the litigation costs in return for a share of the subject matter or a division of the spoils if the action succeeds) is decried for encouraging perversion of justice and trafficking in litigation (page 69),[26] which concerns mark out champerty from other forms of maintenance (pages 63-64). 55.Ribeiro PJ explained that the early policy imperatives for maintenance and champerty, which developed in medieval England in response to wealthy nobles who could commandeer the judiciary and procure litigation to harass enemies, have long gone, and their scope has shrunk as a result of a “carving out” process by which the courts have formed a patchwork of exceptions/qualifications that exclude from the sphere of liability categories of conduct that otherwise constitute maintenance and champerty (pages 65 and 68):[27]
56.On the matter of modern public policy considerations that result in conduct being characterised as maintenance or champerty (page 68), Ribeiro PJ made 4 points:
(b) Winnie Lo 57.In Winnie Lo, X (not a lawyer) agreed with W for him to take 25% of the amount recovered if her son’s personal injury claim succeeded and to pay the fees/expenses to all related professionals on behalf of W. S (a solicitor) was told of W’s impecuniosity and took up the case on the basis that she would look to the defendant for her costs. The case of W’s son was settled for $3,500,000 of which $871,531.54 was paid into W’s account as “accrued items” for the son’s maintenance, care and benefit. But $861,651 (25% of the settlement sum) was withdrawn from W’s account and given to X. When S learned of the withdrawal, she asked W to account for the money. The sum was not repaid, and S then learned about the contingency fee arrangement and the payment to X. X was convicted of champerty and together with S of conspiracy to commit maintenance. The CFA allowed the appeal, and quashed S’ conviction. 58.Bohkary and Ribeiro PJJ held that the laws against maintenance and champerty are legally clear and certain.[35] They reiterated that the scope of these offences has progressively diminished over the years by the courts carving out the exceptions in paragraph 55 above to reflect changed public policy considerations (pages 31-32). Indeed, insofar as the laws against maintenance and champerty are in a state of development, they involve contraction and not expansion, so criminal liability has narrowed and not extended (see pages 31 and 45-46). But even though it may be said it is “far easier to say what is not maintenance than to say what is maintenance” (page 46) and there are doctrinal issues to be addressed (page 46), it does not mean maintenance and champerty should be regarded as legally uncertain (pages 46-47). Even though such principles have need for both flexibility and development, they possess the required legal certainty to qualify as measures duly “prescribed by law” for the purpose of article 39 of the BL, ie they have “a sufficiently clearly formulated core to enable a person, with advice if necessary, to regulate his or her conduct so as to avoid liability for that offence” (my emphasis) (page 44). (c) Policy and effect of maintenance and champerty 59.In Hong Kong, maintenance and champerty are criminal offences, torts and grounds of public policy for invalidating tainted contracts.[36] A contract of maintenance is unenforceable between the parties to it, and a champertous third party LFA is unenforceable as between the parties though the sums actually advanced to the champertor under such agreement have sometimes been held to be recoverable.[37] 60.Maintenance and champerty are unlawful for policy reasons, ie to protect the vulnerable litigant from being exploited, to protect the party facing the maintained litigation, and to protect the integrity of the court’s process. Excessive litigiousness and unrighteous suits that encumber the civil justice system are considered undesirable as a matter of policy, so the law discourages “officious intermeddling” where an unrelated third party without justification/excuse interferes with the disputes of others. There is also fear of entrusting control of litigation to an unrelated third party who may be “tempted for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses” or “otherwise to undermine the ends of justice” to the detriment of vulnerable litigants.[38] So historically, litigation funding for profit has been viewed askance as an abuse of process. But in recent times the formerly strict policy against maintained/champertous actions has been somewhat relaxed. Such evolution is inevitable because notions of public policy necessarily evolve to meet the changing legal, moral, social and economic environment, which requires the court to unshackle itself from the formerly strict constraints against maintenance and champety (see eg the Common Interest, Access to Justice and Miscellaneous Exceptions referred to in Unruh that give effect to other facets of public policy such as vindication of rights and access to justice). 61.There has been some suggestion that modern courts have by judicial experience and procedural measures developed inner strengths to address the abuse of process and the exploitation of vulnerables (see more discussions on in Part VII(b) below), but Ribeiro PJ in Unruh clarified that even in the modern environment, the mischief to be discouraged by the laws of maintenance and champerty is still “officious intermeddling” in litigation, in particular where this results in oppression of the person against whom the action is brought, and possibly if it may result in the general encouragement of litigatiousness (see paragraph 56(a) above). (d) Categories of relevant case law 62.Before I deal with the wealth of international case law harvested by Mr Scott SC, Mr Smith SC and the Amici in the discussions below, it is useful to see how the question of maintenance and champerty arose in those cases, and on this I borrow the 3 broad categories identified by Mr Smith SC:
63.As seen in the above paragraph and in further discussions below, the issues and considerations for Categories A-C differ even though they all touch on maintenance and champerty, which is something to be borne in mind when attempting to apply the international case law to the Husband’s application in the present proceedings, which in my view fell within Category A. For completeness, I also note the Husband’s application also fell within a category of cases where applications are made for pre-clearance court approval or sanction of third party LFAs and/or funding arrangements (“Category D”).[47] 64.As the Husband’s application in the present proceedings fell within Category A, I turn now to the proposition that maintenance and champerty are normally not a defence to the fundee’s underlying claim. (e) Maintenance and champerty not defence to underlying claim 65.Modern applications of maintenance and champerty distinguished between (a) assignment of property and ancillary rights and (b) assignment of bare right of action. Traditionally, an assignment of a cause of action under (a) above is upheld as it is ancillary to the transfer of a property and necessary for its enjoyment, but the assignment in (b) above is impermissible (unless it falls within a recognised exception[48]) as in substance it constitutes trafficking in litigation. The distinction between the treatment for these 2 kinds of assignment explains why maintenance and champerty is not a defence to an action or a ground for stay of the proceedings for cases in Category A, and why champerty can be raised as a defence for cases in Category B. 66.No defence or stay Although the opposing parties in the underlying action/proceedings may well be affected as a result of the fundee’s claim being supported by a third party LFA, illegal maintenance is not a defence to the action or a ground for stay of the proceedings (provided the action/proceedings do not constitute an abuse of process of the court[49]). Also, the champertous support of the fundee claimant in an action is probably not a defence to the action and probably affords no ground for a stay of proceedings.[50] The mere fact that the claimant is being funded under a champertous agreement is of no concern to the court trying the cause of action, or to the defendant, or to any other party. 67.Indeed, Ribeiro PJ in Unruh confirmed “[it] has never been a defence to an action nor a ground for a stay to show that the plaintiff is being supported by a third person in an arrangement which constitutes maintenance or champerty. Neither does liability for maintenance or champerty depend on the action or the defence being bad in law” (pages 66-67).[51] Further, in Re Lee Siu Fung, Seigfreid (a discharged bankrupt),[52] there were applications for discovery against A’s trustees-in-bankruptcy and for non-party discovery against B’s trustees-in-bankruptcy for documents to be used for an application to remove A’s trustees-in-bankruptcy. The applicants suspected the administration of A’s bankruptcy had been and was then still being funded by B as an investment in distressed assets, but the applicants as mere relatives of A lacked legitimate interest. Based on Unruh, G Lam J held that even if there were any underlying action in relation to A’s bankruptcy in which the applicants were the defendants (but there was none), “[it] is difficult to see what legitimate interest to pursue the discovery application the Applicants have in investigating the funding of the bankruptcy administration” (paragraph 19). 68.This is also borne out by the obiter observations in Giles v Thompson and related appeals.[53] That case concerned an agreement between a car hire company and a potential plaintiff (whose car needed repairs as the result of a motor accident for which he was not to blame and for which the negligent defendant was insured) whereby the latter received free car hire in return for agreeing that the car hire company could bring an action for damages (including the car hire company’s charges) in his name against the insured defendant. It was held that such agreement was not illegal as being champertous because it could not be said the car hire company intermeddled in the dispute between the plaintiff and the defendant with a view to dividing the spoils.[54] After all, the plaintiff retained control of the proceedings, and there was no risk to the administration of justice or to the plaintiff’s interests caused by the car hire company’s intervention. 69.In the English Court of Appeal, Steyn LJ observed obiter that even if such agreement were assumed to be champertous, champerty could not be pleaded as a defence to the action. Where a champertous agreement does not form part of the plaintiff’s cause of action but is merely linked with it in a collateral sense, champerty is not a defence. Likewise, Ralph Gibson LJ observed obiter that even if the car hire agreement were champertous, still the plaintiff could have recovered in law “on the ground that ...... the law is not concerned with what she will do, or can be required to do, with the sum recovered ......” (pages 340-341). 70.In Price Waterhouse Coopers & ors v National Potato Co-operative Ltd,[55] the South Africa Supreme Court of Appeal said at page 167 as follows:
Still further, in Seedlings Life Science Ventures, LLC, Madam Prothonotary Mireille Tahib of the Canadian Federal Court said as follows:
71.As noted in footnotes 5 and 13 above, the previous senior counsel for the Husband took the view that the Wife and the Brother as the opposing parties in the underlying Husband’s Claims would have the right to and could well have challenged the validity of the proposed third party funding arrangements on the basis that the 1st/2nd Declarations if granted would not have been binding on them. Mr Scott SC’s written submissions wavered uncertainly between asserting that “...... the legality of a [LFA] is a matter between the litigant (the Husband) and the third party funder (the [Funder]), which is separate from the underlying dispute (in this instance between the Husband and Wife)” (paragraph 80), and that “...... even if this Court has granted the Husband a declaration, the Wife can come to the Court to argue the point afresh, although this Court’s judgment will no doubt be taken into account” (paragraph 89). But by the time of the Hearing, Mr Scott SC, Mr Smith SC and Mr Wong SC all agreed the Wife and the Brother would not have been able to challenge any third party funding arrangements between the Husband and the Funder for the reasons explained above as the Husband’s case fell within Category A. 72.In the circumstances, I (like the Amici) respectfully disagree with the following dicta by Segal J in A Company v A Funder[56] to the opposite effect:
73.As seen below, Mr Scott SC strongly relied on A Company, a first instance decision in the Cayman Islands, as being analogous to the Husband’s case and supportive of the 1st/2nd Declarations. Whilst I am on this authority, it is useful to make 2 preliminary observations. First, for the reasons set out above, the parties in an underlying action cannot re-open the issue of legality of any third party litigation funding (save in the case of an assignment of a bare right of action to be discussed in paragraphs 75-82 below). I have reservations about any illustrative utility that may be borrowed from Segal J’s grant of the aforesaid pre-clearance declaration that rested, amongst other considerations, on the assumption (which I respectfully disagree) that the opposing parties in the underlying action / proceedings could still have disputed the legality of the funding. 74.Secondly, Segal J seemed to labour under an expectation that the declaration he granted and his views thereon would be taken into account and (more significantly) would be of some assistance to the plaintiff “in the event that the issue of criminal liability was subsequently raised”. But as will be seen in discussions below, any pre-clearance declaratory sanction of third party litigation funding will not bind or bar future prosecutorial decision and/or criminal trial, and in fact it is a recognised mischief of such pre-clearance declaration that it will inevitably influence/prejudice future prosecutorial decision and/or criminal trial (if any).[57] Indeed, Imperial Tobacco Ltd & anor v Attorney-General[58]and Securities and Futures Commission v Tiger Asia Management LLC[59] explained that declaratory approval/sanction of third party litigation funding is objectionable if it is “for the purpose of forestalling a prosecution or guiding a judge or magistrate at a criminal trial”, which mischief underlines the view that such declaration is only granted in very or truly “exceptional circumstances” when a failure to grant will necessarily result in an injustice being perpetrated (see paragraph 49(1)(b)-(c) above). I have reservations as to whether A Company is analogously useful when Segal J’s decision seemed to rest at least in part on the belief that the pre-clearance declaration he granted would have the “helpful” consequence of being “of some assistance to the plaintiffs” in any future criminal prosecution/trial. 75.Bare cause of action It has long been established at common law and equity that a bare cause of action may not be assigned to a third party as such assignments “savour of maintenance or champerty” and amount to trafficking in litigation. The essence of the objection is that a cause of action is not to be regarded as a marketable commodity.[60] This rule has its origins in the torts of maintenance and champerty, which torts are grounded in public policy, but it now seems to have an independent existence of its own.[61] 76.This rule has led to the following obiter observations by the English Court of Appeal in Giles about a plaintiff suing an assignee of a bare cause of action and relying on a champertous assignment that is crucial to the underlying cause of action:[62]
77.In Trendtex Trading Corporation v Crédit Suisse,[63] the plaintiff sold cement with payment to be made by confirmed letter of credit, and successfully sued the issuing bank for failing to honour such letter of credit. When the issuing bank appealed to the House of Lords, the plaintiff assigned its right of action to the defendant creditor to whom the plaintiff was heavily indebted for financial assistance provided in connection with the cement contract and the ensuing litigation. The defendant creditor then assigned the right of action to another. Subsequently, the plaintiff considered he was duped by the defendant creditor to make the assignment at gross undervalue, and sought to set aside the assignment on the ground that the whole transaction was champertous. It was held that if an assignee has a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, there is no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance.[64] Nevertheless, it remains a fundamental principle of English law that one cannot assign a bare right to litigate, so the assignment in that case, being the first step in a transaction whereby the cause of action was to be assigned to a third party who had no legitimate commercial interest in the transaction, was void, but had the assignment been merely to the defendant bank it would have been valid.[65] 78.In Beijing Tong Gang Da Sheng Trade Co Ltd v Allen & Overy & anor,[66] the plaintiff being the assignee under a deed of assignment of a cause of action previously vested in the assignor alleged the defendants (solicitors and counsel) rendered negligent advice to the assignor in relation to its claim. The plaintiff and the assignor entered into a LFA, and the consideration for the assignment was $100,000 and 10% (ie US$40,000,000) of the net proceeds of the action (valued at US$400,000,000). The assignor then removed itself from the litigation and substituted the plaintiff in its place. The defendants applied to strike out the plaintiff’s claim on the basis that the assignment being an attempt to assign a bare cause of action was champertous or otherwise invalid on public policy grounds. 79.In that case, the plaintiff’s right of suit depended on a champertous agreement, so champerty provided a defence to the claim. The Court of Appeal (“CA”) upheld the finding of champerty by DHCJ Le Pichon at first instance, who had examined the “totality of the facts” in coming to her conclusion that the transaction would pose a genuine risk to the integrity of the court’s process. It was said the transaction made no or little commercial sense, and the judge noted the vastly disproportionate potential return compared with the outlay in the LFA/assignment, which was a relevant/significant factor in considering the genuineness or otherwise of the impugned transaction. But in the end the CA did not consider it right to strike out the claim, and instead granted leave for the assignor (whose claim was not validly assigned) to be substituted as the plaintiff, and for the amended writ and statement of claim to be amended accordingly. But as DHCJ Fee at page 177 in Raafat Imam explained, the 2 distinguishing features of this Category B case were that (a) a striking out application based on Order 18 rule 19 of the RHC had “clear statutory jurisdictional basis”, and (b) there was a live issue between the parties on the matter of champerty to be resolved by the court, which factors also showed it was quite different from the present proceedings. 80.In Brownton Ltd & ors v Edward Moore Inbucom Ltd,[67] the plaintiffs obtained advice from the 1st defendant, and as result entered into a contract with the 2nd defendant for the supply, installation and maintenance of a computer system, which never worked and had to be scrapped. The plaintiffs sued the 1st defendant who alleged breach of contract by the 2nd defendant, so the plaintiff joined the 2nd defendant in the action. Before the trial, the 1st defendant made payment into court which the plaintiffs were prepared to accept to settle their claim against both defendants provided they could come to a satisfactory arrangement with the 2nd defendant regarding payment of costs. The 2nd defendant refused to forgo its costs against the plaintiffs, so the plaintiffs and the 1st defendant agreed that the plaintiffs would accept the payment into court, and on the basis that the 1st defendant would indemnify the plaintiffs in respect of any claim by the 2nd defendant for costs, the plaintiffs would assign to the 1st defendant all their rights of action against the 2nd defendant. The 2nd defendant challenged such agreement at trial, saying the assignment was champertous and void. 81.The English Court of Appeal held that an agreement to assign a cause of action is not champertous merely because the assignor or assignee or both contemplate as part of his/their genuine commercial interest in the agreement the making of some profit (ie the Common Interest Exception), but the prospect of excessive profit (which is to be looked at on the facts as a practical matter rather than as a matter of theory) may be taken into account in deciding whether that commercial interest is genuine. In that case, it was clear from the “totality of the facts” that the 1st defendant had a genuine commercial interest in taking the assignment of the plaintiffs’ cause of action against the 2nd defendant because the contracts by the plaintiffs with the 1st defendant and with the 2nd defendant arose out of the same commercial transaction, and both defendants were sued in respect of the same damage, so any sum recovered from the 1st defendant would reduce the sum recoverable from the 2nd defendant, hence the 1st defendant had a genuine commercial interest in reducing the amount of their own loss. Further, the sum paid into court by the 1st defendant which the plaintiffs sought to take out under the assignment agreement was in reality the consideration paid by the 1st defendant not merely for release from the plaintiffs’ claims against it, but also for the opportunity to reduce the burden of damages by the amount it might demonstrate to be the 2nd defendant’s liability to the plaintiffs which correspondingly increased the 1st defendant’s liability. It therefore followed that the assignment was not void for champerty. 82.It therefore seems, in my view, that the crux of the matter is not the effect of an assignment of a bare cause of action which is quite clear, but how to ascertain whether or not the third party funding arrangements in substance amount to an assignment of a bare right of action. I bear in mind that providing funding support for a party to pursue litigation is not of itself illegal maintenance, and receiving a portion of the litigation spoils is not of itself unlawful champerty, so the labels of maintenance and champerty by themselves do not really help in understanding the legitimate parameters of third party litigation funding. More is needed to show that any LFA and related funding arrangements are unlawful. The above cases suggest the “totality of the facts” have to be examined[68] to see if there is a tendency to corrupt public justice.[69] Here, although the Husband did not actually assign his cause of action to the Funder and his case is not within Category B, the considerations referred to above do inform the balancing exercise between competing public policies, the propriety of the D-LFA / proposed funding arrangements, and the debate whether any concerns can be managed through modern court procedure[70] or require some form of statutory and/or regulatory framework/safeguards, which matters are discussed in Part VII below. VI. JURISDICTION AND PUBLIC POLICY ISSUES (a) Whether 1st/2nd Declarations by nature civil matter or involve declaration of non-criminality 83.The main reliefs in the Amended OS essentially sought pre- clearance declarations that the proposed third party “funding arrangement” for the Husband’s various claims “shall not breach the laws of maintenance and champerty”. As maintenance and champerty are torts as well as policy grounds for invalidating tainted contracts, such declaratory reliefs for prior court assurance that the proposed third party “funding arrangement” would not be void for illegality must be a civil matter. The relevant question was whether the 1st/2nd Declarations also embraced a declaration of non-criminality given that maintenance and champerty are also crimes in this jurisdiction. The respective stance of the Husband, the SJ and the Amici are summarised below:
84.Given the eventual consensus among senior counsel that the 1st/2nd Declarations did embrace a declaration of non-criminality, it appeared at first blush there would be littleneed to delve into the reasons for such conclusion. But on further reflection, as the Husband’s alternative case contemplated that any declaration of non-criminality should (and could) be hived off or removed from the 1st/2nd Declarations, it would be useful to explore the reasons why the 1st/2nd Declarations did involve a declaration of non-criminality to facilitate consideration of the feasibility and/or vitality of such “qualified declarations”. In this regard, I agree with Mr Wong SC’s analysis as follows (and I also refer to the further discussion in paragraph 68 of Judgment (2)):
(b) Purpose of declaration of non-criminality 85.To understand the court’s jurisdiction for granting a declaration of non-criminality, which (as will be seen below) is quite limited, it is essential to appreciate the purpose for seeking/granting such declaration. As explained by Lord Steyn (page 368) and Lord Scott of Foscote (page 372) in Regina (Rusbridger & anor) v Attorney-General,[72] where the prospect/risk of criminal prosecution over an act the legality of which is in doubt[73] may impose a “chilling effect” to deter the affected individual[74] and cause him serious or overwhelming injury,[75] the civil court may find it necessary to determine whether in the interests of justice a declaration of non-criminality should be granted to relieve or reduce such “chilling effect”. Thus, the House of Lords granted such declaration in Airedale NHS Trust v Bland in view of the “overwhelming interest of an individual in the grant of a declaration that the cessation of life-sustaining medical support was lawful”.[76] 86.But the House of Lords declined to grant such declaration of non-criminality in Rusbridger (see footnotes 73-75 above for a brief summary of that case) because “[given] that the editor did publish articles advocating a republic, the argument [as to the “chilling effect” of section 3 of the Treason Felony Act 1848] was threadbare. Clearly, the editor ...... has not slept uneasily in his bed for fear of being prosecuted under section 3 of the 1848 Act” (page 368). Absent such “chilling effect”, the rationale for a declaration of non-criminality was not made out in Rusbridger. (c) Potential criminal liability for maintenance and champerty 87.A third party funder who maintains litigation under a LFA / funding arrangements in return for a division of the litigation spoils is potentially liable for the criminal offences of maintenance and/or champerty. But is the fundee also potentially liable as well? Mr Scott SC submitted only the Funder (the so-called “intermeddler” but who was not a party to the present proceedings) and not the Husband (the intended fundee who was the applicant in the present proceedings) would be potentially liable, and for this view he relied on the observations by Ribeiro PJ in Winnie Lo at page 45 and the dictum by Madam Prothonotary Mireille Tabib in Seedlings Life Science Ventures, LLC at paragraph 19. 88.In Winnie Lo, Ribeiro PJ observed that “[the] kernel of the offence of maintenance has always involved a defendant’s “officious intermeddling” in litigation in which he has no legitimate interest. And the crux of champerty has always involved a defendant who takes a share of the proceeds of the litigation maintained” (page 45). But as Mr Wong SC pointed out (and I agree), this only describes the essence of the offences of maintenance and champerty, but does not address the issue of whether the fundee (in contra-distinction to the funder) can also be criminally liable for committing such offences. Anyway, Ribeiro PJ in Winnie Lo noted that W (ie the fundee) “had testified under immunity from prosecution” (page 28), and observed that “[if S] knew of the champerty involved, she might be said to have aided and abetted the commission by [W] [ie the fundee who was maintained/funded in return for agreeing to share the litigation spoils with the funder] of the offence of champerty. And then [S] herself would have committed the offence of champerty (because – as s.89 of the Criminal Procedure Ordinance (Cap.221) provides – “[a]ny person who aids, abets, counsels or procures the commission by another of any offence shall be guilty of the like offence”) ......” (my emphasis) (page 32). In my view, these observations implicitly suggested the fundee can potentially commit the crimes of maintenance and champerty. 89.In Canada, maintenance and champerty are no longer crimes since 1953,[77] but the concepts remain to render contracts that constitute maintenance or champerty unenforceable as being contrary to public policy.[78] In Seedlings Life Science Ventures, LLC, Madam Prothonotary Mireille Tabib saidas follows:
90.In my view, the dictum in paragraph 19 in Seedlings Life Science Ventures, LLC (see above paragraph), when properly read, again deals with the essence of maintenance and champerty. It is not controversial that the torts/crimes of maintenance and champerty focus primarily on the conduct and motive of the maintainer/funder when maintenance essentially involves a maintainer/funder (who has neither interest in the action nor motive recognised by the law that justifies his interference) giving assistance or encouragement to the maintained/ fundee. But this does not preclude Ribeiro PJ’s views that the maintained/ fundee can also be liable for the offence of champerty (ie a particular kind of maintenance of an action “in consideration of a promise to give the maintainer a share of the subject matter or proceeds thereof, if the action succeeds”[79]). In any event, a review of R v Goodman[80] cited in support of the dictum under discussion showed it is not an authority for the proposition that the maintained/fundee cannot be held criminally liable. In my view, Seedlings Life Science Ventures, Inc does not say the fundee cannot be criminally liable in jurisdictions where maintenance and champerty are still crimes. 91.In light of the above analysis, I find it arguable (but there is no need for me to decide) that both funder and fundee may be liable for the criminal offences of maintenance and/or champerty. (d) Interest in 1st/2nd Declarations 92.Fundee But notwithstanding the legal discussions in Part VI(c) above, the Husband, who had the benefit of legal advice from solicitors and senior counsel, was all eagerness to obtain third party litigation funding from the Funder pursuant to the proposed funding arrangements / D-LFA (on the Funder’s terms that the Husband himself put forward in the C-Memo) to finance the Husband’s Claims. The Husband appeared to have little if any qualms about liability on his own part as seen from (a) Mr Scott SC’s views maintained even at the Hearing as seen in paragraph 87 above, (b) the Husband’s original stance that the 1st/2nd Declarations did not include any declaration of non-criminality (see paragraphs 27 and 83(a) above), and (c) the SCG 2nd Aff that made clear it was the Funder who was concerned that extending funding to the Husband might breach maintenance and champerty (see paragraphs 44-45 of Judgment (2)), and there was no suggestion that the Husband would dispute the validity of and/or would resile from the D-LFA (if entered into) that might give rise to any risk of dispute with the Funder over the enforceability of such funding agreement. Even though the Husband’s stance in (b) above was subsequently revised at the Hearing to embrace a declaration of non-criminality as his primary case, this came about not because of his anxiety but because of Mr Scott SC’s recognition of the difficulties in maintaining the Husband’s original stance in face of the nature/terms of (i) the 1st/2nd Declarations when considered against the relevant case law, and (ii) Mr Smith SC’s / Mr Wong SC’s submissions at the Hearing. In my view, the Husband pursued the present proceedings because he wished for the Funder to provide litigation funding as proposed to enable him to pursue the Husband’s Claims, which commitment, as the Husband well knew, was dependent upon the Funder’s rather than his insistence that this court would grant the 1st/2nd Declarations to the effect that the Access to Justice Exception was applicable (see paragraph below). 93.Funder I have no doubt the Funder as the intended maintainer/funder, despite not being a party to the present proceedings, had an interest in the outcome of the proceedings. Indeed, I agree with the Amici that the present proceedings for the 1st/2nd Declarations by the Husband as the sole applicant seemed to be primarily for the benefit/comfort of the Funder who made clear it would agree to the proposed funding arrangements / D-LFA for the Husband only “if this Court declares that the Husband’s case is one that falls within the “access to justice” exception”.[81] Clearly, the present proceedings were commenced/pursued because of such insistence by the Funder, who was reluctant to take any chance over criminal/civil liability under the common law rules of maintenance and champerty (see also paragraphs 69-70 of Judgment (2)), and who required the assurance of pre-clearance court sanction as a condition precedent for its commitment to the proposed funding arrangements / D-LFA (see paragraph 71 of Judgment (2)).[82] This view was bolstered by the fact that the Husband put forward the Common Interest Exception Issue (see paragraph 15(d) above) as a relevant Issue for consideration by the court[83] as only a funder can rely on such exception to defend against potential criminal liability for maintenance and champerty. 94.Queries This raised a number of interesting questions that would go to the propriety or otherwise of granting the 1st/2nd Declarations. Primarily, this raised the question of the court’s jurisdiction in granting such declarations that involved a declaration of non-criminality (see Part VI(e) below). But a host of other queries are also pertinent, eg (a) whether the absence of the Funder as a party to the present proceedings and the lack of any lis between the Husband and the Funder would render the Husband’s ex parte application before the court academic/ hypothetical and hence inappropriate for determination, and/or (b) whether it was for the Funder and/or the Husband to seek their own legal advice and to decide/act accordingly rather than for the court to give advisory legal opinion (see discussion in the context of the “qualified declarations” in Part VI(g) below which applies mutatis mutandis to the context here). 95.I turn now to the matter of the court’s jurisdiction for granting declaration of non-criminality. (e) Jurisdiction to grant declaration of non-criminality 96.It appears well-established that civil courts have jurisdiction to grant declaration of non-criminality. The principles for the exercise of such power can be found in the leading House of Lords authorities of Imperial Tobacco Ltd & anor and Rusbridger, which principles have been more recently analysed by the English Court of Appeal in Regina v L.[84] 97.In Imperial Tobacco Ltd & anor, the plaintiff tobacco manufacturers took legal advice, and in October 1978 started a “Spot Cash” advertising scheme. After the scheme started, competitors of the plaintiffs sought the Attorney-General’s consent for a relator action to test the scheme’s legality. Such consent was refused, and the competitors’ complaints were passed to the DPP who considered the scheme illegal. In November 1978, summonses were laid against the plaintiffs and some of their directors/managers. By an originating summons issued in December 1978, the plaintiffs claimed for a declaration that the scheme was lawful and did not contravene the Lotteries and Amusements Act 1976 as being either a lottery or an unlawful competition. Donaldson J held he had jurisdiction to hear such application, but dismissed the claim for declaratory relief on the ground that the scheme was both an unlawful lottery and an unlawful competition. The judgment of the House of Lords was helpfully summarised at the headnote at page 720 as follows:
98.Viscount Dilhorne made clear that the reason why civil courts generally should not exercise their discretion to grant declaration of non-criminality is the prejudicial effect of such an order would have on the criminal proceedings without binding the criminal courts (page 741):
Lord Lane also said at page 752 as follows:
99.In Regina v L, the English Court of Appeal approved the essential reasoning of Imperial Tobacco Ltd & anor as distilled by Beatson J at first instance (whose judgment was upheld) as follows: “a declaration as to the lawfulness by the civil court is not in itself a bar to a criminal prosecution, even when the parties are the same in both proceedings”[85] (page 3101). Such rationale is also succinctly set out in the Amici’s written submissions in relation to the 1st Declaration (with which I agree):
This rationale also applied to the 2nd Declaration. This meant that the very nature of the 1st/2nd Declarations itself raised a need to consider whether they had the objectionable effect of “forestalling a prosecution or guiding a judge or magistrate at a criminal trial” as explained in Imperial Tobacco Ltd & anor and Tiger Asia Management LLC (see paragraph 74 above).[86] 100.So when will a declaration of non-criminality be granted? Viscount Dilhorne said at page 742 in Imperial Tobacco Ltd & anor that “[in] my opinion it would be a very exceptional case in which it would be right to [grant a declaration of non-criminality]. In my opinion it cannot be right to grant a declaration that an accused is innocent after a prosecution has started”. Lord Steyn in Rusbridger summarised the principle discussed in Imperial Tobacco Ltd & anor as follows (page 366):
101.The factual circumstances of Imperial Tobacco Ltd & anor differed from the present case in the sense that the Attorney-General there had commenced (and indicated intention to pursue) criminal prosecution of the plaintiffs while the SJ here had not yet taken any step in this regard. Lord Steyn in Rusbridger said at page 366 “[all] that need be said about the actual decision of the House in Imperial Tobacco is that it was based on the paradigm for the application of the restrictive principle” (page 366), and he acknowledged Viscount Dilhorne in Imperial Tobacco Ltd & anor did express himself more generally as follows:
102.Mr Scott SC in his initial submissions suggested the criterion of “very exceptional circumstances” (and Mr Smith SC laid emphasis on the intensifier “very” in such criterion) expounded in Imperial Tobacco Ltd & anor would not apply to the Husband’s case which did not concern existing or pending criminal prosecution, but involved potential criminality of future conduct (which was not the ratio in Imperial Tobacco Ltd & anor although Viscount Dilhorne’s obiter observations in the above paragraph drew little distinction between existing criminal proceedings and future potential criminality). However, Mr Scott SC in his written/oral submissions did not articulate what the criterion should be if it were not the “very exceptional circumstances” mentioned by Viscount Dilhorne. Anyway, after hearing submissions by Mr Smith SC and Mr Wong SC at the Hearing, Mr Scott SC in his reply submissions was constrained to accept that even when criminal proceedings have not been commenced, an applicant seeking a declaration of non-criminality still has to jump a high fence by establishing very “exceptional circumstances” (nevertheless Mr Scott SC argued such criterion had been satisfied in the present case, but more of that later). 103.In my view, Mr Scott SC’s concession was unsurprising in light of the legal principles as explained in Rusbridger, which case was not about current criminal proceedings but potential criminal consequences, and in this sense Rusbridger was factually more close to the present case. As alluded to in footnotes 73-75 and paragraph 86 above, Rusbridger concerned the prohibition under the Treason Felony Act 1848 against publishing articles advocating the abolition of the monarchy. In November 2000 the claimants (editor and journalist) agreed with other employees of the newspaper to write/publish a series of articles advocating republicanism, but none of the articles would incite the use of unlawful force. There were no pending or threatened criminal proceedings. The editor, who was aware of the aforesaid prohibition, wrote to the Attorney-General informing him of the newspaper’s proposal to publish the articles and seeking an assurance that he would either dis-apply the prohibition as having fallen into desuetude or on the ground that any prosecution thereunder would be contrary to the right to free speech set out in article 10 of the Convention for the Protection of Human Rights and Fundamental Freedoms scheduled to the Human Rights Act 1998, or alternatively a declaration would be sought to the effect that the prohibition should be interpreted so far as was possible to comply with article 10. 104.The House of Lords held as follows (page 358):
Lord Steyn noted the exceptional nature of a declaration of non- criminality by a civil court (page 366), and maintained the view that “[normally], the seeking of a declaration in a civil case about the lawfulness of future conduct will not be permitted. But in truly exceptional cases the court may allow such a claim to proceed” (my emphasis) (page 367). Mr Smith SC again urged this court to note the intensifier “truly” in relation to the “exceptional circumstances” required to be established for the exercise of the power to grant any declaration of non-criminality. 105.For the same reasons explained by Viscount Dilhorne and Lord Lane in Imperial Tobacco Ltd & anor and discussed in paragraph 98 above, subsequent cases (as in Rusbridger) have on a number of occasions emphasised that generally a declaration of non-criminality in respect of conduct which is the subject of potential rather than actual/threatened criminal prosecution should still not be made. 106.In Amstrad Consumer Electronics Plc v The British Phonographic Industry Limited,[87] the English Court of Appeal held that once there is possibility of criminal proceedings, a declaration of innocence vis-à-vis conduct that is the subject matter of potential criminal proceedings should not be made. In that case, the defendant sent a letter to the plaintiff alleging the latter acted unlawfully in the way it advertised and marketed its tape recorders, and in particular the defendant was of the view that the plaintiff encouraged/enabled purchasers to infringe copyright in pre-recorded cassette tapes by using the plaintiff’s two-deck tape recorders to duplicate such tapes. The plaintiff sought a declaration that it had not acted unlawfully.[88] The first instance judge declined to grant such declaration as he was of the view that a criminal offence could have been committed by the plaintiff who “could be said to be inciting or procuring or aiding or abetting acts of copyright infringement by those who used their audio-systems for that purpose” (page 160). 107.But on appeal to the English Court of Appeal, Lawton LJ at page 209 held as follows:
Slade LJ agreed with Lawton LJ that “...... the putting out by [the plaintiff] of advertising material of the nature complained of might be capable of amounting to an incitement to commit a crime though, for the reasons given by him, I also agree that it would neither be necessary nor proper for this court to decide on the evidence before it whether or not [the plaintiff] has in fact committed any such offence. In these circumstances and in the final result, it seems to me plain that this court cannot properly grant [the plaintiff] the declaration which it seeks, or any other declaration of lawful conduct ......” (pages 216-217). Glidewell LJ also agreed with such observations (page 219). 108.In Regina v L, E died aged 3 months in 2003, and the father was subsequently charged with E’s murder in 2004. In the course of care proceedings heard in 2005 relating to J (E’s half-brother), it was found that E died of non-accidental injuries, but on the evidence it was not possible to say whether E’s father or mother was more likely to have inflicted those injuries. At the murder trial of E’s father in 2006, Beatson J rejected the submission that in light of those findings the criminal proceedings should be stayed as an abuse of process, and E was eventually convicted of manslaughter. The English Court of Appeal dismissed the appeal by E’s father. Although concerns for J arose from E’s death, it was held that “the ultimate question for decision in the care proceedings was not whether [the father] killed E and neither the [father] or mother could have been convicted or acquitted of a criminal offence, and the court responsible for the care proceedings had no jurisdiction in relation to criminal proceedings against [E’s father]; and that, accordingly, there had been no abuse of process and the judge had been right to allow the criminal proceedings to continue” (see the headnote at page 3092). 109.Although Mr Scott SC argued that the facts of Regina v L were so far different from those in the present proceedings that such authority would not set any precedent from which this court could draw assistance in considering whether or not to grant the 1st/2nd Declarations, I note Sir Igor Judge P (in handing down the judgment of the court in Regina v L) helpfully explained the relevant principles from Imperial Tobacco Limited & anor as follows:
110.In Wing Joo Long Ginseng Hong (Singapore) Co Pte Ltd v Qinghai Xinyuan Foreign Trade Co Ltd,[89] criminal proceedings had been commenced against the plaintiff via private summonses. The Singapore Court of Appeal cited Imperial Tobacco Ltd & anor and Amstrad Consumer Electronics Plc, noting “[it] appears to be well-established law that a civil court ...... has the jurisdiction to grant a declaration even if it pertains to criminal proceedings”, but adding that “[it] appears to be equally well-established law that a civil court will, in normal circumstances, be slow to grant a declaration relating to the criminal consequences of conduct ...... The rule is not inflexible, however, and the court may grant declaratory relief relating to the criminal consequences of conduct in appropriate cases. The circumstances in which it will be appropriate for a civil court to do so, however, are likely to be very rare and exceptional ......; for instance, it must be shown that the criminal proceedings have not been properly brought or are vexatious or constitute an abuse of process in that the facts alleged do not in law prove the offence charged ......” (my emphasis) (paragraphs 180-181 and 192). 111.Chao Hick Tin JA (delivering the judgment of the court) referred to the policy reasons “as succinctly elucidated by Gibbs A.C.J. in Sankey”[90] as follows (paragraph 182):
Chao Hick Tin JA also took note that Amstrad Consumer Electronics Plc went further than Imperial Tobacco Ltd, and “would stand for the proposition that so long as there is a real possibility that criminal proceedings may be initiated, a civil court should be slow to make any declaration which could have the effect of prejudicing the subsequent criminal proceedings” (paragraphs 189-190). 112.Raafat Imam also concerned potential criminality of future conduct (ie the scenario contemplated in Amstrad Consumer Electronics Plc). In that case, the plaintiff sued the 1st to 3rd defendants for breach of a consultancy agreement and a guarantee for the performance of such agreement. The plaintiff claimed that owing to impecuniosity he was unable to pursue his claim without financial assistance, and sought the reliefs set out in paragraph 29 above. DHCJ Fee explained that a declaration of non-criminality was inherent in the application (see paragraph 84(a) above), and cited with approval the principles in Imperial Tobacco Ltd & anor and the extension made by Amstrad Consumer Electronics Plc as analysed in Wing Joo Long Ginseng Hong (Singapore) Co Pte Ltd (pages 167-168). 113.In my view, the above authorities all pointed towards the principle that this court has jurisdiction to grant a declaration of non- criminality in respect of (a) actual/threatened criminal proceedings and/or (b) future conduct that may possibly give rise to criminal prosecution, but such jurisdiction is exercisable only in very or truly “exceptional circumstances”. (f) Whether pre-clearance declaration of non-criminality “meaningless” 114.Mr Wong SC submitted that if this court were to grant the 1st/2nd Declarations to the effect that the “funding arrangement” (ie the entire conduct and not just the terms of the D-LFA) would not be in breach of the laws against maintenance and champerty because the Access to Justice Exception was made out, such declarations would not be “meaningless” as they would inevitably prejudice any future prosecutorial decision or criminal trial, which must be objectionable on the principles discussed in Imperial Tobacco Limited & anor and in the subsequent cases referred to in paragraphs 106-112 above. In his oral submissions at the Hearing, Mr Smith SC readily acknowledged this. In my view, this quite explained why the civil courts do not grant such declarations save in rare or exceptional circumstances. 115.But Mr Smith SC suggested the 1st/2nd Declarations were “meaningless” in the sense adopted in Regina v L that they would not bind any party in future criminal prosecution (if any). In this respect, Mr Smith SC drew attention to the following observations by the English Court of Appeal in Regina v L at pages 3106-3107:
116.From the above, it is clear that questions of guilt or innocence for criminal liability should be determined by the criminal courts (whether by judges/magistrates or jury) in open court, and a declaration of non-criminality made in civil proceedings (including proceedings in which the SJ is an intervener or interested party and also proceedings that are not open to the public) is “meaningless” in that it will not bar future criminal prosecution/trial. 117.This is reinforced by BL63 which provides that “[the DoJ] of the Hong Kong Special Administrative Region shall control criminal prosecutions, free from any interference”, which article was discussed in Re C (a bankrupt).[91] In that case, by 2 ex parte applications under section 138 of the Bankruptcy Ordinance Cap 6 (“BO”), the Official Receiver sought orders to prosecute 2 bankrupts for offences contrary to the BO, ie bankrupt C was guilty of gambling etc whereas bankrupt L failed to keep proper accounts, and in the latter case the BO provides that “[a] prosecution shall not be instituted against any person under [sections 133-134] except by order of the court” while section 138 specifically provides that “...... no such order [for prosecution] shall be a condition antecedent to any prosecution under [the BO]”. The Official Receiver appealed against the dismissal of the applications. Leave was given to the SJ to intervene and make representations, and detailed submissions were also received from an amicus curiae. The CA held the CFI’s power under section 138 to order prosecution of a bankrupt under the BO does not contravene BL63 because such power (a) is ancillary to a function that is judicial and (b) may reasonably be construed as subject to the rights of the SJ to decline to proceed with prosecution where his signature to a charge sheet or an indictment is required or to stop a prosecution by the entry of a nolle prosequi as he sees fit. In short, a court order made under section 138 of the BO does not direct the SJ to prosecute (especially as the SJ’s decision-making process has not yet commenced when the provision is invoked) (see pages 594-599). 118.Stock JA (as he then was) (with whom Kwan J (as she then was) and Ma CJHC (as he then was) agreed) analysed BL63 as follows at pages 590-593:
119.In my view, this independence of the SJ’s prosecutorial function underlies the principles that (a) a declaration of non-criminality by a civil court will not bind the prosecuting authority or fetter its power in bringing or stopping any criminal prosecution (which was why Sir Igor Judge P in Regina v L and Mr Smith SC regarded such declaration as “meaningless”), and (b) such declaration will not be granted save in very or truly exceptional circumstances, which the House of Lords held at page 366 in Rusbridger to be in line with the rule that the decision by the DPP to consent to a prosecution is not amenable to judicial review absent dishonesty, mala fides or exceptional circumstances (see R v Director of Public Prosecutions, ex p Kebilene[92]).[93] 120.Although Mr Wong SC did not ascribe to the description that the declaratory reliefs sought by the Husband in the present proceedings were “meaningless”, he readily shared the SJ’s “misgivings” as to whether the court should grant the 1st/2nd Declarations if (a) the Husband merely sought the advisory “views” of the court on the propriety of the terms on the face of the D-LFA (rather than on the entirety of the proposed funding arrangements) and (b) such declarations were to be granted without prejudice to any subsequent prosecutorial decision or criminal trial. 121.If the 1st/2nd Declarations would not bar (as Mr Smith SC put it) or, to put it in another way, would be without prejudice to (as Mr Wong SC put it) any future prosecutorial decision or criminal trial, broad queries then arise in respect of such enfeebled declarations (see Part VI(g) below). In my view, the SJ’s “misgivings” (shared by Mr Wong SC) are in line with the above authorities that the jurisdiction of the civil court to grant declaration of non-criminality is limited to very or truly “exceptional circumstances”, and such “misgivings” will be enhanced if any declaration of non-criminality is to be hived off or removed from a pre-clearance declaration for court approval of third party litigation funding (even if it were practically feasible to do so). It is, therefore, useful for me now to turn to the Husband’s alternative case in paragraph 27(b) above. (g) Whether “qualified declarations” “meaningless” 122.“Meaningless” declarations Mr Smith SC suggested the 1st/2nd Declarations sought by the Husband would be all the more “meaningless” in the sense explained above if (even assuming it were practical to do so – but see discussion in Part VI(h) below) any declaration of non-criminality were to be hived off or removed from the declaratory reliefs sought by the Husband under his alternative case. Mr Wong SC also had reservations about the practical utility of such “qualified declarations”. But Mr Scott SC made light of such misgivings. For reasons set out below, I share the SJ’s and the Amici’s concerns. 123.Interface with Access to Justice Exception First, I agree that such “qualified declarations” would be of limited practical utility as the question whether the third party funding arrangements would come within the Access to Justice Exception will not sound in “high level principle” only and can only be answered after (a) examining the “totality of the facts” of the case and (b) carrying out a balancing exercise between the competing public policies (see paragraph 99 above). I refer to paragraph 49(2)(b)(i)-(ii) above in which Mr Scott SC acknowledged (a) above and also (b) above (even though he suggested the court can carry out such balancing exercise). This is discussed in greater detail below in Parts VI(j) and VII below, but suffice to state here that I do not agree with Mr Scott SCs submissions that the relevant facts to be considered for (a) above were just the Husband’s allegations that he had no financial resources and could not afford the legal fees for the Husband’s Claims. 124.“Chilling effect” addressed? Secondly, as explained in Part VI(b) above, the essential purpose for a civil court in granting pre-clearance declaratory sanction for third party litigation funding is to serve the interests of justice by relieving or reducing the “chilling effect” on the affected individual that deters him from potentially criminal/ tortious conduct and thereby causing overwhelming/serious injury. But as Mr Smith SC and Mr Wong SC submitted, the “qualified declarations” will have no effect or influence on, or no protective effect against, any risk of criminal prosecution or illegality finding, which therefore removes the fundamental necessity or justification for granting such pre-clearance declaration to avoid injustice in the first place. 125.No lis between funder and fundee Thirdly, as explained in Part VI(d) above, there was no lis between the Husband and the Funder over the enforceability/effect of the D-LFA if entered into by the Husband and the Funder, which was quite different from Category C cases concerning disputes between the funder (who tries to enforce the LFA) and the fundee (who tries to resile from the LFA so as to, say, keep the litigation spoils). Here, the Husband was more than eager to obtain the litigation funding support on terms put forward by the Funder with no indication of any intention to challenge the D-LFA (see paragraph 92 above), and the Funder must be taken to support the Husband’s application in the present proceedings, especially when the SCG 2nd Aff made clear it was only willing to agree to the proposed funding arrangements “if this Court declares the Husband’s case is one that falls within the “access to justice” exception” (see paragraph 93 above). 126.Absent any “chilling effect” of potential criminality under the “qualified declarations” that would not address any criminal consequences of future conduct, absent any lis between the Husband and the Funder over any future enforcement of the D-LFA (if made by them), and bearing in mind that maintenance and champerty do not constitute any defence to the underlying claim in Category A cases (see Part V(e) above), it seemed that the motivation for seeking the “qualified declarations” was to give comfort to and to assure the Funder it would be allowed a division of the litigation spoils under the D-LFA if entered into by the Husband and the Funder, ie an assurance that the Husband would have to disgorge the validly contracted benefit under the D-LFA to the Funder should he succeed in the Husband’s Claims that were to be financed with the Funder’s funding. 127.Husband’s stance The Husband admitted as much by way of Mr Scott SC’s oral submissions. When this court queried the purpose/scope of the “qualified declarations” without any declaration of non-criminality, Mr Scott SC submitted they would at least recognise the civil lawfulness of the proposed funding arrangements and/or the contractual validity/enforceability of the D-LFA on terms put forward by the Funder. Mr Scott SC suggested that commercial/professional funders are in the business of investing in litigation with the strategic aim of achieving positive return, and they become wary if the investment prospects look unsound, so they will be keen to at least know whether the LFA is civilly lawful and contractually enforceable (so as to allow them a division of the litigation spoils) in order to hedge their investment risk. Thus, it was said the “qualified declarations” would help the Funder debate/ decide whether to commit itself to the proposed funding arrangements / D-LFA notwithstanding what Mr Scott SC described as the perceived low or remote risk (given the antiquity of the laws of maintenance and champerty) of possible criminal prosecution. 128.A number of matters arise from such submissions:
129.Funder not a party Given the aforesaid motivation to give comfort to the Funder, the procedural construct adopted by the Husband in the present proceedings (ie an ex parte application to the court made solely by the Husband) without the Funder being made or invited to be a party to the present proceedings[94] plainly exuded an aura of artificiality.[95] I note, for example, that in Seedlings Life Science Ventures, LLC, both the fundee and the funder jointly applied to the court for pre-approval of the LFA. 130.Hypothetical question Both Mr Smith SC and Mr Wong SC drew attention to the following observations of Lord Hutton in Rusbridger to say it is not the function of the courts to decide hypothetical questions that do not impact on the parties before them and that will only sound in potential future interest (eg if and when the fundee challenges the enforceability of the LFA and/or disputes paying over the spoils):
(see also observations by Lord Bridge in Ainsbury v Millington[96] set out in paragraph 173 below). 131.No breach or threatened breach Mr Smith SC further added that the court will not grant a declaration where there is no breach and no threat/intention to commit a breach of contract. In Mellstrom v Garner & ors,[97] the plaintiff and 2 defendants executed an agreement (which did not make much sense) dissolving the partnership among them, and the plaintiff sought a declaration that upon the true construction of such agreement, in the event that he ceased to be a “salaried partner” he would be under no restriction against “canvassing” or accepting any clients of the defendants whom he might have introduced to them after the date of the dissolution agreement or any clients other than those who had been clients of the partnership before dissolution. Harman LJ at page 604 noted “[it] was not said that either of them has either broken any of its provisions or seeks to break them; it is not suggested that there are any facts whatever to be considered; and we are to make what in my younger days used to be called a declaration “in the air””. Salmon LJ at page 606 said as follows:
Karminiski LJ at page 606 reiterated “[the] practice as to declarations regarding the future is one which is exercised, as I understand it, with very considerable reserve. It is not the practice to grant one if it is embarrassing or useless for any good purpose”. 132.Advisory legal opinion Fourthly, Mr Wong SC submitted (and Mr Smith SC made similar submissions) that the “qualified declarations” under the Husband’s alternative case were also objectionable because they would be ineffectual and might fall foul of the principle that the court should not give legal opinion on any issue (including the terms of the D-LFA) that would not be dispositive of the cause. The court’s approach as explained in Macnaughton in the paragraph 130 above made clear that the courts are not to dispense advisory opinion. 133.Practically speaking, the “qualified declarations” by hiving off any declaration as to any criminal consequences of future conduct (even if it were practically feasible to do so – see the discussion in Part VI(h) below) were nothing more than asking for the court’s opinion on (a) the enforceability of the D-LFA (if entered into), and/or (b) the risk of breaching the laws of maintenance and champerty in the civil sense, which must be a matter between the Husband and the Funder, the latter of whom was not even a party to the present proceedings. But, as explained in paragraphs 125-126 above, there was actually no lis between the Husband and the Funder over the matters in (a)-(b) above. 134.Mr Scott SC submitted the “qualified declarations” were not about academic issues regarding the future, but about a real, immediate and live practical question that was critically important to the Husband who, quite tragically, found himself devoid of funds for the Husband’s Claims as a result of the Wife impoverishing herself by wrongful asset transfer to the Brother.[98] In my view, such submissions missed the point. The “live practical question” referred not to the Husband’s own personal situation (ie his alleged impecuniosity), but to inter partes dispute (if any) between the Husband and the Funder that would require determination by the court. As explained in Part VI(d) above, the Husband was more than eager to obtain the proposed funding support on terms put forward by the Funder in view of his alleged impecuniosity with no indication of any intention on his part to challenge or resile from the D-LFA if entered into by him and the Funder, and hence the essence of the “qualified declarations” was to give comfort and assurance to the Funder for its commitment to finance the Husband’s Claims. In short, there was no lis between the Husband and the Funder, and the Husband’s own alleged inability to fund the Husband’s Claims without funding support was in fact the common basis (rather than any lis) between him and the Funder that led to the D-LFA, the proposed funding arrangements and the present proceedings. 135.Indeed, even if a fundee (eg the Husband here) and a funder (eg the Funder here) as parties to a LFA (eg the D-LFA here) choose/ agree to make the LFA and/or the funding arrangements conditional or contingent upon securing prior court sanction to the extent that the Access to Justice Exception is applicable (ie the D-LFA would only take effect upon sanction/approval by the court[99]), such condition precedent will not of itself confer jurisdiction for granting pre-clearance declaration.[100] There is much to be said for the proposition that it is not for the court to give confirmatory advisory legal opinion, and rather it would be for the Funder (as a commercial/professional funder with interest in the matter and ready access to lawyers) and the Husband (as a fundee who was/is represented by solicitors and senior counsel) to seek legal advice on whether (a) any conduct will be in breach of the laws of maintenance and champerty, and (b) any proposed LFA is justified on the basis of, say, the Access to Justice Exception,[101] and to act accordingly. (h) Practical feasibility of carving out declaration of non-criminality 136.As alluded to in paragraph 122 above, the Husband’s alternative case was premised on it being practically feasible to carve out any declaration of non-criminality from the 1st/2nd Declarations. The discussions in Part VI(g) above are made on the assumption that such carving out would be viable. I now explore whether it would be practically feasible or viable to qualify the 1st/2nd Declarations to let them sound in civil law consequences only. I foresee difficulty, especially when the focus must be on the substance rather than the form of such declaratory reliefs (see footnote 88 above). 137.But turning first to the form of the 1st/2nd Declarations, I have explained in Part VI(a) above that the unqualified terms of such declaratory reliefs necessarily embraced a declaration of non-criminality. Whilst it is theoretically possible for a civil court in granting pre-clearance declaratory relief to insert some proviso/caveat, I am not persuaded this court should significantly blue-pencil and/or re-draw the declarations sought,[102] especially when (as the Husband acknowledged) such declaratory reliefs as prayed for by the Husband should be granted only if he were able to establish very or truly “exceptional circumstances”, and this court had already indulged him by adopting the Liberal Approach and by granting last-minute leave for him to amend the OS and to further amend his oral application for amendment in relation to his alternative case. 138.More importantly, the relevant case law discussed above[103] all emphasised the inevitable prejudicial effect of such pre-clearance declarations by the civil courts on any future prosecutorial decision and/or criminal trial, which prejudicial effect, in my view, must be practically considered as a matter of substance rather than just as a mere matter of form. On this practical level, I find that any attempt to hive off or remove any declaration of non-criminality from the 1st/2nd Declarations would appear artificial, and might actually miss the combined effect of the following points. 139.First, the relevant case law discussed above emphasised that the power of the civil court to grant pre-clearance declaratory relief pertaining to potential criminal proceedings or relating to potential criminal consequences of future conduct must be exercised with great caution as the circumstances under which it will be appropriate to do so “are likely to be very rare and exceptional”.[104] 140.Secondly, maintenance and champerty are both torts and crimes under common law upon the same factual scenario and legal analysis. Mr Smith SC submitted it is logically/legally absurd to separate the civil aspects (ie torts and public policy grounds to invalidate tainted contracts) from the criminal aspects (ie criminal offences) that arise from the same facts. I agree with Mr Wong SC that if the Access to Justice Exception is made out in the civil sense upon the civil court examining the “totality of the facts” and balancing the competing public policies, there will be no tort and no public policy ground to invalidate the LFA, and it will be artificial to say the views/conclusion of the civil court will have no relevance to any subsequent criminal prosecution/trial on the same factual scenario and legal analysis. This much is recognised by Segal J in A Company (see paragraphs 74 and 84(c) above), which is the very mischief alluded to in Imperial Tobacco Ltd & anor (see paragraphs 98-99, 111-112 and 114 above). In my view, the Husband would not be able to practically undo the prejudicial effect the “qualified declarations” (under his alternative case) would have on any future criminal proceedings even though it would not be binding on the criminal court. But a declaration of non-criminality recognises and internalises the existence of such mischief by requiring that the power to grant such declaration be exercised only after examining the “totality of the facts” and balancing the competing public policies and very or truly “exceptional circumstances” are made out (notwithstanding such mischief) by reason of the Access to Justice Exception to justify such declarations, which if not granted will necessarily result in an injustice being perpetrated (see footnote 107 below). 141.Thirdly, the “misgivings” against the grant of such “qualified declarations” discussed in Part VI(g) above also added weight to the view that they would not be practically meaningful. 142.In my view, all of the above matters combine to reinforce the requirement of very or truly “exceptional circumstances” for justifying the granting of the 1st/2nd Declarations on the Husband’s primary case, but the “qualified declarations” that hived off or removed any declaration of non-criminality would not be practically meaningful as they would not address any “chilling effect” of the potential criminality of future conduct which is relevant in this jurisdiction where maintenance and champerty are still both torts and crimes. In my view, the “qualified declarations” are impractical and cannot be justified in light of the rationale/effect of such pre-clearance declaratory reliefs as explained above. That being the case, the remaining part of the Husband’s application to amend the Amended OS to introduce the “qualified declarations” under the Husband’s alternative case (see paragraph 28(a) above) must be refused. 143.It is perhaps useful to now turn to the criteria for establishing “exceptional circumstances”. (i) Exceptional circumstances 144.There is little dispute over the criteria for deciding whether or not a particular case falls within the category of very or truly “exceptional circumstances” as explained by Lord Steyn in Rusbridger:
145.But even though the scope of very or truly “exceptional circumstances” is not closed, it must be emphasised that such circumstances are rare and/or limited. Lord Rodger in Rusbridger reminded as follows at page 376:
After all, if certain conduct of itself is (depending on the facts of the case) potentially criminal, whether it eventually amounts to a criminal offence will depend on how the person ultimately acts (upon legal advice if any[110]). The criminality of such conduct is normally investigated, examined and determined by the criminal justice system by way of prosecution in the criminal court.[111] So even if the category of very or truly “exceptional circumstances” is not closed, an applicant for pre-clearance declaratory relief has a heavy burden to show that his case falls into such category on the “totality of the facts” upon the high threshold enunciated by Lord Steyn in Rusbridger. In my view, this explains why there are not very many cases of the courts having granted declarations of non-criminality. 146.In the circumstances, the main issue here would be whether the Husband had demonstrated there were very or truly “exceptional circumstances” by reason of the Access to Justice Exception (and Mr Smith SC emphasised the intensifier “very” or “truly”) to justify pre-clearance declaratory approval instead of letting the matter run its course, and on such issue 2 matters are of significance: (a) whether investigation into facts involving contested evidence would be required, and (b) whether the applicant’s overwhelming right/interest would be seriously/irreparably injured if no declaration were made. I will consider (b) above when I discuss the Access to Justice Exception Issue. But I now turn to (a) above. (j) Whether case fact-sensitive 147.Lord Steyn in Rusbridger held that a relevant and important factor in deciding whether there are very or truly “exceptional circumstances” that will justify a declaration of non-criminality is whether the case is fact-sensitive. Mr Scott SC disagreed that the Husband’s case was fact-sensitive and submitted there were no controversial facts that would preclude this court from making the 1st/2nd Declarations. Mr Smith SC and Mr Wong SC suggested otherwise. 148.In Rusbridger, Lord Steyn held the subject matter in that case was one of pure law with no issue of disputed facts: “[it] is clear as a pikestaff that there can be no issue of fact concerning either the incompatability of section 3 of the [Treason Felony Act 1848] with article 10 of the Convention or the court’s decision under section 3 of the Human Rights Act. It is not a fact sensitive case. In my view “The Guardian” has satisfied this criterion” (page 368). Nevertheless, the House of Lords by majority did not believe the claimants feared prosecution as the claimants could not have committed a criminal offence. Lord Walker of Gestingthorpe summarised the majority’s stance at page 377 as follows:
The absence of any “chilling effect” in Rusbridger meant no purpose would be served in granting any declaration of non-criminality despite the existence of “exceptional circumstances”. 149.Apart from the obvious illustration in Rusbridger that matters of pure law are not fact-sensitive, it is necessary to ask what is the ambit of facts that has to be considered for determining whether or not a case is fact-sensitive. Ribeiro PJ in Unruh said as follows at page 69 (see paragraph 56(b) above):
Ribeiro PJ cited with approval the following observations of Lord Phillips MR in Regina (Factortame Ltd & ors) v Secretary of State for Transport, Local Government and the Regions (No 8):[112]
Bokhary PJ at page 30 in Winnie Lo also said “[whether] it is necessary to go into the question of conduct being within an excluded category depends on whether there is a real possibility that it might. And that depends on the circumstances of the case”. 150.A number of other cases also point in a similar direction. In Berman v SPF CDO I Ltd,[113] Harris J made a finding under Order 85 of the RHC[114] that an assignment to be executed by a trustee to assign an indebtedness and right of action was not champertous. Whilst the jurisdiction under Order 85 of the RHC is not “an invitation for a trustee to “test drive” factual scenarios in order to assess how to carry out his duties” (page 824), Harris J came to the above view after he was presented with evidence showing why the assignment was needed and why it was in the interests of the trust (pages 827-828). 151.Similarly, in Beijing Tong Gang Da Sheng Trade Co Ltd where the “access to justice” argument was raised, DHCJ Le Pichon at first instance examined the “totality of the facts” (not only the undisputed facts but also the plaintiff’s conduct that pointed towards a champertous transaction that it failed to explain),[115] and held that the transaction in question (ie the LFA and assignment) posed “a genuine risk to the integrity of the court’s processes” and was champertous (pages 341-343). The learned judge at page 342 opined that:
Plainly, DHCJ Le Pichon considered a wider scope of facts than just merely the financial means of the assignor and the terms of the LFA and assignment, eg a significant factor was that the potential return for the funding loan was so vastly disproportionate that the arrangements were questionable. This analysis was upheld on appeal to the CA (page 262):
152.Raafat Imam, as in the present case, concerned the alleged impact of deprivation of the right of access to justice. In that case, the plaintiff submitted “one needs to look at the facts of the particular case and consider whether those facts suggest that the funding arrangement in question might tempt the funder for his personal gain to “inflame the damages, to suppress evidence, to suborn witnesses or otherwise to undermine the ends of justice”: R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions (No 8) [2003] QB 381 at [36]” (page 184). DHCJ Fee held that the court’s determination of the relevant facts of the case would be crucial (pages 185 and 188):
153.Mr Smith SC also cited Lam Hei Shing Joseph v 郭達標 & ors[116] to say that whether a LFA is or is not champertous is a fact-sensitive matter that cannot be determined in interlocutory proceedings as it requires a proper weighing exercise upon examination of the “totality of the facts”. Sakhrani J after citing Unruh said as follows:
154.Despite the aforesaid line of authorities that emphasised the need to consider the “totality of the facts”, Mr Scott SC submitted that in considering whether a case is fact-sensitive the focus should be on the facts that are relevant to the Access to Justice Exception, and it is unnecessary or irrelevant to consider the merits of the underlying litigation, which therefore are not matters that call for investigation (even though the Husband claimed and indeed emphasised the Husband’s Claims had strong merits). On such basis, Mr Scott SC suggested the “relevant” factual enquiries would be (a) the Husband’s allegation of impecuniosity and (b) the terms of the D-LFA, and further suggested what he described as “undisputed” affirmation evidence showed neither aspect would be fact-sensitive. 155.But in my view, the subject matter of the 1st/2nd Declarations (unlike that of the declaration sought in Rusbridger) was not a matter of pure law but was actually quite fact-sensitive. As aptly put by Mr Wong SC and discussed in Part VII below, whether the Access to Justice Exception under the laws of maintenance and champerty is applicable is a multi-faceted question of fact that requires the court to consider the totality of all facts/evidence, and to conduct a balancing exercise between competing public policies in the Hong Kong context.[117] I also agree with Mr Wong SC that whether or not a case is fact-sensitive refers to the nature rather than the outcome of the factual inquiry and the balancing exercise. After all, the court will not know the full facts at the stage when an applicant seeks a pre-clearance declaration, and it is not the function of the courts to “test drive” any factual scenario, so the courts are hesitant to investigate facts to determine whether the Access to Justice Exception is made out. 156.I agree the Husband’s financial means and the terms of the D-LFA would be relevant factual considerations, but I find (a) the factual inquiries as to these aspects would not be “undisputed” and in fact would be fact-sensitive, and (b) the overall factual inquiries would involve more than just these factors. 157.First, (a) above required factual investigation into whether the Husband had exhausted all possible sources of funding such that the Husband’s Claims would be stifled if he did not obtain the proposed funding from the Funder. This is discussed further in Part X of Judgment (2), but suffice to state here the affirmation evidence before the court was more one-sided than “undisputed”. In my view, the nature of such requisite scrutiny on the relevant affirmation evidence would be fact-sensitive. A similar exercise was conducted in Raafat Imam whereby the court examined the evidence and came to the view that the plaintiff’s asserted lack of means was artificial and that he had access to more resources than he would have the court believe (pages 191-193), which harked back to DHCJ Fee’s observations that the factual inquiry “would include a full examination of the actual financial position of the Plaintiff” (see paragraph 152 above). 158.Secondly, the inquiry as to the terms of the D-LFA is also fact-sensitive. Again, this is discussed further in Part XI of Judgment (2), but suffice to say here that at pages 732-734 in A Company Segal J identified various features that are likely to have particular significance:
159.Thirdly, the above cannot be the only aspects of the necessary inquiries otherwise an applicant for pre-clearance declaratory sanction for third party funding will make out his case if he shows he is impecunious and the terms of the proposed LFA are in order, which proposition does not sit well with the above case law. I agree with Mr Wong SC there are other fact-sensitive considerations (as also illuminated by the Husband’s need to rely on the matters in the C-Memo):
160.Bearing in mind that (a) the subject matter of the 1st/2nd Declarations had a wider ambit than merely the terms of the D-LFA, (b) whether or not such subject matter was fact-sensitive would turn on the nature rather than the outcome of the factual inquiry and the balancing exercise explained above, and (c) there would be room for debate/assessment for each factual issue, I am persuaded the subject matter of the 1st/2nd Declarations was indeed fact-sensitive, which would be an important strike against any “exceptional circumstances” that would justify granting such declarations by the civil court. In view of the aforesaid analysis, I share Mr Wong SC’s “considerable reservation as to whether it is appropriate to resolve these issues in an ex parte application with one-sided untested evidence”. (k) Miscellaneous Exceptions 161.Mr Scott SC suggested the 1st/2nd Declarations were analogous to the Miscellaneous Exceptions which are recognised exceptions to the laws against maintenance and champerty. But Mr Smith SC suggested they were not analogous, and Mr Wong SC agreed. Mr Smith SC went further to argue that the Husband’s claim for pre-clearance declaratory reliefs (essentially made for the benefit of the Funder who was not even a party to the present proceedings) was misconceived. But as I have found, even if the Funder were a party to the present proceedings, it still had no lis with the Husband. In my view and as seen in the discussions below, any analogy with the Miscellaneous Exceptions was misplaced. (l) Analogy with trustee’s Beddoe applications? 162.Mr Scott SC suggested the nature of the Husband’s application was similar to a trustee’s Beddoe application, and so the 1st/2nd Declarations ought to be granted. 163.Under Order 85 of the RHC, a trustee may bring an action “for the determination of any question or for any relief which could be determined or granted, as the case may be, in an administration action and a claim need not be made in the action for the administration or execution under the direction of the Court of the estate or trust in connection with which the question arises or the relief is sought”,[120] or an action may be brought for the determination of any question arising in the administration of the estate of a deceased person or in the execution of a trust,[121] or an action may be brought for (a) an order directing a person to do or abstain from doing a particular act in his capacity as executor, administrator or trustee or (b) an order directing any act to be done in the administration of the estate of a deceased person or in the execution of a trust which the court could order to be done if the estate or trust were being administered or executed, as the case may be, under the direction of the court.[122] 164.Thus, a trustee may apply for a Beddoe order under Order 85 of the RHC for the court to approve, say, commencing/defending litigation and using funds of the trust for such purposes, and in doing so the court may consider how the costs of the trustee should be provided for.[123] In appropriate cases, a trustee may apply under Order 85 rule 2(3)(d) of the RHC[124] for court sanction to enter into a LFA that involves sharing the proceeds of litigation. 165.Both Mr Scott SC and Mr Smith SC referred to In the matter of the Valetta Trust,[125] which concerned a Beddoe application that required the court to consider the issue of champerty under the laws of Jersey. The beneficiaries under the Veletta Trust (being a conventional discretionary trust) sued the former trustee alleging it had knowingly sold the only asset of the trust (ie a minority shareholding in a company which in turn owned certain rights to a product) at a gross undervalue. Neither the Veletta Trust nor the beneficiaries could afford to bring/pursue litigation against the former trustee, so the beneficiaries entered into a LFA with a litigation funder who would finance the litigation in return for a share of the proceeds. The new trustee wished to be a party to the LFA so it would also be covered, and considered it should be a co-plaintiff with the beneficiaries, so the new trustee applied for court sanction authorising such acts. The Jersey Royal Court queried whether it would be appropriate to authorise the new trustee to enter into the LFA that was potentially unenforceable under the laws of Jersey on the ground of champerty. Upon hearing addresses on such issue by counsel, the Bailiff concluded there was no material difference between the laws of Jersey and the laws of England on the matter of champerty (paragraph 10), but both Mr Scott SC[126] and Mr Wong SC[127] noted that, unlike England, maintenance and champerty remain both as crimes and torts under Jersey common law.[128] 166.The Bailiff eventually authorised the new trustee to enter into the LFA on the basis that “the agreement should be regarded as enforceable and not contrary to public policy; at the very last there is a reasonable prospect of it being so regarded” (paragraph 9), and that “far from this agreement being contrary to the purity of justice, it fulfils the important role of facilitating access to justice without endangering the purity of that process” (paragraph 31). In reaching such conclusion, the court explained that “[in] relation to the champerty point, our sole role has been to consider whether there is a reasonable prospect of the funding agreement being held to be lawful”, and they “have not heard adversarial argument as there has been no-one arguing that the agreement is unenforceable” (paragraph 9). Having reviewed the public policy reasons in England and Australia for allowing third party funding, which the Bailiff considered to be of like effect in Jersey, it was held as follows:
167.However, both Mr Smith SC and Mr Wong SC submitted (and I agree) that In the matter of the Valetta Trust is not analogous to the present case:
168.Mr Scott SC also referred to Barclays Wealth Trustees (Jersey) Limited & anor v Equity Trust (Jersey) Limited & anor.[129] The plaintiffs (current trustee/manager) of 3 unit trusts commenced proceedings against the defendants (former trustee/manager) for breach of trust, breach of fiduciary duty and breach of contract (paragraph 5). The master refused to strike out or stay the plaintiffs’ action against the defendants as an abuse of process on the ground that the plaintiffs having entered into a third party LFA that was allegedly contrary to the provisions of the Code of 1771 that prohibits assignment of title to a matter in litigation: “personne ne pourra contractor pour choses ou matières en litige”.[130] It was upheld on appeal that there was no breach of such provision by virtue of the plaintiffs entering into the LFA, and the Bailiff went on to consider obiter what the effect a breach of such provision would have on the underlying litigation. 169.Although maintenance and champerty remain both as crimes and torts in Jersey, the Bailiff observed “[it] is by no means clear that breach of the Provision would amount to a criminal offence”, and it seemed more likely that any infringement would be against public policy. And it was said “[the] effect of entering into such a contract [ie a LFA in breach of the Code of 1771] under Jersey law is not entirely clear”. The Bailiff had not heard argument as to whether such agreement would be “void or voidable or whether it would merely be unenforceable. The point is not material for my decision and I do not consider it further. I shall use the expression ‘unenforceable’ in order to avoid unnecessary repetition, but I am expressly not deciding the point” (paragraph 44). In short, the Jersey Royal Court did not decide whether or not the LFA was void, voidable or unenforceable, and was uncertain whether breach of the Code of 1771 amounted to a criminal offence. 170.As to whether litigation funding in breach of the Code of 1771 would amount to an abuse of the court’s process, it was said “[there] is jurisdiction to strike out or stay an action which was an abuse of process, but it would be a matter of fact and degree in each case as to whether an abuse of process is established. The mere fact a funding agreement was contrary to the Provision does not by itself result in the proceedings thereby becoming an abuse of process” (paragraph 51). The Bailiff affirmed his previous decision in In the matter of the Valetta Trust which was reached without adversarial argument. It was held that for the reasons given in that case, the court “does have power to declare unenforceable agreements which were contrary to public policy on the grounds of maintenance or champerty” (paragraph 56). But the Bailiff found “there is nothing in the funding agreement in this case which would harm the purity of justice, and that, on the contrary, it facilitates the important objective of access to justice”, so “it would not be an abuse of process to continue on the basis of this agreement”.[131] Hence, even if the LFA in that case was a breach of the provision, the court would not have dismissed or stayed the proceedings (paragraph 63). 171.Again, this was not a case on pre-clearance declaratory sanction as the plaintiffs entered into the third party LFA “[subsequent] to the institution of the proceedings” (paragraph 6). The matter came before the court because the defendants sought to strike out or to stay the proceedings on the ground of abuse of process for breach of the Code of 1771 (which provision is not applicable to Hong Kong), and the court expressly shied away from any view as to whether breach of the Code of 1771 amounted a crime or would render the LFA void, voidable or unenforceable. I am not persuaded this case would offer any useful analogy. 172.In Berman, an insolvent company filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code, and a district US Bankruptcy Court confirmed the insolvent company’s liquidating plan, including the creation of a trust that held the assets of the insolvent company (including debts due from 2 Hong Kong companies) for the benefit of its creditors. In order to have funds to recover the debts, the plaintiff (ie the trustee of the trust) obtained approval of the US Bankruptcy Court for a proposed deed of assignment assigning to an assignee the debts and rights to commence proceedings against the 2 Hong Kong companies subject to an application to the Hong Kong court for approval and for leave to enter into such deed of assignment, and in return the plaintiff trustee would share in any proceeds of such litigation. The plaintiff trustee applied to the Hong Kong court under Order 85 rule 2 of the RHC for a determination on whether he would have leave to enter into the deed of assignment, in particular whether its execution would infringe the prohibition against maintenance and champerty, and hence might be found to be void and unenforceable under Hong Kong law (pages 815-816 and 824-825). 173.Harris J held that “most relevantly, O.85 of the [RHC], which provides in r.2 for applications for the determination of questions arising in the administration of trusts, is not restricted in its application to domestic trusts. This I accept. ......” (page 821). The learned judge went on to say as follows at pages 821-822:
The above observations by Harris J clearly bring out the points made in paragraph 167(b) and (e) above, and I am not persuaded that helpful comparison can be drawn between Beddoe applications under Order 85 of the RHC and the Husband’s application in the present proceedings (see similar view by DHCJ Fee at page 182 in Raafat Imam). 174.But even under Order 85 of the RHC,[132] when considering whether any proposed course of action is a proper exercise of the trustee’s powers, the trustee should not “test-drive” factual scenarios, and instead should demonstrate to the court’s satisfaction he has considered the issues fully and has concluded how best to exercise his discretion, and he intends, subject to the court’s approval, to act on that conclusion. It is only then that the court will identify whether the circumstances are “sufficiently exceptional” to warrant the exercise of its discretion (pages 816-817). Mr Smith SC reminded that Lord Oliver in Marley & ors v Mutual Security Merchant Bank and Trust Co Ltd explained that “in exercising its jurisdiction to give directions on a trustee’s application the court is essentially engaged solely on determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties.[133] (m) Analogy with funding approval in insolvency cases? 175.Mr Scott SC suggested the nature of the Husband’s present application was similar to that for funding sanction/approval (eg assignment of a cause of action to a purchaser for value) in insolvency proceedings. Both Mr Smith SC and Mr Wong SC disagreed, and pointed out that the latter application made to the bankruptcy or companies court is made pursuant to express statutory provisions[134] that confer on liquidators and trustees-in-bankruptcy a power of sale that includes the power to assign causes of action for funding arrangements. 176.Approval of funding arrangements in insolvency cases by, say, assigning causes of action for value, is a long-standing exception regarding the statutory powers/duties of liquidators and trustees-in-bankruptcy who are placed in a privileged position as officers of the court with paramount duty to the creditors to realise the insolvency estate. As explained in paragraph 55(c) above, Ribeiro PJ in Unruh by drawing on the observations by Gummow, Hayne and Crennan JJ in the Australian case of Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd[135]identified the Miscellaneous Exceptions (page 68), and noted “[their] Honours refer to the sale and assignment by a trustee in bankruptcy of an action commenced in the bankruptcy to a purchaser for value; and the development of the doctrine of subrogation as applied to contracts of insurance as instances” (page 68).[136] 177.Mr Smith SC also drew my attention to Norglen Ltd (in Liquidation) v Reeds Rains Prudential Ltd & ors[137] and Re Oasis Merchandising Services Ltd.[138] In the former case, Lord Hoffmann at page 11 observed as follows:
In the latter case, Peter Gibson LJ at pages 287-288 held as follows:[139]
178.The above analysis clearly shows the distinction between these cases and the Husband’s application for pre-clearance declaratory sanction for the proposed third party funding. Liquidators and trustees-in-bankruptcy who are officers of the court and who act on behalf of the creditors are in a privileged position as a result of their duty to realise the insolvency estate often in circumstances where there are no assets to fund such exercise. Their need to have approval of funding arrangements by, say, assignment of causes of action for value, are recognised and provided for by statutory rules, so even though assignment of a bare right to litigate is frowned upon as raising questions of maintenance and champerty (ie undesirable trafficking in litigation), liquidators and trustees-in-bankruptcy in exercise of their statutory duty are entitled to assign a right of action that excludes the doctrines of maintenance and champerty. As Lord Hoffmann in Stein v Blake[140] explained:
These considerations specific unto the insolvency situation have no bearing in the present circumstances. 179.Turning to the local authorities, I start with Re Cyberworks Audio Video Technology Ltd.[141] In that case, the liquidators sought leave to enter into an agreement with a third party under which the third party would conduct investigations into various claims that the liquidators considered the company in liquidation had against various parties, and depending on the outcome, the third party would fund legal proceedings in return for an option to take an assignment in those proceedings. The company in liquidation did not have the funds for those proceedings itself. The liquidators issued a summons under the section 199(3) of the former Companies Ordinance Cap 32 (ie the current Companies (Winding Up and Miscellaneous Provisions) Ordinance Cap 32, “CO”) to seek court approval of a LFA that included an assignment of a cause of action. 180.Harris J pointed out that the aforesaid statutory provision gives a liquidator power to sell the “property” of the company in liquidation, which includes a chose in action and which in turn includes a cause of action vested in the company, and said at page 1139 that he was “satisfied there is no objection in principle to the Court approving a funding agreement which includes an assignment of a cause of action and that it is an appropriate arrangement for the liquidators to make in this case”. Harris J’s judgment was focused on the statutory power of sale given to liquidators (which is subject to control by the court) and on the Miscellaneous Exceptions that have been accepted as lawful in Unruh (pages 1140-1141), but there was no discussion at all about recognising any general power by the civil courts to approve funding arrangements with potentially criminal consequences. 181.In Re Company A to Company G,[142] liquidators of 7 companies sought leave “to enter into a funding arrangement, which will enable the Companies to pursue a claim, which the Liquidators believe it is likely it will otherwise have to abandon” (paragraph 1). Harris J was “satisfied the proposed funding agreement is in the interests of the creditors and that it is in satisfactory terms. It ensures that the Liquidators retain control over the conduct of the proceedings, protects the interests of the Companies and provides that the intended funder will receive a fair distribution of the proceeds of the proposed proceedings if they prove to be successful” (paragraph 2). The issue concerned “the extent to which, if at all, the commercial character of the funder affects an assignment of whether or not the proposed funding agreement infringes the common law rules against maintenance and champerty” (paragraph 2). The learned judge noted he had held in Re Cyberworks Audio Video Technology Ltd and Berman that “the assignment of a cause of action by liquidators pursuant to a funding agreement to [the funder] did not infringe the rules against maintenance and champerty” (paragraph 4). He then referred to the 4 categories of considerations in Unruh that would inform an assessment of whether or not an arrangement is objectionable on the grounds of maintenance and champerty (paragraph 5 – see paragraph 56 above), and noted the relevant mischiefs to guard against in having a funder with no interest in the litigation to finance it. 182.Significantly, Harris J confined his decision[143] to applications by liquidators of insolvent companies for leave to enter into funding arrangements, and left open the position with a solvent plaintiff and commercial funder:
183.Remedy Asia Limited v Yick Shing Contactors Limited[144] is another case in the liquidation context, but somewhat different from Re Cyberworks Audio Video Technology Ltd and Re Company A to Company G which concerned applications by liquidators for approval to enter into funding arrangements. In Remedy Asia Limited, the liquidators assigned to the plaintiff, who was “in the business of litigation funding and recovery”, “all the rights in, title to, and interest in all debts (the “Indebtedness”) due to it from Subcontracts A and B”, and the deed of assignment also provided that “[the company] shall permit the plaintiff to, amongst others, initiate and conduct any proceedings regarding such right and interest in the Indebtedness against Yick Shing or Yick Hing” (paragraphs 9-10). “From the evidence, it shows that the Liquidators could not pursue this action without the plaintiff’s involvement and financial support ......” (paragraph 28(1)). Harris J then granted leave for the Liquidators to enter into the deed of assignment (paragraph 11). Subsequently, the plaintiff commenced legal action against the defendant Yick Shing Contractors Limited to claim for recovery of the Indebtedness. After the pleadings were filed, the defendant sought to strike out the plaintiff’s claim, saying they disclosed no reasonable cause of action, were frivolous or vexatious, or were otherwise an abuse of process on the ground inter alia that the arrangements were champertous and therefore invalid. 184.The issue before Au J (as he then was) was whether the deed of assignment in respect of the “Indebtedness” owed to the insolvent company infringed the prohibition against maintenance and champerty,[145] and the learned judge took the view that the deed of assignment was not an absolute assignment and did not fall within section 199(2)(a) of the CO. In that case, champerty was plainly raised as a defence to the action that was based on the assigned claim (ie a case within Category B), so it had to be determined as a substantive issue in the action, which made such case quite different from the Miscellaneous Exception where liquidators seek court approval for making funding arrangements by, say, assigning causes of action. 185.Remedy Asia Limited also showed that in general prior court sanction for litigation funding on applications by liquidators, trustees-in- bankruptcy and/or trustees are not binding or conclusive on the question of whether a particular transaction contravenes or will contravene the laws against maintenance or champerty such that no one can later say the funding arrangements are unlawful. In that case, notwithstanding Harris J’s “sanction to proceed” based on consideration of the funding arrangements to see whether approval should be given under the relevant statutory regime so that creditors/beneficiaries would not later blame the liquidators for making the funding arrangements, champerty could still be raised as a defence (if applicable) to the underlying civil claim (and presumably also as a basis for defending any criminal prosecution). This is quite different from the Husband’s application in the present proceedings (being within Category A) because (a) as explained in Seedlings Life Science Ventures, LLC there is no procedure or mechanism under which the court may be asked to determine or “approve” a LFA (paragraph 18) (see paragraph 89 above), and (b) maintenance and champerty cannot be raised as a defence to the underlying claim or as a ground for a stay of the proceedings in a Category A case (see paragraphs 66-74 above). 186.In Remedy Asia Ltd, Au J (as he then was) then referred to Ribeiro PJ’s guidance in Unruh(paragraphs 24-26), and held that for the following reasons the liquidators could rely on the Access to Justice Exception so that “the arrangement is not prohibited by the law of champerty and maintenance” (paragraph 29):
But I agree with Mr Smith SC that in that case the Access to Justice Exception was invoked in the context of an assignment of a claim by liquidators, which had no general application (especially as Harris J in Re Company A to Company G expressly left open the question whether a solvent plaintiff can rely on third party funding without being tainted with maintenance and champerty). 187.Again, this was a case that fell within Category B in which the claim rested on an assignment of the cause of action, and champerty was raised as a substantive defence. Further, in a striking out application under Order 18 rule 19 of the RHC, there was “clear statutory jurisdictional basis”.[146] It was not an application for pre-clearance approval of proposed third party funding that had yet to be committed. In my view, this does not provide analogous support for the Husband’s present application (see also DHCJ Fee’s view at page 182 in Raafat Imam that “third party funding cases in insolvency litigation do not assist the Application”). 188.The New Zealand case of PricewaterhouseCoopers v Walker and Marshall as liquidators of Property Ventures Limited (in liquidation) & ors dealt with a similar scenario.[147] In that case, the liquidators commenced proceedings against inter alia the former auditors of PVL and related companies for breach of contract and negligence. PVL received litigation funding from a commercial/professional funder who, after the litigation had commenced, took an assignment of a general security agreement over the assets and undertakings of PVL and other respondents (ie related insolvent companies). The former auditors applied to the High Court to stay the proceedings on the basis that the combined effect of the LFA and the assignment was that the funder had effectively taken an impermissible assignment of the insolvent company’s cause of action against the former auditors and others which was an abuse of process. It was said the LFA and assignment gave the funder control in a legal sense over the liquidators’ claim against the former auditors as well as an entitlement to all or substantially all the proceeds of a successful claim. In effect, the funder was both funding the litigation and receiving the fruits of the litigation. 189.The case settled after the hearing before the New Zealand Supreme Court, but the court still delivered judgment on matters they had heard argument. It was held that the arrangement would have constituted an abuse of process, but having regard to last-minute undertakings to the court in which the funder agreed not to exercise certain rights under the LFA and assignment, which addressed the court’s concerns over the distribution of proceeds and the funder’s control over the proceedings, it would not have been an assignment of a bare cause of action, but the court did not need to decide the point (paragraphs 91-93). But had the parties not settled, the court would have given directions for (a) the funder and liquidators to enter into a contractually enforceable document (possibly, but not necessarily, by an amendment to the LFA) recording the aforesaid undertakings by the funder, and (b) copies of the documents be filed with the High Court and served on the former auditors (paragraphs 94-95). 190.This case is also a Category B case in which champerty is a defence to the underlying claim that relies on an assignment of the cause of action. It is not a case of pre-clearance sanction for proposed third party litigation funding that has yet to be arranged/provided. (n) Analogy with funding approval in class actions? 191.Both Mr Smith SC and Mr Wong SC found no analogy could be drawn between the Husband’s present application and representative applicants’ request for court approval of litigation funding in class actions. 192.Turning first to the Canadian authorities, in Reiner Schenk v Valeant Pharmaceuticals International Inc & ors,[148] the plaintiff applied for an order to approve the LFA entered into between himself and the commercial/professional funder, which agreement was conditional on court approval. McEwen J of the Ontario Superior Court of Justice noted that “[third] party litigation funding is relatively new in Ontario. Typically, such agreements have arisen in class proceedings. Counsel could not locate any cases in which third party funding has been extended to the context of commercial litigation. That being said, I see no reason why such funding would be inappropriate in the field of commercial litigation” (paragraph 8). In that case, the defendants complained inter alia that the LFA(a) contained a floating cap on the amount that the funder could recover, and (b) provided that in certain circumstances the funder would not be responsible for the costs of the defendants (paragraph 6). 193.Upon analysis of the relevant facts and circumstances, the court concluded that the LFA “does not provide access to justice to Schenk in a true sense, but rather provides an attractive business opportunity to [the funder] who suffered no alleged wrong ......” (paragraph 17). The court did not approve the LFA as it constituted champerty and maintenance, but without prejudice to the plaintiff’s “ability to either negotiate a more satisfactory agreement with [the funder] or another funder” (paragraph 19). 194.Mr Smith SC submitted it seemed the court in that case did not inquire into its jurisdiction to approve LFAs, and the defendants appeared to be mainly concerned to ensure the funder would be responsible for their costs rather than to ascertain the jurisdictional basis for any judicial approval. As noted by Mr Wong SC, the plaintiff in that case (ie the fundee) sought court approval of the LFA, yet “the application was not heard ex parte but the defendants in the underlying action (seemingly contrary to principle[149]) asked for dismissal of the plaintiff’s application. That case was fought with those defendants effectively as contradictors raising various grounds as to why the [LFA] was objectionable”. Mr Smith SC suggested Reiner Schnek was anomalous, and it would be more useful to turn to the observations of the court in Seedlings Life Science Ventures, LLC (which suggested there is no basis for court approval outside class actions). 195.In my view, it is important to understand the underlying rationale for court approval of LFAs in class actions, and I find this has been helpfully summarised in Seedlings Life Science Ventures, LLC as follows:
196.Madam Prothonotary Mireille Tahib took the view there is no requirement for statutory rules for the disclosure or the approval of counsel’s fee structure or funding in any litigation other than class proceedings. “There is no class whose interests might be affected by the terms of the LFA. Nor would the court’s plenary jurisdiction to control its own process and guard against abuses of its process be triggered in the circumstances: The legal, procedural and policy imperatives underlying the practice or requirements developed ...... of submitting LFAs to prior court approval in class proceeding do not exist in the context of private litigation. There is no legal or logical basis to extend the requirement of pre-approval outside of class proceedings” (paragraph 16). 197.I refer to paragraph 89 above in which the court in Seedlings Life Science Ventures, Inc (notwithstanding that it was a joint application by the funder and fundee) made clear the purpose of the doctrines of maintenance and champerty “is not and was never intended to be achieved by conferring on the courts the discretion to inquire into or approve or disapprove of a plaintiff’s funding arrangements as a condition precedent to instituting or pursuing litigation. It simply operates and achieves its purpose by rendering agreements tainted by maintenance and champerty unenforceable” (paragraph 18). 198.Mr Scott SC noted that whilst the Federal Court held it had no jurisdiction to make any determination in respect of any LFA entered into between the funder and the fundee (because how the fundee plaintiff chooses to allocate the risks and potential returns in the litigation does not affect or determine the validity of the rights in the underlying action), it went on to say that “the parties to the LFA were free to bring, before the appropriate provincial court, an application for a declaration as a matter distinct and separate from the present underlying action” (paragraph 28). But it would be pertinent to note this dictum recognised that “[to] the extent that [the funder] requires the comfort of a court’s prior determination of the enforceability or moral acceptability of the LFA before proceeding with it, that is strictly a matter of contract between subject and subject ......” (my emphasis), which would be a matter within the jurisdiction of the provincial courts. 199.Like Mr Smith SC and Mr Wong SC, I doubt whether the above dictum meant pre-clearance procedure outside class actions is available in Canada. Not only would this suggestion fly against what Madam Prothonotary Mireille Tahib said in paragraph 18 of her judgment (ie no pre-clearance procedure as in class action can be made for other litigation) (see paragraphs 89 and 196 above), the learned judge by her dictum could only have been considering the appropriate court venue/ procedure for determining the enforceability of a LFA as a matter of contract between the funder and fundee, which must be a matter “properly within the jurisdiction of the courts of the provinces”. In my view, it was on such basis that the parties to the LFA in that case were told they were free to bring any issue/dispute between them as to enforceability of the LFA before the appropriate provincial court and not in “the present underlying action” at the Federal Court. But there was no lis between the Husband and the Funder who was not even a party to the present proceedings, and the pre-clearance approval sought here amounted to a declaration of non-criminality, which in any event would not be a matter that would concern the Canadian courts.[150] 200.It seemed therefore that third party funding in the context of class actions is quite dissimilar from other civil litigation. Courts in class actions (at least in Ontario) have a statutory duty to consider and regulate (a) the remuneration of attorneys under contingent fee agreement and (b) any contract for litigation funding (paragraph 13 in Seedlings Life Science Ventures, LLC – see paragraph 195 above). The legal, procedural and policy imperatives that underlie the practice/requirement of regulating third party funding in class actions (at least in Ontario) by submitting the LPA for prior court approval concern the need to (i) protect the interests not only of the representative claimants before the court but also the members of the general public who are potential members of the class and so entitled to make a claim upon the proceeds of the action if it proves successful, and (ii) protect the court from abuses of its process by any unscrupulous funder, which concern is exacerbated by the potentially significant returns to the funder by the very nature of class proceedings. In my view, these imperatives in class proceedings do not transport comfortably to other litigation, and I am unable to draw useful comparison for the Husband’s application for pre-clearance declaratory sanction for third party litigation in the present proceedings. 201.Turning to New Zealand case law, the New Zealand Court of Appeal in Saunders & ors v Houghton & anor[151] explained that the High Court Rules themselves permit the making of representation or class action orders (paragraph 10), and the courts “have inherent power ...... [to] determine the mechanics of class action practice” (paragraph 15) even though, it was said, developed rules designed to facilitate the consideration of class actions will be desirable (paragraph 41). The New Zealand Court of Appeal explained at paragraph 38 that it is desirable to view “the total package” of a representation order accompanied by an order admitting a funder “as a stool supported by four legs, each essential to its stability: (a) the order for representation (considered along with its funding element); (b) the court’s approval of the funder and the funding arrangement; (c) the application for security (which may include consideration of the final leg); and (d) the provisional appraisal of the merits. An erroneous decision on any element may either wrongly exclude worthy plaintiffs from access to the court, or wrongly impose on the defendants who have committed no fault such burden of costs and distraction from their other affairs so as to pressure them to yield to a baseless demand and settle”. These considerations are, of course, particular to class proceedings. 202.There are also a number of other differences which suggest that useful analogy cannot be drawn. First, Saunders & ors is not a case for pre-clearance court sanction of third party litigation funding. In that case, G (who did not hold shares in company F) incorporated a litigation funder and instigated H and J (who had bought F’s shares) to issue proceedings (with funding support) against the various signatories of F’s prospectus and investment statement (who had different roles in relation to the float of F’s shares by way of initial public offering) for breach of the Fair Trading Act 1986, negligence and breach of fiduciary duty. It was said the value of F’s shares declined significantly in less than 2 years, and the company incurred substantial debts to creditors and was placed in liquidation with entire loss of shareholders’ funds soon thereafter. French J inter alia dismissed the defendants’ application for stay of the proceedings on the ground that the LFA was an abuse of process (paragraphs 1-6), and the defendants appealed. Thus, the focus was on contractual issues, ie whether the LFA should be invalidated for being contrary to public policy, and whether it amounted to a defence in the underlying action, and not on the criminal and/or tortious consequences of the funding arrangements that would have been relevant to an application for pre-clearance approval. 203.Secondly, in New Zealand maintenance and champerty are no longer crimes after the criminal law was consolidated by statute in 1893, but they “remain [as] common law torts and the funding agreement that lies at the heart of the respondent’s claim is contrary to public policy” (paragraph 67). So the New Zealand Court of Appeal was not concerned with any declaration of non-criminality or with any potential criminal consequences of the funding arrangements. Anyway, it was said “[an] interlocutory appeal is not the occasion for this Court to detail the legitimate scope of litigation funding”, and the court would only deal with the matter in general terms (paragraph 2). 204.Thirdly, whilst it was said there have been decisions made at High Court level approving funding arrangements,[152] it was clear the New Zealand Court of Appeal did not come to any definitive conclusion as to the funding arrangements in the case:
In making such general observations on the New Zealand position, it appeared the New Zealand Court of Appeal was also influenced by factors that may not have direct bearing to Hong Kong:
But as explained in Part VII below, Hong Kong must turn to her own local experience, public policy and value judgment to find her own path in this area of the law, and to study jurisprudence not only from Australia (where maintenance and champerty are no longer torts or crimes in most states) and/or from Canada (where maintenance and champerty are no longer crimes) but also from jurisdictions where maintenance and champerty remain as crimes and torts. In this respect, it is useful to refer to the observations of Gummow, Hayne and Crennan JJ in Campbells Cash and Carry Limited in paragraphs 215 and 329-331 below that drew distinction between public policy questions in jurisdictions that have and have not abolished maintenance and champerty as crimes and/or torts. Even on the New Zealand scene, it is useful to refer to the discussions in paragraphs 332-334 below in relation to Warehouse & anor v Contractors Bonding Limited [153] that emphasised it is not the court’s role to act as general regulator of litigation funding arrangements or to assess the fairness of the bargain between any third party litigation funder and the fundee plaintiff (but the New Zealand Supreme Court refrained from commenting on whether the courts should take a wider supervisory role in a representative/class action) (which echoed similar discussions in Seedlings Life Science Ventures, LLC in paragraphs 89 and 195-200 above), and in paragraphs 188-190 above and paragraph 335 below in relation to the more recent approach in PricewaterhouseCoopers including the dissenting judgment of Elias CJ. (o) Securities and Futures Commission v Tiger Asia Management LLC 205.Mr Scott SC’s written submissions suggested the Husband’s present application for declaratory relief was more akin to the one made in Tiger Asia Management LLC. In that case, the Securities and Futures Commission (“SFC”) alleged X entered into transactions which contravened the prohibition on insider dealing under the Securities and Futures Ordinance Cap 571 (“SFO”), and the SFC applied to the CFI for various reliefs against X under the SFO. X contended the CFI did not have jurisdiction to decide whether it contravened section 291(5) of the SFO without a prior determination by the Market Misconduct Tribunal or a criminal court, and that such a determination was a necessary condition for making an order under section 213 of the SFO[154] against it. 206.In that case, the SFC sought “a declaration that [X] has done acts which found jurisdiction under s.213 but which also happen to be criminal offences”, but “the SFC is not seeking a declaration that [X] has committed a criminal offence” (page 333). The CFA at page 330 approved the judgment of Tang VP (as he then was) in the CA that on the plain and natural meaning of section 213(1)(a) of the SFO, “what must be established is the fact that a person has contravened a relevant provision”, which would have given jurisdiction to the CFI to make the orders under section 213(2) of the SFO.[155] Lord Hoffmann at page 330 also referred to the general proposition that “if a power conferred upon a court is expressed to be conditional upon something having happened, the court has jurisdiction to decide whether it happened or not”. In short, the express provision of the SFO gives the CFI jurisdiction to determine whether there had been a contravention of the relevant provision. 207.Lord Hoffmann at page 333 then went on to say as follows:
208.Similar argument was raised in Raafat Imam, and was rejected by DHCJ Fee. As rightly pointed out by the learned judge at page 167 (and by Mr Wong SC in his written submissions), careful distinction must be drawn between 2 different concepts:
209.Given the aforesaid analysis, I am not persuaded the present case is akin to Tiger Asia Management LLC, and such authority does not further the Husband’s contentions. (p) Declarations regularly made? 210.Mr Scott SC submitted the courts in other common law jurisdictions have quite regularly made declarations of non-criminality that third party litigation funding arrangements fall within the Access to Justice Exception so there is no breach of the laws of maintenance and champerty. Mr Wong SC had reservations about such proposition, and would disagree if such proposition meant to say the courts in common law jurisdictions “regularly sanction such declarations on ex parte basis by way of pre-clearance”. 211.For convenience, I attach Appendix B to the Amici’s written submissions (which diligently and helpfully summarises the evolution of the laws against maintenance and champerty and other related developments in worldwide common law jurisdictions[158]) as a schedule to Judgment (1) herein (“Schedule”). Neither Mr Scott SC nor Mr Smith SC disagreed with the contents of the Amici’s summary (save for matters in footnote 158 above and matters expressly referred to herein in Judgment (1)). 212.England and Wales As alluded to in footnote 21 above and Part A(I) of the Schedule, since 1967 maintenance and champerty are no longer crimes and torts in England and Wales, and they only remain to invalidate tainted contracts as abuse of process on public policy grounds. Mr Scott SC was unable to refer to any English authority that sought/ granted pre-clearance declaratory relief for third party litigation funding. As Mr Wong SC pointed out, there are cases in which the defendant in the underlying action challenged the LFA made between the fundee claimant and the funder (ie Category C cases, eg Regina (Factortame Ltd & ors)), which are different from the Husband’s present proceedings that fell within Categories A and D. 213.Australia As seen in Part B(I) of the Schedule, maintenance and champerty have been abolished as torts and crimes (but without affecting the contract position) in Victoria, South Australia, New South Wales and Australian Capital Territory at various times between 1969 and 2002, but there has been no such abolition in Queensland, Western Australia, Tasmania and the Northern Territory. 214.Again, Mr Scott SC did not refer to any authority for pre-clearance declaratory relief. However, he strongly relied on Campbells Cash and Carry Pty Limited. That case concerned claims for the recovery of amounts paid by tobacco retailers to tobacco wholesalers allegedly for the purpose of the wholesalers paying a licence fee that was later found to be unconstitutional. The proceedings were instigated with the support by a litigation funder who was willing to underwrite the litigation in exchange for ⅓ of any amounts recovered plus the benefit of any costs order. The proceedings were brought as representative proceedings under the relevant rules of court, but persons who wished to participate had to “opt in” and agree to the funder’s terms (paragraphs 29-31). In response to the plaintiff’s applications for discovery/interrogatories, the defendant applied for orders that the proceedings to be dismissed or stayed as an abuse of process, or that the proceedings be struck out insofar as they purported to be representative proceedings, or alternatively for orders that the case not to continue as representative proceedings (paragraph 33). 215.I agree with Mr Wong SC this was not a pre-clearance case, but one that involved a LFA in the unique context of representative/class action and the defendant’s cross-application as aforesaid. Whilst it is true the majority allowed the appeals on the separate basis that the proceedings did not meet the requirements for representative/class action, the joint judgment of Gummow, Hayne and Crennan JJ discussed the matter of litigation funding to which I will return in paragraphs 329-331 below. But suffice to note here that the learned justices said in jurisdictions that have abolished maintenance and champerty as crimes/ torts there are no public policy questions beyond those relevant for considering matters of maintenance and champerty in relation to the enforceability of the LFA between the parties to such agreement,[159] but it was “neither necessary or appropriate to decide what would be the position in those jurisdictions where maintenance and champerty may remain as torts, perhaps even crimes” (paragraph 85). 216.New Zealand In New Zealand, maintenance and champerty have ceased to be crimes since 1961 (see Part L(I) of the Schedule). Again, Mr Scott SC did not refer to any pre-clearance case. 217.In Waterhouse & anor, the plaintiffs were funded by a litigation funder, and the defendant applied for a stay of proceedings until disclosure of the LFA and information about the funder and its relationship with the fundee plaintiffs. The New Zealand Supreme Court held that where litigation is to be funded by an unrelated third party, a plaintiff should disclose the following when the proceedings are commenced: (a) the identity/location of any such funder, and (b) the funder’s amenability to the jurisdiction of the New Zealand courts, but not litigation-sensitive material (eg the terms on which funding may be withdrawn) or funder’s financial standing. Both Mr Scott SC and Mr Wong SC agreed that this case addressed the issue whether the fundee plaintiffs should be ordered to disclose the LFA to the defendant in the underlying action. It was not a pre-clearance case. 218.I have referred to Saunders & ors when discussing litigation funding for class actions (see paragraphs 201-204 above), and to PricewaterhouseCoopers (see paragraphs 188-190 above) when discussing litigation funding for recovery action in insolvency cases by, say, assignment of cause of action. These cases are also not applications for pre-clearance declaratory relief. 219.Canada In Canada, maintenance and champerty have ceased to be crimes since 1953 (see Part C(I) in the Schedule), but they remain as torts and public policy grounds for invalidating tainted contracts. The unenforceability of champertous agreements was codified in Ontario, Canada by an Act Respecting Champerty, RSO 1879 (c. 327) which provides that “[all] champertous agreements are forbidden, and invalid” (section 2) (see paragraph 89 above). Mr Scott SC referred to Reiner Schenk and Seedlings Life Science Ventures, Inc, and I reiterate my discussions on those cases in paragraphs 192-200 above. 220.The case law discussed above are from jurisdictions where maintenance and champerty have been eradicted as crimes and/or torts. I now turn to case law from some jurisdictions where maintenance and champerty remain as crimes and torts. 221.South Africa Maintenance and champerty are still crimes and torts in South Africa (see Part D(I) of the Schedule). Mr Scott SC referred to the decision in 2004 by the South Africa Supreme Court of Appeal in Price Waterhouse Coopers Inc & ors that discussed the approach of the court as it “reconsidered the validity of champertous agreements”. In that case, the plaintiff sued its former auditors for damages allegedly caused by their breaches of contract in negligently performing the audits. The litigation was funded by an Australian litigation funder, who stood to be the primary beneficiary of the action. The former auditors raised by way of defence that the plaintiff had been pursuing its claim pursuant to a champertous LFA that was contrary to public policy. It was in such context that the court was required to consider whether the plaintiff’s funding arrangements to finance its litigation against the former auditors were contrary to public policy[160] and void. But the court there was not concerned with the criminal/tortious consequences of the funding arrangements in such context (which would be relevant in applications for pre-clearance declaratory sanction of funding arrangements), but rather the court was concerned with contractual issues, ie (a) whether the funding arrangements should be invalidated for being contrary to public policy, and (b) whether they amount to any defence in the underlying action. I will return to discuss this decision in Part VII(c) below, but to suffice to state here that Mr Scott SC did not cite any pre-clearance case from South Africa. 222.Jersey Jersey is also a jurisdiction where maintenance and champerty remain as crimes and torts (see Part F(I) of the Schedule). Mr Scott SC cited In the matter of the Veletta Trust, which I have discussed in paragraphs 165-167 above, but this case concerned a Beddoe application which (as I have found) is not analogous to the Husband’s application for pre-clearance declaration for third party litigation funding. Mr Scott SC also referred to Barclays Wealth Trustees (Jersey) Limited & anor that affirmed the decision in In the matter of the Valetta Trust. I have discussed this case in paragraphs 168-171 above. Neither of these cases concerned applications for pre-clearance approvals. 223.Ireland In Ireland, maintenance and champerty are still extant as crimes and torts (see Part G(I) of the Schedule). In Persona Digital Telephony Ltd & ors v Minister for Public Enterprise & ors,[161] the Irish Supreme Court by a majority of 4 to 1 upheld a High Court ruling that (a) commercial litigation funding amounted to maintenance and champerty and hence prohibited by law, and (b) complex matters of public policy surrounding third party litigation funding should be left to the legislature to decide on the approach to be taken. The Irish Supreme Court canvassed case law from other common law jurisdictions (including Unruh), but found “it is not very helpful given the clear statements of the law [in Ireland]. In this state the proposed [LFA] is a funding agreement which is champertous, and hence it is unlawful. It is an agreement within the State and hence Irish law applies” (paragraph 54(iv) per Denham CJ). 224.In that case, the question before the Irish Supreme Court was “[whether] third party funding, provided during the course of proceedings (rather than at their outset) to support a plaintiff who is unable to progress a case of immense public importance, is unlawful by reason of the rules on maintenance and champerty” (paragraph 12). Denham CJ (with whom Clarke, McMenamin and Dunne JJ agreed) noted there was no constitutional challenge to the laws of maintenance and champerty before the court (ie the constitutional right of access to the courts may be hampered if litigants are practically unable to pursue claims due to lack of resources) (paragraph 10), and held that the LFA between the plaintiffs fundees and the funder was champertous and did not fall within any exceptions in the case law, eg where the funder has a bona fide independent interest,[162] a legitimate interest in the case eg charity[163] or a sufficient connection with the plaintiffs.[164] 225.Even though (a) Persona Digital Telephony Ltd & ors was not brought as a constitutional challenge, and (b) it seemed that access to justice has not been recognised in Ireland as a specific exception to the laws against maintenance and champerty,[165] which Mr Scott SC argued was what distinguished that case from the present one and which Mr Wong SC agreed was a material difference, the Irish Supreme Court did not come to its decision in disregard of the constitutional right of access to justice. Rather, the court heard submissions from the parties on the importance of the right of access to justice which was the principal argument put forward by the plaintiff,[166] and Denham CJ referred to the Law Reform Commission’s Issues Paper on Contempt of Court and other offences and torts involving the administration of justice (LRC IP 10 – 2016) which “noted that :- (a) In light of the importance of providing access to justice, it is certainly arguable that legislation should be introduced to allow for third party funding of litigation by person or body who does not have a legitimate interest in the proceedings. ......”[167] before concluding there were policy issues that would involve complex situations[168] more suited to legislation so that the parameters could be established and the law developed in a coherent fashion (see paragraph 358 below). 226.Further, whilst Clarke J agreed with Denham CJ, he devoted his own concurring judgment “to make a number of observations of [his] own about access to justice in modern circumstances. It is, of course, access to justice which lay at the heart of the principal argument put forward on behalf of the plaintiffs/appellants ...... in suggesting that this Court should revisit the parameters of the law of champerty” (paragraph 1.1). Clarke J set out a number of factors to be taken into account in any overall assessment to which it may be said there is effective access to justice, which suggests “it is at least arguable that there is a very real problem in practice about access to justice”[169] that “may include an entitlement that that right be effective, not just as a matter of law and form, but also in practice” (paragraphs 2.8-2.9). But the learned justice noted there were many ways in which these difficulties can be dealt with (eg legal aid, adjustments to “no foal, no fee” or conditional fee type arrangements, changes in the balance between the obligations of the parties and the resources provided by the court, legitimate third party funding, etc) (paragraph 3.2), each with its own problems which were well-explored during argument with no need to repeat in the judgment (paragraphs 3.3-3.6), so it follows that the choice of solution is a policy matter for the legislature and not the courts (paragraph 3.7). It is only when “no action whatsoever was taken (or action which clearly was insufficient to meet whatever requirement had been identified) then there might very well be a strong argument that the Court’s jurisdiction would necessarily have to be extended to taking whatever measures were necessary” (paragraph 4.3). 227.MacMenamin J also expressed similar observations:
Mr Smith SC noted MacMenamin J particularly queried whether cases with a strong individual “personal rights” dimension should be capable of assignment to a funder or open to some kind of profit-sharing arrangement, and argued that such cautionary words would be apt in the present context as matrimonial rights are strongly personal. 228.In light of the above, I find it can hardly be said that Persona Digital Telephony Ltd & ors did not canvass the right of access to justice. In my view, the Irish Supreme Court did ponder the future evolution of the legal doctrines of maintenance and champerty pursuant to the interplay between fostering access to justice and combating the mischiefs targeted by such laws, but in the end it considered that the complex public policy considerations should be the subject of legislative debate/decision. In any event, the matter of access to justice was considered in the subsequent Irish Supreme Court case of SPV Osus Limited v HSBC International Trust Services (Ireland) Limited & ors[170] (see paragraphs 231-233 below). 229.But Mr Scott SC suggested (and I disagree) the Irish position would not assist as the Irish Supreme Court “distinguished the CFA’s approach in Unruh”. It is necessary to consider such proposition in the proper context as explained by Denham CJ:
230.But Persona Digital Telephony Ltd & anor did not concern (a) international arbitration or (b) any funder having independent interest in the litigation outcome, so Unruh as plainly distinguishable in that sense. As Mr Smith SC pointed out, it does not mean the Irish Supreme Court distinguished Unruh in the sense that it has no relevance to the principles applicable in Ireland. Denham CJ did not say there is any legal principle in Unruh that she was unwilling to agree. But I need not go so far as Mr Smith SC who asserted that if the factors in (a)-(b) above had been present in Persona Digital Telephony Ltd & anor, the LFA in that case would not have been champertous with the same result as Unruh. I note that the plaintiff in Raafat Imam also sought to distinguish Persona Digital Telephony Ltd & anor on other grounds, but they were rejected by DHCJ Fee (pages 179-180). 231.SPV Osus Limited was a case related to the Bernard Madoff Ponzi scheme fraud. A fund that had invested into Madoff was entitled to claim in his bankruptcy in the United States. It set up the plaintiff as a special purpose vehicle and assigned the bankruptcy claim to it. The majority of the investors in the fund swapped their shares in the fund for shares in the plaintiff, and then traded their shares in the plaintiff to distressed debt hedge funds. The plaintiff then sued the Irish-based custodian and administrator to the fund, who challenged the plaintiff’s standing in bringing proceedings on the basis that the assignment of the bankruptcy claim to the plaintiff was contrary to public policy and unenforceable by virtue of the laws of maintenance and champerty. The Irish Supreme Court held that an assignment of a claim (which involves an outright sale of a cause of action) to an unconnected assignee (who has no interest/connection other than that created by the assignment) to pursue with possibility of profit will be trading in claim which is offensive to public interest, and such an assignment is unenforceable under Irish law. It therefore upheld the custodian’s position and struck out the proceedings. 232.O’Donnell J noted that England and Wales have abolished the crimes/torts of maintenance and champerty, and the courts there are more relaxed in their approach to the assignment of cause of action where the assignee has a genuine commercial interest in the assignment (paragraphs 33-66). But maintenance and champerty are still crimes/torts in Ireland, and the legislature has not regulated third party funding. O’Donnell J followed Persona Digital Telephony Ltd & anor, and said “....... if it is offensive to public policy to permit a person to fund a plaintiff’s litigation in return for some part of the proceedings, then the same public policy must apply a fortiori where the third party purchases the claim outright, removes the party from his or her proceedings, and converts them into a mere witness at best” (paragraph 83). O’Donnell J concluded as follows:
233.Clarke CJ concurred and reflected on what he said in Persona Digital Telephony Ltd & anor, and then went on to say there is a significant and arguably increasing problem with access to justice which arises in the context of the increasingly complex world in which we live, which in turn has increased the complexity of much litigation not least in the commercial field (paragraph 2.1):
234.Thus, the Irish Supreme Court, while recognising the right of access to the courts, came to the view that it would not right for the courts to grant pre-clearance declaratory relief to approve funding agreements/ arrangements as public policy issues should best be left to the legislature to establish appropriate parameters and safeguards, “but not on ad hoc, piecemeal, method” (paragraph 54(viii), per Denham CJ in Persona Digital Telephony Ltd & anor). 235.Bermuda Maintenance and champerty are still crimes and torts in Bermuda (see Part H(I) of the Schedule). Mr Scott SC referred to Siftung Salle Modulable & anor v Butterfield Trust (Bermuda) Limited,[171] but again this is not a case on pre-clearance sanction of third party litigation funding. In that case, the trustee withdrew funding for the construction of an opera house in Switzerland upon the death of the settlor. The Swiss charitable foundation, which was established for the express purpose of planning and constructing the opera house, secured finance from a third party funder to sue the trustee for breach of contract/trust. Various issues arose in the case,[172] but an additional issue concerned the litigation funding arrangements pursuant to which the charitable foundation entered into a LFA (governed by English law) with the funder. The trustee’s pleadings contended the LFA should be held to be void on public policy grounds based on traditional common law principles against maintenance and champerty (paragraph 18). But “Kawaley CJ noted that counsel for the trustee accepted that (at para. 328) the “strength of the traditional prohibitions on champertous agreements had been diluted almost to vanishing point in much of the common law words” and that “no cogent reasons for swimming against the modern tide [had been] advanced.””[173] Kawaley CJ said that in light of principles promoting the constitutionally protected right of access to the courts, LFAs should be encouraged rather than condemned (paragraphs 328- 329). But such general observations based on concession by counsel for the trustee at the hearing took up only 3 out of 356 paragraphs of the judgment, and even Mr Scott SC conceded “[there] was no suggestion that the plaintiffs [ie the charitable foundation] was unable to pay litigation costs, so this case appears to fall outside the traditional “access to justice” situation”. 236.Trinidad and Tobago In this jurisdiction, maintenance and champerty remain as crimes and torts (see Part J(I) of the Schedule). In Clico Investment Bank Limited v Transport and Marine Enterprises Limited,[174] Warner JA said “[it] is of some small significance that counsel cited no cases of either criminal or tortious proceedings for maintenance or champerty in this jurisdiction”, and his own research revealed only 1 prosecution for champerty in 1912 (paragraph 16). In Clico Investment Bank Limited, the respondent took out a loan from the appellant to finance a contract for the transport/processing of scrap. Disputes arose and were referred to arbitration in London. The respondent, who did not have funds for the arbitration, approached the appellant for financing, which the appellant agreed to provide on terms that the respondent would inter alia pay from any settlement sum it received from the arbitration the full amount outstanding under the original loan plus 20% of any additional sum received that was over and above the amount outstanding if the matter was successful. The respondent succeeded in the arbitration and repaid the indebtedness to the appellant but refused to pay the 20% uplift on the ground that it was champertous. It was held that the champerty rule does not apply to arbitration proceedings because the laws on maintenance and champerty are to protect the integrity of the public justice system, and the prevailing approach is to permit private parties (especially in the field of commerce) to make their own arrangements provided there is no fraud or undue influence which in any event grounds a separate cause of action (paragraph 36). 237.Warner JA then went on to consider on obiter basis whether the agreement to pay the 20% uplift was champertous, and in doing so held “that the public policy which informs the laws of champerty so far as is relevant to this case, is the same as this jurisdiction as it is in England” (paragraph 16). The learned judge then highlighted various elements of the case,[175] and concluded obiter that the agreement to pay 20% uplift was not champertous. In my view, this was not a case for seeking pre-clearance declaratory relief to pursue one’s own claim (ie Categories A and D), but one in which the fundee sought to resile from the LFA by asserting that it was champertous (ie Category C). Further, the aforesaid obiter views that the public policy that informs the laws of champerty in Trinidad and Tobago (where maintenance and champerty are crimes and torts) so far as is relevant to the case is the same as that in England (where maintenance and champerty are no longer crimes or torts) can only be correct if Warner JA was concerned only with contractual issues and not any criminal consequences. I remind that Gummow, Hayne and Crennan JJ in Campbells Cash and Carry Pty Ltd was clear that in jurisdictions that have abolished maintenance and champerty as crimes and torts, there are no public policy questions beyond those relevant for considering matters of maintenance and champerty in relation to the enforceability of the LFA between the funder and the fundee, which was why they left open the position in those jurisdictions where maintenance and champerty remain as torts and/or crimes (see paragraph 215 above). That being the case, Warner JA’s obiter views cannot have much bearing for the Husband’s application for the 1st/2nd Declarations that embraced declaration of non-criminality. 238.Mr Scott SC submitted that recently the Court of Appeal of Trinidad and Tobago in Dr Rohit Dass v Rosemarie Marchand & ors[176] applied Clico Investment Bank Limited to a case involving the rescission of a deed of conveyance of properties and breach of contract. In Dr Rohit Dass, RBM sold/conveyed a property to her employer RD, but suffered great disquiet over the sale/conveyance after she left his employ to work for a new employer PR. PR entered into a LFA to fund RMB’s and her children’s litigation to recover the property. “The agreement also spoke to the passing of the title in the property to PR, should RBM and her children be successful in their quest” (paragraphs 4-6). RBM and her children sued RD and the attorney who prepared the conveyance with the aim of setting aside the conveyance and recovering the property (paragraph 6). The trial judge set aside the conveyance and returned the property to RBM and her children (paragraph 30). RD’s amended grounds of appeal complained that the trial judge failed to recognise that the effect of the champertous LFA (which was contrary to public policy) was to render the proceedings an abuse of process (paragraph 32), but this issue had not been raised at trial. Upon review of the terms of the LFA and RBM’s testimony (but noting PR was not a party or witness), the appellate court was of the view that “[the] quality and lack of evidence plague this case” (paragraph 67), and on the limited evidence determined that the LFA between RBM and PR was not champertous and would not be struck down (paragraph 73). I am not persuaded this authority adds much to the jurisprudential discussion. 239.Cayman Islands Maintenance and champerty are both crimes and torts in the Cayman Islands (see Part E(I) of the Schedule). The Cayman Islands Law Reform Commission has released a discussion paper in 2015 with a view to promote legislative reform, but no progress has been made thereafter. Minor in-roads have been made by a series of Grand Court decisions that permitted impecunious claimants to enter into conditional fee arrangements with Cayman Islands attorneys who agreed to reduction of fees in return for an agreed uplift calculated as a percentage of those fees in the event that the plaintiff is successful (see eg Quayum v Hexagon Trust Co (CL) Ltd[177]) on the basis that public policy facilitating access to justice by impecunious claimants justified approving agreements that otherwise would have offended the laws of maintenance and champerty (pages 721-726). 240.The relevant case is A Company which concerned a successful application for pre-clearance declaratory sanction for third party litigation funding. Mr Scott SC strongly relies on this authority as reflecting “universal erosion of the ancient prohibition against maintenance and champerty” (see page 178 of Raafat Imam) and bearing similarity to the nature/circumstances of the Husband’s application in the present proceedings. 241.In that case, the plaintiff was a well-resourced (certainly not impecunious) Korean company that operated internationally, but it fell victim to a complex fraud. It obtained an arbitration award in its favour in New York against the fraudsters. The fraudsters did not comply with the terms of the award and dispersed the fraud proceeds across the world, so the plaintiff had to engage in an asset-tracing exercise. The plaintiff entered into a third party LFA with a commercial funder who was in the business of providing financing and expertise in asset-tracing. The plaintiff could have financed the litigation itself, but sought litigation financing to manage litigation-related risks/costs. Armed with such funding support the plaintiff commenced proceedings for asset-tracing in various jurisdictions, which eventually led it to the Cayman Islands where it intended to (a) commence proceedings for recognition of the arbitration award and enforcement of the award against the award debtor’s assets in the jurisdiction and (b) apply for a Mareva or freezing injunction order over those assets (page 717). In an ex parte application (even though the funder was named as the defendant), the plaintiff sought a declaration from the Grand Court to the effect that the LFA it had entered into and using the funds provided under the LFA would not be unlawful on the grounds of champerty and maintenance. Segal J made a declaratory order that the LFA between the fundee plaintiff and the funder defendant was not unenforceable as an illegal contract for being champertous and contrary to public policy (page 716). But it must be noted such order was subject to the following caveats:
242.Mr Scott SC suggested A Company expanded the availability of third party litigation funding to cases beyond liquidation or arbitration. But Mr Smith SC argued A Company was distinguishable and ought not be followed on a number of grounds (see paragraphs 243-245 below). Having considered those grounds, I have reservations over any wholesale import of the rationale in A Company to the Husband’s case. 243.First, the plaintiff in A Company had already obtained an award in the underlying New York arbitration, and such award had been recognised and entered as 2 judgments in New York, so the only purpose of the intended Cayman proceedings was to enforce such judgments against the award debtors in that jurisdiction and to seek Mareva relief (page 710). Here, there is as yet no final determination of the Husband’s Claims, and the merits of such claims will be discussed in Part IX of Judgment (2). Further, the plaintiff in A Company was well-resourced and well able to finance the intended proceedings. It simply wished to rely on commercial funding as it wanted a better risk-reward ratio than if no funder was involved. So it was not a case of a plaintiff whose right of access to justice was impaired or stifled by impecuniosity.[179] In the circumstances, A Company was decided not on the basis of any “access to justice” principle (but the Access to Justice Exception was the precise ground that the Husband relied on to justify the 1st/2nd Declarations in the present proceedings) but on commercial expediency. Indeed, Mr Scott SC in his written submissions accepted this case falls outside the traditional Access to Justice Exception. In my view, Segal J’s decision was consistent with the more relaxed approach adopted in relation to third party funding in arbitration and related proceedings (which actually were the background to A Company) where use of third party funding as a risk management tool is more common (see discussions in paragraph 371 below). 244.Secondly, the application by the plaintiff in A Company for pre-clearance declaratory relief was in substance an ex parte application even though the funder was named as the defendant. Segal J at page 715 noted “[the] plaintiff acknowledged the artificiality of the procedural construct it had used. The defendant has not taken part in the proceedings and is not adverse to the plaintiff nor does it contest the relief which the plaintiff seeks (indeed it must be taken to support the plaintiff’s application) ......” Further, the Attorney-General was not notified due to the urgency of the application. So, unlike the Irish Supreme Court in Persona Digital Telephony Ltd & ors and also this court, Segal J did not have the benefit of receiving submissions on countervailing/neutral perspectives from the Attorney-General and/or an amicus curiae on the broad public policy considerations and other relevant matters. 245.Thirdly, Segal J noted “[the] plaintiff also acknowledged that a declaration in these proceedings could not of itself prevent criminal liability if the steps taken by the plaintiff otherwise involved the commission of a crime” (page 715). Mr Smith SC submitted this showed the pre-clearance declaration sought/granted in that case would not have prevented criminal liability, which probably caused Segal J to have some reluctance about granting the declaration “in circumstances where it might be said the plaintiff was in effect seeking an advisory opinion from the court on a point of general commercial importance to the defendant/funder and the commercial funding industry” (page 737-738). Mr Smith SC submitted this raised valid concern because a pre-clearance declaration for third party litigation funding is largely made for the benefit of the funder who is naturally jealous about the enforceability of the LFA in order to secure its division of the spoils if the underlying litigation is successful, and Mr Smith SC feared such applications will proliferate if the courts are to grant such advisory declarations especially in situations as in A Company when there was no denial of the right of access to justice. Rather, as explained in Seedlings Life Science Ventures, LLC, even though LFAs commonly contain a clause requiring court pre-approval, such clause of itself cannot confer jurisdiction. I also reiterate my observations in Part VI(f)-(g) above , especially in relation to concerns about the courts being asked to deal with hypothetical/academic questions and/or give advisory legal opinion in the absence of the funder (who had no lis with the fundee). In my view, these considerations do raised query over the usefulness of A Company as a beacon light for judicial development of the laws of maintenance and champerty in this jurisdiction. I will also revisit in Part VII below the issue of potential risk of opening floodgates for similar applications when I consider the balancing exercise between competing public policies/interests in assessing whether the Access to Justice Exception is made out. 246.Fourthly, I reiterate the reservations I have about A Company mentioned in paragraph 73-74 above. From all above matters, there is much to be said for DHCJ Fee’s observations at page 180 in Raafat Imam that “...... A Company v A Funder is an exceptional case” that “may be distinguished as the facts are materially different from the present case”. 247.Hong Kong In this jurisdiction, maintenance and champerty are both crimes and torts, and public policy grounds for invalidating contracts (see paragraph 59 above). Raafat Imam concerned an application for court sanction of a proposed LFA, and I have discussed this case in paragraphs 112 and 152 above. It is common ground that the present proceedings are the first application for pre-clearance approval of the entire litigation funding arrangements. 248.Summary From the above review, even though international case law from some common law jurisdictions touched on maintenance and champerty, it cannot be said that pre-clearance declaratory reliefs for funding arrangements (especially ones involving declaration of non-criminality) is routinely or regularly sought/granted. Indeed, having considered Mr Smith SC’s and Mr Wong SC’s analysis of the worldwide authorities, Mr Scott SC withdrew the suggestion that overseas courts have routinely granted pre-clearance declarations of non-criminality. 249.In my view, whilst cases in other jurisdictions should be studied to understand the international evolution in this area of the law, it remains important for Hong Kong to search for her own balance between competing public policies in the local moral, legal, economic and social context (to be discussed in Part VII below) bearing in mind the differences in (a) the various categories of cases that came before the courts and touched on maintenance and champerty (ie Categories A-D), and (b) the pace of development of the legal doctrines of maintenance and champerty and related legal principles in this and other jurisdictions (see summary in the Schedule). VII. ACCESS TO JUSTICE EXCEPTION ISSUE 250.As evident from the terms of the 1st/2nd Declarations, the Husband expressly relied on the Access to Justice Exception to justify such declarations. So the question here would be whether the court should grant pre-clearance declaratory relief to sanction the proposed funding arrangements between the Husband and the Funder on the ground that very or truly “exceptional circumstances” were made out by reason of the Access to Justice Exception (such that there would be no breach of the laws against maintenance and champerty). 251.Although Mr Scott SC agreed that the engagement of the right of access to justice per se would be insufficient to give rise to “exceptional circumstances” for the 1st/2nd Declarations, and that the court has to conduct a balancing exercise between competing public policies (see paragraph 49(2)(b)(ii) and (f) above), the simple proposition in his oral submissions was that the Access to Justice Exception was applicable because without litigation funding the Husband would not be able to pursue the Husband’s Claims. 252.As explained in paragraph 14 above, Mr Smith SC declined to address the court on the Access to Justice Exception. As for Mr Wong SC, he submitted that analysis of such exception was more nuanced than what Mr Scott SC would have this court accept, and that a balancing exercise between the competing public policies that foster the right of access to justice and that combat the corruption of public justice as well as an examination of the “totality of the facts” would be necessary to see whether very or truly “exceptional circumstances” were made out by reason of the Access to Justice Exception to justify the 1st/2nd Declarations. In fact, Mr Scott SC did not really disagree with such proposition save that he considered the balancing exercise between competing public policies could be done by the court and not by the legislature. It is therefore appropriate that I start with the public policy to protect the right of access to justice. (a) Public policy to protect right of access to justice 253.Advocates for relaxation of restrictions against litigation funding extoll the virtue of increased access to justice within a civil justice system that is perceived to be too expensive and too slow, which therefore favours well-resourced litigants over those without resources or have liquidity constraints for pursuing their claims. Third party litigation funding, such advocates say, can meet the overarching need to provide access to the courts and to enhance the vindication of rights. 254.The right of access to justice is enshrined in article 35 of the BL (“BL35”)[180] and article 10 of the Hong Kong Bill of Rights (“BR”)[181] (“BR10”) as a fundamental right.[182] The important public policy of facilitating access to justice is emphasised by Lord Phillips MR who gave the judgment of the English Court of Appeal in Gulf Azov Shipping Co Ltd & ors v Chief Humphrey Irikefe Idisi & ors:[183]
255.In Unruh, Ribeiro PJ said as follows at pages 66-68:
256.Mr Wong SC submitted what Ribeiro PJ said showed that different jurisdictions had gone their own ways to give effect to the fundamental right of access to justice, but he fairly pointed out (and as seen in the discussion in Part VII(c) below) that overseas developments concerning third party litigation funding (except for, say, Ireland)[184] have been generally quite liberal. 257.But Mr Smith SC advocated a cautious approach to be taken in Hong Kong with proper regulation of the third party litigation funding market by the legislature backed by a comprehensive form of institutional safeguards against potential abuses (see Raafat Imam at pages 171-172). Both Mr Smith SC and Mr Wong SC noted the public interest in preventing the development of an unlicensed and unregulated market in litigation funding for the purposes of proper administration of justice and protection of vulnerable litigants (see paragraph 385 below), and submitted that upon balancing competing public policies there is much to be said for legislation/regulation as the appropriate means to meet the needs of this jurisdiction. 258.Mr Scott SC complained that Mr Smith SC’s and Mr Wong SC’s restrictive answer/appraisal for relegating liberalisation of the Access to Justice Exception to legislation/regulatory control (rather than judicial development) found no support in Ribeiro PJ’s observations in Unruh, and he went on to suggest that Ribeiro PJ would have said so if it were otherwise. It was said that given the shrinkage of the scope of the laws of maintenance and champerty, Ribeiro PJ actually encouraged the courts to develop the Access to Justice Exception via case law as needs require. But in my view, Ribeiro PJ in emphasising that the Access to Justice Exception is in a state of development and is not static was in fact saying such exception is likely to enlarge over time (which will lead to contraction of the laws against maintenance and champerty), but he also recognised such developments may call for “[different] measures, whether statutory or judicial, ...... in different jurisdictions” (my emphasis). Indeed, Ribeiro PJ at page 75 in Unruh went further to say that “[the] continued retention by Hong Kong of criminal and tortious liability for maintenance and champerty may not be justified and this question merits serious legislative attention ......” (see paragraph 391 below). In the circumstances, I do not see Ribeiro PJ as having suggested that local developments must/should be addressed by judicial rather than legislative answer. Indeed, in Winnie Lo, Ribeiro PJ made a postscript suggestion that the future of criminal/civil liability for maintenance and champerty in Hong Kong, which involves issues of some complexity, should be a fit topic for referral to the Hong Kong Law Reform Commission (“HKLRC”) for consideration and public consultation without specifying whether a legislative or judicial route should be adopted (page 71). 259.The Amici’s appraisal of the issue of access to justice was set out in their written submissions as follows:
In light of such submissions, it is not quite fair to say the Amici just drew on Ribeiro PJ’s observations in Unruh to insist that pre-approval or legitimisation of third party litigation funding necessarily requires a legislative answer. Rather the Amici’s stance was that proven impecuniosity will invoke the public policy that fosters the right of access to justice (which the Amici recognised as “a strong starting premise” to make out the Access to Justice Exception), but it is not the only consideration and the court will have to conduct a balancing exercise against other public policies (eg whether the mischiefs targeted by the laws against maintenance and champerty can be sufficiently addressed) to see whether on the “totality of the facts” very or truly “exceptional circumstances” have been made out by reason of the Access to Justice Exception to justify the pre-clearance declarations. 260.In my view, the Amici adopted the correct analytical approach towards assessment of the public policy and value judgment that underlie the laws against maintenance and champerty from which the Access to Justice Exception is carved out. 261.To properly understand the difference between on the one hand the Amici’s and the SJ’s inclination towards a legislative solution and on the other hand the Husband’s proposal for a judicial answer, it is necessary to also consider the countervailing public policy that addresses the mischiefs targeted by the laws against maintenance and champerty. (b) Public policy to address mischiefs of maintenance and champerty 262.Mr Scott SC reminded that the scope/development of the laws against maintenance and champerty has contracted upon “carving out” a patchwork of exceptions/qualifications that exclude conduct that would otherwise constitute maintenance and champerty with criminal/civil liability, eg the Common Interest, Access to Justice and Miscellaneous Exceptions (see Unruh and Winnie Lo as explained in paragraphs 55 and 58 above, and see also paragraph 62(a)(i)-(iii) above). He submitted Hong Kong should embrace the “trend” in other common law jurisdictions towards permitting third party funding, and suggested modern courts are well placed to deal with any concern over exploiting vulnerable litigants and other possible abuses. 263.On the other hand, it has been said that areas of concern do exist even in modern times, eg (a) whether the prospect of the flow of litigation investment funds into the civil justice system will inappropriately commoditise justice, (b) whether litigation funders may exploit impecunious fundees/litigants by, say, imposing onerous terms for the funding and exerting control over the underlying litigation, and (c) whether litigation funders with (as Mr Scott SC submitted) the strategic aim of making positive returns would be interested in high-yield “big money” commercial/matrimonial claims but would leave other sectors of the civil justice system that also have demands for legal services unserved, so Mr Smith SC and Mr Wong SC argued that litigation funding as a novel answer to these concerns must be approached with conservative caution. 264.In my view, the starting point is that “[the] prohibition of maintenance and champerty is a matter of public policy and involves a value judgment that certain conduct should be considered “officious intermeddling” in someone else’s litigation or “trafficking in litigation” which deserves to be made unlawful. Unsurprisingly, the content of that value judgment has fundamentally changed, reflecting the radical development of society in general and of the legal system in particular over the last seven hundred years”,[185] and this was what led to the shrinkage in the modern scope of maintenance and champerty. 265.But whilst the protection of the right of access to justice “...... is accorded by the excepted category consisting of cases involving access to justice consideration” and “...... the courts will always take all due care to protect the fundamental right concerned”,[186] maintenance and champerty as torts/crimes are still part of Hong Kong law (which law has been held to be legally clear and certain – see paragraph 58 above). 266.2 strands of policy factors The above showed there must be a balancing exercise between the right of access to justice and the policy considerations that underlie the historical antipathy towards maintenance and champerty (which remain relevant notwithstanding the evolution of public policy and value judgment over the years). This is borne out by the observations by Segal J in A Company as follows (page 735) (see also paragraph 346 below):
267.Two matters are of note. First, it is clear from Segal J’s observations that before the court can approve any LFA to promote access to justice, the court has to be satisfied that the 2 strands of public policy factors effected via the laws against maintenance and champerty (ie (a) to ensure the funding must not have a tendency to corrupt public justice, and (b) to protect the integrity of the litigation process) are secured.[187] Obviously, these public policy factors have a wider import than any case-specific consideration. In this respect, Segal J in A Company cited concern that third party litigation funding may promote proliferation of speculative or unjustifiable claims, and Ribeiro PJ in Unruh also referred to the traditional objection of a stranger “trafficking” or “gambling” in the outcome of the litigation (page 60). 268.Secondly, such value judgment and policy consideration are clearly jurisdiction-specific. Segal J was particular in his emphasis on “Cayman public policy”, Cayman court system, Cayman litigation culture, and the place commercial litigation funding had “in this jurisdiction”. So although overseas jurisprudence should be studied for the lessons they offer, it is important to focus on the value judgment and public policy of Hong Kong in considering the applicability of the Access to Justice Exception. Such approach is also endorsed by the Irish Supreme Court in Persona Digital Telephony Ltd & ors and in SPV Osus Limited (see paragraphs 223-234 above). 269.Protecting integrity of litigation process It is useful for me to now turn to the twin public policy factors that underlie the prohibition against maintenance and champerty as mentioned by Segal J in A Company (see paragraph 267(a)-(b) above). I start with the policy factor of protecting the integrity of the litigation process in the local jurisdiction. The concerns to be addressed in this regard have been succinctly set out by Steyn LJ in Giles (Court of Appeal) at page 331 as follows:
270.Historically, the abuses referred to above have arisen from the lack of sufficient internal strength of the mechanism of justice to resist the oppression of private individuals through suits fomented and sustained by unscrupulous men of power. Southwood AJA at page 104 in Price Waterhouse Coopers Inc explained that 2 important factors contributed to the growth of such abuses, ie lack of an independent judiciary, and a civil justice system incapable of exposing abuses of legal procedure and giving effective redress. So since the early days of unruly nobles, the courts have taken a strict view against maintenance and/or champerty (see Giles (House of Lords) at page 153 and Unruh at pages 64-65), and “[the] fact that such conduct was treated as both criminal and tortious provided an invaluable external discipline to which, as the records show, recourse was often required” (see Giles (House of Lords) at page 153). 271.But as time passed, “the courts have become stronger, their mechanisms more consistent and their participants more self-reliant. Abuses could be more easily detected and forestalled, and litigation more easily determined in accordance with the demands of justice without recourse to separate proceedings against those who trafficked in litigation” (see Giles (House of Lords) at page 153). “As the civil justice system has developed its own inner strength the need for the rules for maintenance and champerty has diminished – if not entirely disappeared”, and the scope of the laws against such conduct has atrophied (see Price Waterhouse Coopers Inc & ors at pages 163-164). 272.Mr Scott SC submitted there are available procedural safeguards in a modern independent judiciary’s armoury to ameliorate the ills/abuses of maintenance and champerty and to ensure due oversight over LFAs so that litigants’ right of access to justice is not unduly fettered, and such measures include: (a) staying or striking out any action for abuse of the process, (b) finding that inappropriate LFAs are void or unenforceable, (c) awarding adverse costs against the litigation funder, and/or (d) ordering security for costs against the litigation funder. 273.(i) Striking out or staying proceedings for abuse of process The relevant mischief is the fear that the court’s process will be misused to generate profit, and that funders may stir up litigation to serve their own agenda. In short, the concern is that the funders would serve their own interests rather than to facilitate the fundees’ interests to vindicate their rights. Such improper motives may potentially lead to abuse of the court’s process. 274.Order 18 rule 19(1)(d) of the RHC and the inherent jurisdiction of the court allow the courts in appropriate cases to strike out a claim (or to stay the proceedings) for abuse of the court’s process which can take many forms, eg proceedings brought with an improper motive or brought for a collateral purpose other than for vindication of rights. As DHCJ Fee said at page 185 in Raafat Imam, it would be rare to have direct evidence of the kinds of possible abuse mentioned in Regina (Factortame Ltd & ors) that “the agreement in question might tempt the allegedly champertous maintainer for his personal gain to inflame the damages, to suppress evidence, to suborn witnesses or otherwise to undermine the ends of justice”. 275.Mr Scott SC referred to Campbells Cash and Carry Pty Limited where the defendant asked for the plaintiff’s funded claim to be inter alia dismissed or stayed as an abuse of process (see paragraph 214 above), and Einstein J concluded that the “litigation funding arrangements proposed by the opt-in procedure [in the representative proceedings] are against public policy as well as comprising an abuse of the court process” (paragraph 34). The New South Wales Court of Appeal allowed the appeal and set aside the orders of Einstein J (paragraph 37). The High Court of Australia allowed the appeal from the New South Wales Court of Appeal, and held that the funding arrangements made and proposed to be made did not constitute a ground to stay the proceedings. But as explained in paragraph 215 above, Gummow, Hayne and Crennan JJ came to this view because in jurisdictions that have abolished maintenance and champerty as crimes/torts, there are no public policy questions beyond those that are relevant to considering maintenance and champerty issues in relation to the enforceability of the LFA, and the learned justices expressly left open the position in jurisdictions where maintenance and champerty remain as torts or even crimes. 276.In the circumstances, I do not believe Mr Scott SC’s reliance on Campbells Cash and Carry Pty Limited in this regard will take the matter much further in this jurisdiction where maintenance and champerty remain as crimes. Further, I take note that in cases within Category A (and the Husband’s case fell within this category), the opposing party in the underlying action cannot raise champerty as a defence or a ground to stay proceedings even if the relevant LFA is champertous. 277.But I note what Southwood AJA said in Price Waterhouse Coopers about abuse of the court’s process (see paragraphs 321-323 below), and bear in mind that the New Zealand Supreme Court in Waterhouse & anor accepted the court has an inherent power to stay any proceedings for abuse of process. It was said such power was not limited to traditional categories of abusive proceedings,[188] and would extend to abuse of process where the champertous assignment infringed the rule against assigning a bare cause of action. It was said such power to intervene in the underlying proceedings on the ground of abuse of process would be an answer to any funder who stirs up litigation for his own financial or other improper purpose. However, as seen in paragraph 279 below, this protective measure has its limitations. 278.(ii) Void or unenforceable contracts Mr Scott SC cited the example of Beijing Tong Gang Da Sheng Trade Co Ltd where DHCJ Le Pichon struck out the claim on the ground that the assignment under which the plaintiff acquired the cause of action was found to be champertous and invalid such that the plaintiff had no locus to sue. But champerty provided a defence in Beijing Tong Gang Da Sheng Trade Co Ltd because the plaintiff’s right of suit depended on a champertous agreement, ie it was a case that fell within the Category B, which was quite different from the Husband’s case that did not rely on any LFA to pursue the Husband’s Claims, which means his case fell within Category A. I am not persuaded that Mr Scott SC’s reliance on Beijing Tong Gang Da Sheng Trade Co Ltd in this regard will take the matter much further. 279.I also note that paragraph 272(a)-(b) above are not direct remedies against the litigation funders, and the availability of such remedies against the fundee claimants (a) is dependent on adequate disclosure of the existence of the third party litigation funding after the LFA has been made and funding has been provided, and (b) only arises after the institution of proceedings. I will address the matter of disclosure in paragraphs 306-310 below. But such indirect remedies for preservation of the judicial process after institution of proceedings do not aid the wider public policy considerations that raise regulatory concerns. 280.On this note, I turn to the direct remedies in paragraph 272(c)-(d) above against the litigation funders. I caveat such measures by saying that (a) the novelty of commercial litigation funding in Hong Kong means the effectiveness of these procedural measures/ safeguards against the litigation funders is as yet untested in Hong Kong, and (b) even if these measures/safeguards are applicable in this jurisdiction, their vitality turns on the anterior question of whether there is adequate disclosure to the opposing parties and the court in the underlying action about the litigation funding, which matter is again untested in Hong Kong. 281.(iii) Adverse costs orders against funder Subject to the caveats I have mentioned in the above paragraph, I accept that if the court is able to make an adverse costs order against a third party litigation funder that can be effectively enforced, it will be a significant procedural safeguard against unfairness and potential abuse, and of benefit to the opposing parties in the underlying action by increasing their prospects of making recovery of costs under costs orders in their favour. 282.Indeed, Segal J in A Company noted an adverse costs order against a funder is a significant safeguard against unfairness and potential abuse, but this was not a matter that gave rise to concern in that case (pages 732, 734 and 737):
I will deal with the terms of the D-LFA (including any provision for the Funder to satisfy adverse costs) in Judgment (2), especially in Part XI(b) therein. 283.Turning to the quantum of adverse costs that may be awarded against the funder, in the absence of local judicial guidance, Mr Scott SC made reference to the English approach in Arkin v Borchard Lines Ltd & ors (Zim Isreal Navigation Co Ltd & ors, Part 20 defendants) (Nos 2 and 3).[189] The term “Arkin Cap” is derived from this case, ie the Arkin Cap limits liability of the litigation funder for adverse costs up to an amount equivalent to the funding provided. In that case, the claimant sought substantial damages against 4 defendants. Having no means of his own and legal aid having been withdrawn, the claimant entered into a conditional fee agreement with his lawyers and a non-champertous agreement with a commercial/professional funding company who agreed to fund the costs of the necessary expert evidence for a contingent fee of 25% of the first £5,000,000 of the damages recovered and 23% thereafter. The funding only covered the cost of the claimant’s expert evidence and of organising documents. The funder took no part in making decisions as to the conduct of the litigation, and made no attempt to control it. The costs to the funder of their funding was £1,300,000. Shortly before the trial, the 1st defendant brought Part 20 contribution proceedings against the 2nd and 3rd defendants and others (including 3 Part 20 defendants), who participated in the trial and who (except the 1st defendant who did not adduce expert evidence) incurred substantial costs in preparing/ adducing expert evidence. Eventually, the claim and Part 20 claim were dismissed, and the claimant was ordered to pay 90% of the 1st defendant’s costs and 80% of the other defendants’ costs. As the claimant was impecunious, the defendants and the 3 Part 20 defendants applied for orders that the funder should pay their costs. 284.The English Court of Appeal held that whilst it is important to help ensure access to justice, due weight has to be given to the general rule under r44.3 of the Civil Procedure Rules (“CPR”) that a successful party should recover his costs,[190] so it will be unjust for a litigation funder, who has purchased a stake in an action for a commercial motive, to be protected from all liability for costs of the opposing parties should the fundee claimant fail in the underlying action, and a more just and practical approach is for a commercial/professional funder, who has financed (via a non-champertous and otherwise unobjectionable LFA that left the fundee claimant in control of the litigation) all/part of the claimant’s litigation costs in the expectation of reward should the claimant succeed, to be potentially liable for costs of the opposing parties up to the Arkin Cap, ie to the extent of the funding provided. 285.The jurisdiction for awarding costs against a litigation funder (ie a non-party) is founded on section 52(1) and (3) of the Supreme Court Act 1981 as substituted by section 4 of the Courts and Legal Services Act 1990, which was equivalent to section 52A(1)-(2) of the High Court Ordinance Cap 4 (“HCO”) as follows:
Lord Phillips of Worth Matravers MR also referred to CPR r48(2), which is the equivalent to Order 62 rule 6A(1) of the RHC as follows:
286.In Arkin, the funder was ordered to contribute £1,300,000 to the defendants’ and the 3 Part 20 defendants’ costs. The Arkin Cap was implemented because the court was concerned there would be a chilling effect on the litigation funding market if the funder who partially funded the claim was liable for all of the adverse costs. It was said that under the Arkin Cap approach to costs against commercial/professional funders, such funders are likely to (a) cap the funding so as to limit their exposure to a reasonable amount, which should have an economic effect in keeping costs proportionate, and (b) limit over-investment and encourage review of the prospects of the litigation with greater care to justify the funding, both of which will be in the public interest (pages 3055-3056 and 3070-3071). 287.The English Court of Appeal made clear that the above approach “is designed to cater for the commercial funder who is financing part of the costs of the litigation in a manner which facilitates access to justice and which is not otherwise objectionable” such that the “...... funding will leave the claimant as the party primarily interested in the result of the litigation and the party in control of the conduct of the litigation”, but such approach “will not be appropriate in the case of a funding agreement that falls foul of the policy considerations that render an agreement champertous. A funder who enters into such an agreement will be likely to render himself liable for the opposing party’s costs without limit should the claim fail” (page 3070). 288.The Arkin Cap was applied by the English Court of Appeal in Excalibur Ventures llc v Texas Keystone Inc & ors (No 2) (Association of Litigation Funders of England and Wales intervening).[191] This case is discussed in paragraphs 296-298 below in relation to the issue of whether the funder is liable for non-party costs on indemnity basis. But suffice to state here that Tomlinson J considered commercial funders are not greatly motivated by the need to promote access to justice as they are “making an investment and are motivated largely by commercial considerations” (page 2243). He also expressed skepticism about whether the imposition of a requirement to pay costs on indemnity basis would have any adverse effect on access to justice, but “in so far the argument has any traction, it has I consider been resolved by the decision of this court in Arkin v Borchard Lines (No 2) [2005] 1 WLR 3055 ...... The solution fashioned by this court was the Arkin cap. We are not on this appeal asked to revisit that decision. I understand that some consider the solution thus adopted to be over-generous to commercial funders, but that is a debate for another day upon which I express no view” (page 2243). 289.As noted by Tomlinson LJ, the Arkin Cap was put forward as a judicial mechanism to balance the need for access to justice (by encouraging litigation funding) and the need to protect successful opposing parties in the underlying actions who may not otherwise recover their costs. It has not been popular with all quarters (see criticisms in Jackson, Review of Civil Litigation Costs: Final Report Chapter 11 paragraphs 4.3-4.4 at pages 122-123).[192] The alternative would be, as Sir Rupert Jackson recommended[193] leaving the amount of the funder’s liability for adverse costs to the discretion of the judge in each individual case, and “[the] funder’s potential liability should not be limited by the extent of its investment in the case”. The rationale for such approach rests on the belief that the funder, who have assessed the defendant’s resources and cherry-picked what cases to fund with an eye on profit return and who stands to recover a share of the compensation in the event of success, should accept the reciprocal consequences of having to bear adverse costs of the defendant (who has no choice but to face the funded claim) in the event of defeat, otherwise it would be unjust not only to the opposing parties (who may be left with unrecovered costs) but also to the fundee (who may be exposed to costs liabilities which he cannot meet).[194] 290.Subsequently, Foskett J in Bailey & ors v GlaxoSmithKline UK Ltd[195] said it may be argued that Arkin only addressed the situation where a commercial funder has contributed merely a part and not the whole of the fundee litigant’s costs, and left open the possibility of dis-applying the Arkin Cap (or not regarding it as applicable) where inappropriate, ie when the costs awarded against the funder may exceed the Arkin Cap (paragraph 59). Further, Moore-Bick LJ in Deutsche Bank AG v Sebastian Holdings Inc warned that exercise of the jurisdiction to make costs orders against non-parties “is in danger of becoming over-complicated by authority” and emphasised that “the only immutable principle is that the discretion must be exercised justly”.[196] But the Arkin Cap was applied in Burnden Holdings (UK) Ltd v Fielding.[197] 291.In the recent judgment handed down (after the Hearing) in Chapelgate Credit Opportunity Master Limited v James Money & ors,[198] the English Court of Appeal held that a commercial funder’s liability for payment of the costs of the opposing parties in the underlying action was not limited by the Arkin Cap, and clarified that the Arkin Cap is only guidance and not a rigid rule. In that case the joint administrators of a company owned by D sold the main asset of the company. D on behalf of the company sued the administrators for breach of duties, acquired the company’s causes of action from the liquidator, and raised further claims for breach of duties and conspiracy (paragraphs 2-6). D’s claims were funded by a commercial funder, who took out after-the-event (“ATE”) insurance to limit its exposure to an adverse costs order, but the sum insured under the policy was £650,000. The administrators successfully defended the claim by D (paragraph 13), and Snowden J considered the conduct in the underlying litigation justified and he ordered D to pay the administrators’ costs on indemnity basis (paragraph 14). The administrators applied for a non-party costs order against the funder (paragraph 15). The funder did not resist the making of such order, and did not dispute that assessment should be on indemnity basis (see discussions in paragraph 299 below), but claimed that its liability should be capped at £1,275,166.34 being the Arkin Cap. Snowden J ordered the funder to pay costs incurred after the date of the LFA without any cap. 292.The English Court of Appeal agreed with Snowden LJ that judges do not necessarily have to adopt the Arkin Cap when determining the extent of a commercial funder’s liability for costs, and do not have to regard “the Arkin approach represents a binding rule” (paragraph 38): Newey LJ (with whom Moylan and Patten LJJ agreed) gave an example of where the Arkin Cap may not be just even though the funder only funded part of the total costs (as in Arkin): 293.Newey LJ explained that Arkin was decided at a time when third party litigation funding was still nascent and conditional fee agreements and ATE insurance were relatively new, which factors highlighted the desirability that commercial funders should not be deterred by the fear of disproportionate costs consequences. It was said that the position in England and Wales nowadays is different as “commercial funders, conditional fee agreements and ATE insurance are all much more established” such that “a funder should now be able to protect its position by ensuring that either it or the claimant has ATE cover” (paragraph 37). However, Newey J accepted there will continue to be cases in which judges may find it appropriate to follow the Arkin approach, and such “solution” is “particularly likely to be relevant in facts closely comparable to those in Arkin, where the funder had “merely covered the costs incurred by the claimant in instructing expert witnesses” ......” (paragraph 37). 294.Taking into account (a) the funder’s prospective gains as compared with its outlay, (b) the extent to which the Arkin Cap would leave the administrators out of pocket, the fact that the funder was funding all of D’s costs from the date of the LFA (and not just costs of discrete part of the claim as in Arkin), (c) the fact that the funder’s profits would be quite substantial (ie far more than D’s) if the underlying claim were successful, (d) the fact that the administrators incurred more costs than the funding provided to D, and (e) the fact that D did not obtain any ATE insurance but the funder waived such requirement which increased the administrators’ exposure, the English Court of Appeal considered Snowden LJ’s decision was one that was reasonably open to him and should be upheld. 295.Turning to the issue of indemnity costs, in Houghton v Saunders & ors, Dobson J held as follows:[199]
This means that the defendant cannot just point to claimant’s status as a fundee to justify indemnity costs. But it must be remembered that the dispute in Houghton was in fact a representative/group litigation financed by the funder over which the court has supervisory jurisdiction in relation to funding arrangements in the context of class action (see paragraph 201 above). 296.But a somewhat different approach was adopted in England and Wales as seen in Excalibur Ventures llc, which held that if the court can award costs on indemnity basis, then the funder will have to pay costs on such basis. In that case, the claimant (a shell company with no assets) sued the defendants for a share in an oil exploration block in Kurdistan that the claimant valued at US$1.6 billion. A number of commercial/ professional funders provided £31.75 million funding to the claimant for its claim in return for a working interest in the block or a substantial financial return. Upon dismissal of the claim, the trial judge (who was critical of the way the claimant conducted the case) awarded the defendants costs on indemnity basis. Although the claimant via the funders previously put up security for the defendants’ standard costs, a shortfall was expected on the award of indemnity costs, so the defendants applied for a non-party costs order against the funders to make up the shortfall. The trial judge held that (a) in the absence of special circumstances a commercial funder should “follow the fortunes” of those from whom he hoped to derive a small fortune, and (b) a funder who invested in litigation for a return by solely funding a security for costs order is not immune from an adverse costs order in the event the claim fails (pages 2245-2249). 297.The funders appealed, and the Association of Litigation Funders (“ALF”) intervened. The English Court of Appeal dismissed the appeal, and agreed with the trial judge’s “follow the fortunes” approach. Tomlinson LJ said “[the] suggestion that these funders, whose stake in this litigation was very substantial, ought not to be responsible for the successful parties’ costs is simply hopeless” (page 2239), and “[the] funder chooses which claims to back, whereas, ...... a defendant does not choose by whom to be sued, or in what manner. The judge continued: “If, then, the funder’s witnesses turn out to be liars or the litigation is conducted unreasonably, so that the court awards costs on an indemnity scale, it is just and equitable that the funder should also pay on that scale.” I agree. I can see no principled basis upon which the funder can disassociate himself from the conduct of those whom he has enabled to conduct the litigation and upon whom he relies to make a return on his investment” (page 2241). It was emphasised that the derivative nature of a commercial funder’s involvement in a claim should ordinarily lead to the funder being required to contribute to costs on the basis upon which they have been assessed against the party whom the funder chooses to fund.[200] 298.The English Court of Appeal also rejected the argument that a consequence of the judge’s approach is that a commercial funder will have to exercise greater control over the conduct of the underlying litigation (pages 2244-2245). After all, the funder by funding litigation takes a risk as to the nature of litigation which he has had the opportunity to inform himself before offering the funding and during the course of the litigation which he funds (page 2243). Tomlinson LJ said “ongoing review of the progress of litigation through the medium of lawyers independent of those conducting the litigation, a fortiori those conducting it on a conditional fee arrangement, seems to me not just prudent but often essential in order to reduce the risk of orders for indemnity costs being made against the unsuccessful funded party”, and when conducted responsibly there was no danger of such a review being characterised as champertous (page 2245). 299.Next, as alluded to above in paragraph 291 above, the trial judge in Chapelgate Credit Opportunity Master Fund Limited ordered adverse costs against the funder, and further found “the conduct of the litigation by and on behalf of [D] ...... was significantly out of the norm and so warranted an order for indemnity costs” (paragraph 19(ii)). When the funder appealed, “in light of the decision of the Court of Appeal in Excalibur Ventures llc v Taxas Keystone Inc (No 2) ......”, the funder “did not dispute that the [non-party costs] orders should provide for assessment on the indemnity basis ......” (paragraph 15). 300.From the above, the law appeared to be unsettled as to how to assess the quantum of adverse costs against the funder although Chapelgate Credit Opportunity Master Fund Limited seemingly offered wider protection to opposing parties in the underlying claim by clarifying that the Arkin Cap is only guidance and not a rigid rule. But such view was on the basis that the litigation funding market in England and Wales had moved on and evolved from the early days with other techniques (such as conditional fees and ATE protection) available to prudent funders to limit their exposure without burdening successful opposing parties in the underlying action. But here in Hong Kong, conditional fees are not permitted, and there is no evidence of any mature ATE insurance industry. Indeed, one of the reasons why the HKLRC in its report on conditional fees published in 2007 considered the conditions were not appropriate for the introduction of conditional fees was because a successful conditional fees regime requires long term availability of affordable ATE insurance to cover the opposing parties’ costs if the underlying action fails, and there is no evidence before me that as of now Hong Kong has any mature ATE insurance industry (see paragraph 363 below). In any event, any reliance on adverse costs against the funder as a safeguard has to be supported by an effective disclosure regime (see paragraph 279(a) above). Further, it appears that even if there is jurisdictional basis for making adverse costs orders against litigation funders, it is but a factor (amongst others) to be taken into account in balancing the competing public policies and in examining the “totality of the facts” for determining whether “exceptional circumstances” had been made out by reason of the Access to Justice Exception to justify the court granting the pre-clearance declaratory reliefs sought. 301.(iv) Security for costs orders against funder Mr Scott SC referred to In re RBS Rights Issue Litigation,[201] and submitted that an application for security for costs may also be made directly against a commercial/professional third party funder. The purpose of a security for costs order against the funder is to protect the defendant’s entitlement to costs and to ensure adverse costs orders against the defendant will not be frustrated. 302.In that case, a group litigation order provided for each of the individual claimants (numbering several thousand) to be severally liable for their own proportion of the costs, and the defendants sought security for costs against the non-party funders close to the eve of the trial. There was no dispute in that case that the court can make such an order even though the funders are not parties to the proceedings on the basis of the combined effect of section 51 of the Senior Courts Act 1981 (equivalent to section 52A of the HCO – see paragraph 285 above)[202] and CPR r25.14(2)(b) which provides as follows:
Hildyard J explained that “CPR r 25.14 plugs what was previously a gap in the rules (which are intended to be comprehensive) to enable a defendant to obtain an order for security for costs against someone other than the claimant if the court is satisfied, “having regard to all the circumstances of the case, that it is just to make such an order” and that either condition in CPR r 25.14(2) is satisfied” (page 4641). 303.But it was said the potential exposure of litigation funders to adverse costs orders against them at the end of the day does not of itself mean an order for security for costs ought to be granted. Various factors should be taken into account when deciding whether the order should be made.[203] On the facts of that case, bearing in mind (a) the real risk of non-recovery as seen from the shortfall in the claimants’ ATE insurance cover, (b) a significant proportion of the adverse costs liability would fall on individual claimants of limited means (some of whom were abroad), (c) the commercial funder operated litigation funding for profit so it should have been aware of the position in relation to the ATE insurance cover or should have found out for itself if there was any uncertainty, and (d) the commercial funder’s refusal to provide financial information (which suggested it might not have sufficient funds to satisfy any adverse costs order against it), the commercial funder was ordered to provide security for costs covering its share of costs on condition that the defendant gave a cross-undertaking in damages. But no security was ordered against the other funder as litigation funding was not its line of business (which was a relevant albeit not necessarily a decisive factor) and it was closer to a pure funder (pages 4660-4663). 304.Mr Scott SC went on to submit that although the Arkin Cap is also relevant to the amount of security for costs that a commercial funder may be asked to pay into court (but this must now be considered in light of the discussion in paragraphs 289-300 above), he acknowledged that quite recently Foskett J in Bailey & ors ordered the commercial funder to pay security for costs in a sum in excess of the Arkin Cap upon a cross-undertaking as to damages to ensure the funder could meet its costs liability if the claim failed. In that case, the claimants had the benefit of ATE insurance responsive to adverse general costs amounting to less than the Arkin Cap, but the defendant had liquidity issues and was not a member of the voluntary regulatory body of litigation funders. The court noted (a) the funder was insolvent and depended on funding from another insolvent company that was kept afloat by the goodwill of its sole shareholder, and (b) the claimants had failed to pay a previous adverse costs order on time. Noting he had a broad discretion under CPR r25.14 to order security for costs against a funder and in what sum, and taking into account various criticisms of the Arkin Cap, Foskett J decided that whilst a trial judge is obliged to consider with care the impact of the Arkin Cap at the end of a trial, it is only one of the factors to be considered at the security of costs stage, and an unquestioned imposition of the Arkin Cap will fetter the court’s general discretion as to costs at the conclusion of a trial, and there is no injustice if the Arkin Cap is ultimately applied (ie any excess security paid into court will be repaid) (page 7). 305.But notwithstanding the above interesting observations on ordering security for costs against third party funders, they are not particularly helpful in this jurisdiction because there is no provision in the RHC equivalent to CPR r25.14 which Hildyard J in In re RBS Rights Issue Litigation said was the statutory provision that “plugs what was previously a gap in the rules (which are intended to be comprehensive) to enable a defendant to obtain an order for security for costs against someone other than the claimant if the court is satisfied, “having regard to all the circumstances of the case, that it is just to make such an order” and that either condition in CPR r 25.14(2) is satisfied” (my emphasis) (see paragraph 302 above). Thus, in the Hong Kong jurisdiction, security for costs against the third party funder is arguably not an available procedural safeguard to withstand potential abuses of third party litigation funding. This lacuna in the Hong Kong procedural rules in fact highlights the importance of regulation over litigation funders’ capital adequacy requirements as the proper provision, implementation and enforcement of such requirements will likely reassure the defendants in the underlying action that their costs will be met. I will deal with the issue of capital adequacy requirements in Part XI(e) in Judgment (2). 306.(v) Disclosure But as alluded to in paragraph 279 above, the effectiveness of these procedural measures/safeguards (if applicable) depends on a disclosure-based approach to funding arrangements as orders against the funder for adverse costs and/or security for costs (if applicable in Hong Kong which I doubt) can only be made if the defendant/court in the underlying action are aware of their existence. 307.But Mr Scott SC asserted the third party LFA between the fundee and the funder is usually protected by privilege, citing In the matter of Edwardian Group Limited, Estera Trust (Jersey) Limited & anor v Jasminder Singh & ors[204] in support. That case concerned unfair prejudice proceedings under section 994 of the Companies Act 2006. The defence of the respondents complained of inter alia the petitioners’ delay in bringing the proceedings, and the petitioners attempted to justify the delay inter alia by their efforts to obtain litigation funding. The petitioners disclosed heavily redacted litigation funding documents, and alleged the redactions were due to legal advice privilege since the documents “refer to, reproduce, summarise, embody or otherwise reveal directly or indirectly the nature, content [or] effect of privileged communications” (paragraph 7). But the respondents thought such assertion was too broad, and applied for inspection of the non-redacted litigation funding documents. Morgan J said it was well-established that communications between the clients and their lawyers for the purpose of obtaining legal advice are privileged from disclosure on the grounds of public policy, and this extends to other materials which “evidence” the substance of such communications and which reproduce or otherwise reveal such communications (paragraphs 28-29). The learned judge applied the test in Lyell v Kennedy (No 3)[205] (paragraph 37)[206] and found that privilege applied, so he refused to grant an order for the litigation funding documents to be disclosed without redactions (paragraph 53). 308.If that is the relevant law, the procedural measures/ safeguards referred to above do not give much comfort for an opposing party or the court in the underlying action as they may be ignorant of the litigation funding obtained by the fundee plaintiff. Mr Scott SC then submitted that regard may be had to the observations of the New Zealand Supreme Court in Waterhouse & anor as follows:
The New Zealand Supreme Court pointed out that security for costs was voluntary in that case, but even though no definitive comment was made, it was said as follows that:
But the court left open (a) the possibility that disclosure of the terms of withdrawal of funding may be appropriate if the terms in some way give legal control over the proceedings to the funder (eg the ability to withdraw funding if the fundee refuses to obey instructions), and (b) the question of whether the terms of possible withdrawal may be relevant to an application for security for costs (paragraph 72). 309.In that case, the fundee was required to disclose the details set out in (a)(i)-(ii) in the above paragraph. If the respondent in that case would not withdraw the application for stay of the proceedings, the appellants would have to disclose a redacted version of the LFA that would include the details in (a)(i)-(ii) in the above paragraph within 10 working days or apply to the court within such period to raise any issue of privilege/confidentiality (including those relating to litigation-sensitive material) for stay of the disclosure requirement pending further court order, and the underlying proceedings would remain stayed pending disclosure of the redacted version of the LFA and the matters in (a)(i)-(ii) in the above paragraph or further court order. But if the respondents would withdraw the stay application, no order for disclosure of the redacted LFA would be required, but disclosure of the details in (a)(i)-(ii) in the above paragraph would still be required (paragraphs 78-79). 310.As I have explained, these are uncharted waters in Hong Kong, and at the very least, the authorities cited by Mr Scott SC raise questions over whether disclosure of the LFA should be made, and if so, what the appropriate parameters of such disclosure should be. This in turn would impact on the effectiveness of the aforesaid procedural measures/safeguards. At the Hearing, Mr Scott SC handed up to this court a letter dated 15 December 2017 by the Brother’s solicitors showing their awareness of the Husband’s successful FC Application for leave to use the pleadings/papers in the Matrimonial Proceedings in “a stand-alone application to the [CFI] for a Declaration that his case falls under the Access to Justice exception to the Laws of Champerty and Maintenance so that it can be funded by litigation funders” (ie the present proceedings). But the Wife and the Brother are presently unaware of the 2 matters ordered to be disclsosed in Waterhouse & anor, and there was nothing in the SGC 2nd Aff and the Husband Aff (or indeed in the C-Memo) to indicate any willingness to disclose those matters to the Wife and the Brother. Rather, the affirmation evidence and the C-Memo placed before this court emphasised the Husband’s keen intent to preserve confidentiality/ privilege, and suggested that in practice third party funding would only come to light when adverse costs orders are made. But then the opposing parties could hardly seek adverse costs until they are aware of the existence of third party funding (see paragraph 308 above). Mr Scott SC in his oral submissions said the Husband would disclose the identity of the Funder should pre-clearance sanction for the proposed funding arrangements be granted, but the exact parameters of the proposed disclosure are unclear. In any event, public policy considerations have a wider import than mere case-specific factors, and the suggested procedural measures/safeguards and their limitations are but some of the elements in the wider analysis of the public policy for protecting the integrity of the litigation process. 311.Protecting against tendency to corrupt public justice Turning next to the other policy factor of protecting against the tendency to corrupt public justice, I note at the outset that public justice has a wider dimension than the particular circumstances of the case, and is aimed at protect the purity of justice and the interests of the vulnerable. Lord Mustill in his minority judgment in Giles (House of Lords) and Madam Prothonotary Mireille Tahib in Seedlings Life Science Ventures, Inc both emphasised this:[207]
312.Maintenance and champerty serve to foster the public administration of justice, and regard trafficking in litigation (eg a funder acting with improper motive or facilitating unmeritorious claims) as against public policy. Ribeiro PJ in Unruh emphasised the traditional legal policies that underlie the torts/crimes of maintenance and champerty continue to apply (although qualified by other considerations), so the mischief to be discouraged by the law of maintenance is still “officious intermeddling” in litigation (in particular where this results in oppression of the person against whom the action is brought and possibly if it may result in the general encouragement of litigiousness) (page 68). Ribeiro PJ noted the Privy Council in Ram Coomar Coondoo v Chunder Canto Mookerjee[208] reminded of the need to guard also the interests of the fundee. The Privy Council in that case “recognized that funding a poor person’s litigation might advance the cause of justice, but their Lordships added that such funding agreements “ought to be carefully watched” because of the risk, among other things, that the arrangement may involve gambling in litigation or “abetting and encouraging unrighteous suits, so as to be contrary to public policy”” (pages 68-69). It was said that effect should not be given to such LFAs if they are found to be extortionate and unconscionable, so as to be inequitable against the fundee, or not made with the bona fide object of assisting a claim believed to be just and of obtaining a reasonable recompense therefor. 313.This very issue divided the majority and minority of the High Court of Australia in Campbells Cash and Carry Pty Limited. The majority laid emphasis on ensuring access to justice as a fundamental human right and upheld the legality of the litigation funding arrangements. Indeed, the joint judgment of Gummow, Hayne and Crennan JJ (with Gleeson CJ and Kirby J agreeing) considered a range of factors specific to that case that, alone or in combination, were not contrary to public policy or an abuse of process. It was said that the funders in providing funding to the fundee plaintiffs to pursue litigation to vindicate their rights “are not creating controversies that did not exist”, but the controversies pre-existed the proceedings, even if all those involved in them were unaware of, or unwilling earlier to pursue, their rights (paragraph 202). On the other hand, the minority judges Callinan and Heydon JJ in their joint judgment argued the funders foment disputes by encouraging litigiousness either because the fundees are unaware of their right to sue or their loss, or because they choose not to sue (paragraph 274). They warned against undue elevation of the object of access to justice over other established principles (paragraph 256):
314.As Mr Wong SC explained, the minority judges considered abuse of process existed by reason of a combination of factors (paragraph 268), including (a) the funder’s motivation of profiting from the litigation of others (paragraph 269), (b) the funder seeking out and encouraging persons to sue who would not otherwise have done so (paragraphs 270-271), (c) the nature and smallness of the fundee’s “losses” (paragraphs 272-274) and the potentially enormous gains hoped for by the funder (paragraphs 275-276), (d) the funder having too much control of the underlying litigation (paragraphs 277-280), and (e) the litigation being pursued in a way that the nominal plaintiffs’ interests were subservient to those of the funder (paragraph 281). In my view, the tension between the views of the majority and minority judges clearly demonstrate of the need for balancing competing public policies of fostering access to justice and of protecting against the tendency to corrupt public justice. 315.Other considerations: tendency to cause abuse Apart from the aforesaid 2 public policy factors, a number of other matters should also be borne in mind. First, the relevant question is not whether the funding arrangements have in fact caused actual abuses, but whether in accordance with modern public policies they have a tendency or propensity to give rise to abuse in the relevant context. In Giles (Court of Appeal), Steyn LJ explained at page 333:
Likewise, the South African Supreme Court of Appeal reiterated in Price Waterhouse Coopers Inc & ors at pages 161-162 as follows:
316.Other considerations: contemporary public policy Secondly, as seen in paragraph 264 above, the emphasis is on “contemporary public policy” (or value judgment) of a particular jurisdiction with recognition that what contemporary public policy entails are constantly evolving. I reiterate Ribeiro PJ’s observations in Unruh set out in paragraph 56 above, and also at pages 45-46 in Winnie Lo where he cited with approval what Dixon J said in Stevens v Keogh:[210]
Such public policy factor which requires consideration of the effect of the funding arrangements on others (eg constitutional values, interests of the community, law and morality and/or social/economic experience)[211] is more macro than their effect on merely the fundee. This is particularly relevant to the right of access to justice where there is a need to balance an individual’s right of access to justice (which right may affect others and is not absolute – see paragraph 386 below) against the wider public policy considerations (which are equally important and weighty matters), so that the right of access to justice is facilitated but not necessarily guaranteed. 317.Further, although Ribeiro PJ in Unruh and Winnie Lo explained that the international legal landscape of maintenance and champerty was one of contraction, the evolution of the macro public policy considerations varies in different jurisdictions, each of which has to strike its own balance to facilitate access to justice in its local context.[212] This is borne out by the Amici’s research set out in the Schedule that summarises the different pace in the development of the legal doctrines of maintenance and champerty and related matters in various common law jurisdictions. Ribeiro PJ in Unruh also made clear as follows (page 75):
In the circumstances, whilst foreign developments should be studied for their lessons, Hong Kong must search for its own values/path in relation to development in this area of the law. 318.Other considerations: LFA to be closely watched Thirdly, as alluded to in paragraph 56(a) above, the LFA must be closely watched and monitored to prevent abuses, but it is not enough to merely consider the terms of the LFA. In considering whether a LFA has the “tendency” to give rise to abuses or to pose risk to the integrity to the court’s process, the court must consider the “totality of the facts”, including the surrounding circumstances of the funding agreement/arrangements. In paragraph 23 of In the matter of the Valetta Trust, the Royal Court referred to the following observations by Coulson J inLondon and Regional (St George’s Court) v Ministry of Defence:[213] “(b) in considering whether an agreement is unlawful on grounds of maintenance or champerty, the question is whether the agreement has a tendency to corrupt public justice and that such a question requires the closest attention to the nature and surrounding circumstances of a particular agreement” (my emphasis). (c) Developments in other common law jurisdictions 319.In this section, I consider the different approaches adopted by other common law jurisdictions. Mr Scott SC submitted that in their approach as to the ambit and operation of the Access to Justice Exception, “the courts will always take all due care to protect the fundamental right concerns”,[214] and that with the exception of Ireland (where maintenance and champerty remain as crimes/torts and where there is no Access to Justice Exception – but see discussion in paragraphs 223-234 above), the “trend” in other common law jurisdictions is towards permitting third party funding, so Hong Kong’s jurisprudential development is behind these other common law jurisdictions. 320.On the other hand, although Mr Smith SC and Mr Wong SC both accepted the perceived strength of a modern civil justice system to withstand the abuses that can arise from liberalising third party litigation funding is an important factor in the balancing exercise, they emphasised that different jurisdictions have different appraisals of their own constitutional, legal, moral, economic and social values/conditions in relation to access to justice issues, and have adopted different approaches to facilitate this fundamental right as regards (a) abolition, curtailment or retention of maintenance and champerty as crimes/torts, and (b) permission, restriction or prohibition of contingency/conditional fees and third party funding.[215] This echoed Ribeiro PJ’s observations at page 67 of Unruh that the Access to Justice Exception is not static and “[different] measures, whether statutory or judicial, may be taken in different jurisdictions”. In my view, Hong Kong as a latecomer to third party funding benefits from being able to study overseas experiences, but such overseas experiences do not give overarching guidance. As Denham CJ said in Persona Digital Telephony Ltd & anor:[216]
Hong Kong is unique, and it cannot be assumed she is “behind” the international “trend” such that local courts have to catch up with overseas practices. 321.South Africa Although maintenance and champerty are still crimes and torts in South Africa, Mr Scott SC cited Price Waterhouse Coopers & ors as being illustrative of the modern trend of relaxation of third party litigation funding. But as explained in paragraph 221 above, the South African Supreme Court of Appeal was not concerned with the criminal or tortious consequences of LFAs (which are relevant matters for seeking pre-clearance declaratory reliefs), but was concerned with contractual issues. And on such basis (a) it was said the fact a litigant has entered into an unlawful agreement with a third party to provide funds to finance his case is matter extraneous to the dispute between such litigant and the opposing party and hence irrelevant to the issues arising in the underlying dispute, whatever the cause of action (page 167), and (b) Southwood AJA also said at pages 166-167 as follows:
Southwood AJA at page 169 concluded as follows:
322.Southwood AJA at page 167 also noted relevant change of public policy in South Africa as evidenced by legislative changes to legitimise “contingency fee” arrangements between legal practitioners and their clients that would otherwise have been prohibited by common law (ie “no win, no fees”, and increased fees in case of success), but subject to strict controls by the Contingency Fees Act 1997 (which is designed to encourage legal practitioners to undertake speculative actions for their clients). It was said the legislature is obviously of the view that the conflict between the duty and the interests of legal practitioners if properly controlled will not lead to an abuse of legal procedure, and it will be better that people are able to take their disputes to the court in that way rather than not at all (pages 154 and 165-166). It went on to say that if the South African civil justice system is strong enough to allow “contingency fees”, it must be strong enough to withstand the perceived abuses that can arise if civil litigation is made possible by third party litigation funding (page 167). 323.But it was also recognised that legal process is to be invoked for the vindication of rights or the enforcement of just claims. It is abused when it is diverted from its true course so as to serve extortion or oppression, or to exert pressure so as to achieve an improper end, so the court is entitled to protect itself and others against the abuse of its process.[217] So whilst it is important to bear in mind the importance of the right of access to the courts as a constitutional right, “where a litigant abuses the process this right will be restricted to protect and secure the right of access for those with bona fide disputes ......” (page 168). Southwood AJA at page 169 concluded as follows:
324.It seemed that any perceived relaxation of third party litigation funding noted in Price Waterhouse Coopers Inc & ors was driven by the South Africa Supreme Court of Appeal’s concern with merely contractual issues (which is a far cry from the Husband’s situation) and by the analogy with contingency fees (which do not exist in Hong Kong). But the more important takeaway from this case is that the right of access to justice must be balanced against or even circumscribed by the public policy to prevent abuses targeted by the laws against maintenance and champerty, which echoed the view discussed above that there is a need to balance competing public policies. 325.England and Wales In England and Wales, there have been significant changes in the legal/economic landscape relating to the right of access to justice and litigation funding. Maintenance and champerty have been eradicated as crimes and torts since 1967, and more recently there has been a shift to conditional fees[218] as the main platform for litigation funding against the backdrop of reduction of legal aid in civil litigation. But such shift to conditional fees was introduced following public consultation and setting up a statutory framework (see Part A(II) of the Schedule). Likewise, following reports by the Civil Justice Council (an agency of the Ministry of Justice) in 2005 and 2007 and Review of Civil Litigation Costs: Preliminary Report by Sir Rupert Jackson in 2009 in which the utility of third party funding was debated, there was recommendation for “properly regulated” third party funding to be bolstered by ATE insurance. In the end, third party litigation funding in England and Wales remains not statutorily regulated (see Part A(III)(16) of the Schedule). But in November 2011, the Civil Justice Council published a Code of Conduct for Litigation Funders (“UKCoC”) that is administered by the ALF. The ALF’s rules of association (July 2016) provide inter alia that:
326.The English experience was discussed in Designing Hong Kong Ltd v Town Planning Board.[220] In that case, the applicant applied for (a) leave for judicial review of the defendant’s decision not to amend an amended draft outline zoning plan in respect of a strip of land that was re-zoned under such plan from “open space” to “other specified use” annotated “military use”, and (b) a protective costs order which would protect it from the defendant’s costs in the proceedings or alternatively would limit costs that might be awarded to the defendant to a capped sum and the costs that might be awarded to the applicant to reasonable costs of a solicitor and junior counsel or such sum as the court might think fit. The CA noted that public interest litigation (“PIL”) in Hong Kong by way of judicial review involves 2 stages (ie the permission stage without input from the putative respondent, and the substantive stage after leave is granted), so it is less easy for a Hong Kong judge at the permission stage (as compared with an English judge) to identify the issues raised in the case and the extent of the public interest in having such issues decided by the court (page 87). The CA said at page 92 as follows:
327.In discussing the English experience in the development of PCOs, the CA referred to 2 studies by Maurice Kay LJ in 2006 and by Sullivan J in 2008[222] that in turn referred to article 9 of the Aarhus Convention (which requires that proceedings must not be “prohibitively expensive”) and the relevant European Directives (page 94). The CA went on to note at page 94 that subsequent English cases:
328.From the above, it is plain that in England and Wales the emergence of third party litigation funding was influenced by the inadequacy of legal aid which led to development of the statutory regime for conditional fees (see Price Waterhouse Coopers Inc & ors at paragraph 310), but the CA in Designing Hong Kong Ltd did not see any compelling comparison with Hong Kong which does not allow conditional fees but has reasonable legal aid cover (paragraph 351 below). More importantly, the English litigation funding market is subject to voluntary self-regulation (see the ALF’s rules of association and the UKCoC), and is supported the development of ATE insurance in answer to adverse costs orders. But in Hong Kong, the litigation funding market is unlicensed and unregulated (which topic I will return to discuss below), and there was no evidence before me of any mature and affordable local ATE insurance market (see paragraph 363 below). 329.Australia Mr Scott SC referred to Campbells Cash and Carry Pty Limited to say there is no broad policy against LFAs in Australia, citing the joint judgment of Gummow, Hayne and Crennan JJ as follows:
330.Mr Scott SC submitted that Gummow, Hayne and Crennan JJ in their joint judgment “also stated that the doctrine of abuse of process, coupled with the rules regulating the duties of lawyers to the court, provided sufficient protections against the fears which had historically concerned the common law”:
331.However, Mr Scott SC in making the above points failed to mention Gummow, Hayne and Crennan LLJ restricted their observations to jurisdictions that have abolished maintenance and champerty as crimes/torts such that there are no public policy questions beyond those relevant for considering matters of maintenance and champerty in relation to the enforceability of the LFA between the parties to such agreement, and they particularly left open the position in relation to jurisdictions where maintenance and champerty are still torts/crimes (see paragraph 215 above).This is also made clear in the paragraph 89 of their joint judgment that considered the relevant public policy against maintenance and champerty on contractual issues “if the conduct is neither criminal nor tortious”. But Hong Kong is quite different as it is a jurisdiction where maintenance and champerty are both crimes and torts. Further, it appears that the learned justices’ views were also influenced by the existence of procedural measures/safeguards (ie “present rules regulating lawyers’ duties to the court and to clients”) developed from meeting difficulties that have arisen from “lawyers [undertaking] obligations that may give rise to conflicting duties” (as a result of conditional fees agreements which are permitted in most states – see Part B(II) of the Schedule) (see also similar influence referred to in Price Waterhouse Coopers Inc & ors in paragraph 322 above). Hong Kong, of course, does not have conditional fees, so neither the legal profession nor the courts have devised rules and/or gathered experience to deal with such matter (see paragraph 350 below). 332.New Zealand In Waterhouse & anor, contrary to the situation here, the LFA had already come into existence, so it was not a case for pre-clearance declaratory sanction of third party litigation funding. In that case, the defendant asked for stay of the proceedings pending disclosure of information about the plaintiff’s litigation funding arrangements (see paragraphs 308-309 above). 333.Mr Scott SC submitted that in that case “the proceedings were stayed on the ground that the Waterhouses had not sought and obtained leave to bring proceedings funded by a litigation funder (§§4-5), which means that the Waterhouses should have sought leave from the court for approval of the litigation funding agreement”. But this only reflected the position at first instance, which was rejected by the New Zealand Court of Appeal that held “[once] the key features of the litigation funding agreement were disclosed, the matter could be left to the defendant to raise any concerns in a particular case” (paragraph 11), and also by the New Zealand Supreme Court that emphasised it is not the courts’ role to act as general regulators of litigation funding arrangements or to assess the fairness of any bargain between a third party ligation funder and the plaintiff fundee (see paragraph 204 above, and see also Seedlings Life Science Ventures, LLC at paragraphs 89 and 195-200 above) but refrained from commenting on whether the courts should take on a wider supervisory role in a representative/class action:
334.It is clear from the above that the New Zealand Supreme Court considered that general oversight of third party litigation funding should be by legislation or regulation, and it is not the court’s role to regulate litigation funding, especially not by way of pre-clearance declaratory approval other than (possibly) in class actions. But although Unruh made clear the mere existence of a LFA is not itself objectionable and does not ground any application for striking out the action or staying the proceedings, there are categories of cases that may amount to an abuse of process, [226] and the court has jurisdiction to stay proceedings for abuse of process (eg when an impermissible assignment of a bare cause of action renders the proceedings an abuse of process).[227] But the New Zealand Supreme Court did not comment on the situations where assignments of causes of action are permissible (and in particular did not comment on whether an assignment of the causes of action in Warehouse & anor would be permissible), or on the role of a court in a representative action (see paragraphs 28 and 62 and footnotes 91-92 in that case). 335.In PricewaterhouseCoopers (a case discussed in paragraphs 188-190 above), the New Zealand Supreme Court made clear that without the offered undertakings the funding arrangements in that case would likely have even impermissible. Elias CJ in her separate minority judgment considered that judgment should not delivered following settlement, especially when the arguments before the court were constrained (paragraphs 99 and 102). She would not have assumed that the LFA was unobjectionable, saying that on the terms of the LFA it was well arguable that with the wide control given to the funder over the litigation it was contrary to public policy, and that “the litigation funding arrangements amounts to a bare cause of action for profit and is champertous. It would constitute trafficking in litigation......” (paragraph 134). Elias CJ declined making judicial development of the law when she had not heard full argument, but she also questioned whether the law in this area should be further developed by legislation: “[it] may well be that the law should be further developed, perhaps by legislation as in other jurisdictions” (paragraph 135). 336.Singapore Prior to enactment of the Civil Law (Amendment) Act 2017 maintenance and champerty were both crimes and torts in Singapore (see Part K(I) of the Schedule). In Law Society of Singapore v Kurubalan s/o Manickam Rengaraju,[228] a Singapore advocate and solicitor was sanctioned for accepting a contingency fee for work done in Queensland, Australia. This was decided before the passing of the Civil Law Act 2017. Sundaresh Menon CJ (delivering the grounds of decision of the Court of Three Judges) traced the development/ rationale for the offences of maintenance and champerty, citing with approval Lord Mustill’s observations in Giles (House of Lords) and Lord Denning MR’s observations in Re Trepca Mines (No 2) (paragraphs 40-42). He reaffirmed that the law of champerty applies to the regulation of legal professionals. He acknowledged that in modern times “...... it may be true that there is less need to be sensitive to the concern that the “mechanisms of justice” might be vulnerable to the devices of “unscrupulous men of power” (paragraph 43), but it remains that “a lawyer who has a personal economic stake in the litigation ...... faces a potential and often acute conflict of interest” (paragraph 43), which may surface as a loss of professional objectivity or even a temptation to pervert the course of justice on the part of the lawyer (paragraph45). 337.But The Court of Three Judges (perhaps with consideration of the right of access to justice in mind) in obiter dicta appeared to refer to a narrow exception, which would not be caught by section 107 of the Legal Professional Act because “it would not amount to acquiring an interest in the fruits of litigation” (paragraph 83):
But on the way forward, it was emphasised that outside for this narrow exception, “lawyers who enter into champertous agreements can expect to face at least a substantial period of suspension and depending on the factual matrix this period could well exceed the present imposition of six months” (paragraph 81). I note from Part K(II) of the Schedule that there is still statutory prohibition for lawyers to provide legal services on conditional or contingency fees, and the above narrow exception mentioned in obiter dicta was made in the context of careful statutory regulation of the conduct of lawyers. 338.More importantly, Sundaresh Menon CJ had this to say on the way forward:
339.The Civil Law (Amendment) Act 2017 has abolished the torts of maintenance and champerty (but they remain as crimes). Contracts affected by maintenance and champerty remain contrary to public policy or are otherwise illegal. But the legislation confirms that third party funding is not contrary to public policy or illegal in the context of international arbitration proceedings and related proceedings in court (eg proceedings to enforce an award) (see Part K(III) of the Schedule). The Civil Law (Third Party Funding) Regulations 2017 set out the conditions under which such funding will be permitted (see Part K(III) of the Schedule). As seen below, the Singaporean legislative development in this area is close to that in Hong Kong save and except that maintenance and champerty still remain as common law torts/crimes in Hong Kong. 340.Mr Scott SC next submitted the Singapore High Court in Re Vanguard Energy Pte Ltd[229] “found that third party litigation funding arrangements in insolvency cases are permitted. However, it would appear that Singaporean courts have not extended the principle beyond insolvency cases”. I agree with Mr Wong SC that this is not the correct reading of Re Vanguard Energy Pte Ltd. 341.In that case, the Singapore High Court was asked to consider an application for approval of the terms of a LFA for financial provision to enable the company in liquidation to pursue potential claims. The application was later amended as a request for the court to consider the assignment of proceeds agreement, which was similar to the LFA save that it provided for the sale of rights to certain proceeds of the intended claims capped at the amount of funding provided by the assignee instead of a promise by the company in liquidation to repay the funding provided. The assignees were shareholders and director / former directors of the company in liquidation, so they had an interest in the outcome of the intended claims. The court eventually approved the assignment agreement. 342.Chua Lee Ming JC only addressed the enforceability of the particular assignment agreement in that case, and held it did not offend the laws of maintenance and champerty (see paragraphs 45-49). It was said the statutory power of sale under section 272(2)(c) of the Companies Act (Cap 50 2006 Rev Ed) (equivalent to section 199 and Part 3, Section 1 of Schedule 25 of the CO) was held to apply, and the laws of maintenance and champerty have no application in such context. The learned judicial commissioner then went on to say that in any event the assignment agreement did not offend the laws of maintenance and champerty because the assignees had a genuine commercial interest in the litigation and the assignment agreement made in the insolvency context did not offend the policy reasons behind the laws against maintenance and champerty (eg the liquidators retained substantial control of the litigation). But Chua Lee Ming JC essentially focused on the relevant Miscellaneous Exception (see paragraphs 55(a) and 62(a)(ii) above), and did not address the wider issue of whether third party litigation funding arrangements in insolvency cases are “generally” permitted. 343.British Virgin Islands Mr Scott SC submitted that maintenance and champerty are both crimes and torts in the British Virgin Islands. But Mr Wong SC referred to (and I accept) sections 328(1)(a) and 328(2) of the Criminal Code of The Virgin Islands 1997 have abolished maintenance and champerty as crimes, so they only remain as torts (see Part I(I) of the Schedule). 344.Mr Scott SC submitted there is no decided authority on permission for third party LFAs in the British Virgin Islands, but he noted Bannister J (ag) in his decision handed down on 14 June 2011 in Hugh Brown & Associates (Pty) Ltd v Kermas Limited[230] assumed (without deciding the point) that third party funding was permissible. But as noted by Mr Wong SC, the copy decision provided by Mr Scott SC is a different decision dated 7 December 2011 in the same case in which Bannister J (ag) made clear that in light of his conclusions it was “unnecessary for [him] to express any opinion upon the effect of the two funding agreements ......” (paragraph 78). But in the relevant decision of Bannister J (ag) on 14 June 2011, it appeared the claimants sought an injunction and the court was not told till the hearing that they were funded by some third party. The claimant argued “there is nothing unlawful about funding litigation in return for a share of the spoils”, but Bannister J (ag) noted “I have not been addressed on the question whether that is the position in this jurisdiction and for present purpose I shall assume (without deciding) that he is correct” (paragraph 23). In that case, the combination of the impecuniosity of the claimant and the funder’s unwillingness to submit to the jurisdiction in order to give substance to the cross-undertaking as to damages were fatal to the application for interlocutory injunctive relief (paragraphs 23-27). I am not persuaded that Hugh Brown & Associates (Pty) Ltd adds anything further to the present debate. 345.Ireland I have referred to the decisions of the Irish Supreme Court in Persona Digital Telephony Ltd & anor and SPV Osus Limited (see paragraphs 223-234 above) that made clear the significant policy and regulatory issues involved should be subject of parliamentary consideration and legislative determination rather than judicial development. 346.Cayman Islands Mr Scott SC submitted the Grand Court in A Company, having reviewed case authorities of multiple common law jurisdictions, followed the approach to third party litigation funding taken in a number of jurisdictions (eg England and Wales, Australia, Jersey and Bermuda), identified 6 aspects (occasionally overlapping) of the relevant analysis (page 732) (see paragraph 158 above), and gave the following guide to the basic approach (page 732):
Mr Scott SC submitted that Segal J then provided guidance as to which types of LFA will not be unlawful by identifying 7 features that may be considered as likely to have particular significance as to whether a LFA may be considered as champertous (pages 732-734 – see Part XI of Judgment (2)). Further, English law was the governing law of the relevant LFA although the case was argued ex parte on the basis of Cayman law with “no submissions ...... made on the conflicts of law analysis to be applied in these circumstances” (page 738), but based on authorities cited to him, Segal J was “satisfied that the [LFA] is likely to be valid as a matter of English law” (page 738). 347.Whilst I have no quarrel with the twin policy factors of (a) protection against tendency to corrupt public justice and (b) protection of the integrity of the litigation process set out in paragraph 42 of the judgment of the Royal Court (see the above paragraph and also paragraph 266 above), there is plainly a need to conduct a delicate balancing exercise between the competing public policy concerns against the “totality of the facts”, and each jurisdiction must search for its own balance in view of its own conditions/environment. In this respect, I reiterate my observations on A Company in paragraphs 239-246 above. 348.Hong Kong I agree with Mr Smith SC and Mr Wong SC that so far developments as to third party litigation funding in Hong Kong has been nascent and conservative. A similar reserved approach was adopted in Singapore (before she statutorily abolished maintenance and champerty as torts) and in Ireland, and on the New Zealand scene Elias CJ suggested “[it] may well be that the law should be further developed, perhaps by legislation as in other jurisdictions” (see paragraph 335 above). A number of matters particular to the Hong Kong context have also contributed to this conservative approach. 349.First, Hong Kong laws still regarded maintenance and champerty as crimes and torts, which is different from other jurisdictions that have decriminalised maintenance and champerty and/or abandoned them as torts. 350.Secondly, contingency fees in civil litigation is not permissible in Hong Kong. In 2005, the HKLRC considered whether or not conditional fees should be introduced, but eventually rejected it as a viable option for Hong Kong. I refer to the discussion in Price Waterhouse Coopers Inc & ors in which the South Africa Supreme Court of Appeal noted evidence of change in public policy following the introduction of conditional fee arrangements which enabled the civil justice system to develop procedural measures/safeguards to protect itself from abuses (see paragraph 322 above). I also reiterate the developments in this area in England and Wales (see paragraphs 325-328 above). At present, Hong Kong does not have the benefit of that experience and/or framework as conditional/contingency fees are not permissible, so there are no comparable developments in Hong Kong that may inform the drawing of any conclusion that the local public civil justice system is ready and/or strong enough to withstand the perceived abuses that can arise if civil litigation is financed by third party litigation funding. 351.Thirdly and more significantly, civil legal aid (including supplementary legal aid) is more readily available in Hong Kong than in other jurisdictions (say, England and Wales). This was borne out by the CA’s observations in Designing Hong Kong Ltd where it was said “the post- Corner House cases in England and Wales were influenced by the obligations under Aarhus Convention [which does not apply to Hong Kong], and owing to the different legal aid environment in Hong Kong there is no justification for adopting in this jurisdiction the same approach in those cases” (my emphasis) (pages 84 and 94, and see paragraphs 325-327 above). The CA explained at pages 80 and 93 as follows:
I shall discuss the matter of legal aid in relation to matrimonial proceedings in paragraphs 409-411 below. 352.In the Hong Kong context, Mr Scott SC in particular referred to Berman and Beijing Tong Gang Da Sheng Trade Co Ltd. Mr Scott SC submitted that in considering whether a particular LFA is champertous, Berman adopted the approach that the court is to look at whether or not there is a proper commercial purpose for the transaction, which gives rise to the risk of the corruption of the judicial and litigation purpose:
353.I have discussed Berman in paragraphs 172-174 above. It must be remembered that Berman was decided in the context of an application under Order 85 of the RHC, and Harris J’s reference to “legitimate commercial purpose” for litigation that ought not to be stifled by the prohibition against champerty must be understood in that context. I have found that the Miscellaneous Exceptions are not analogous to the Husband’s application in the present proceedings, and in any event Harris J referred to the guidance in Unruh (page 827) that spoke to the need to balance the competing public policies of prohibiting maintenance and champerty and fostering “access to justice”. Beijing Tong Gang Da Sheng Trade Co Ltd, DHCJ Le Pichon found the subject LFA posed a genuine risk to the integrity of the court’s process and was champertous, and the CA upheld such conclusion made upon the learned judge’s examination of the “totality of the facts”. I reiterate that this case falls within Category B, and such application was quite different from an ex parte application for pre-clearance declaratory sanction of third party litigation funding. I have discussed this case in paragraphs 78-79, 151 and 278 above. Mr Scott SC submitted that “[nevertheless], where access to justice is concerned, the position appears to be clear in that the existence of proper evidence that such involvement [ie third party litigation funding] was necessary to provide access to justice would provide a justification for the third party involvement, even if there is a profit element, provided that such profit was not massively disproportionate”. I am not persuaded that such sweeping proposition can be extrapolated from Beijing Tong Gang Da Sheng Trade Co Ltd or from the other authorities since the general consensus appears to be that the “totality of the facts” has to be examined and a balancing of competing public policies has to be done to ascertain whether very or truly “exceptional circumstances” are made out by reason of the Access to Justice Exception to justify granting pre-clearance declaratory reliefs to avoid perpetration of an injustice, and it must be remembered that the right to access to justice is a public policy / value judgment (albeit a fundamental and important one) to be taken into account together with countervailing public policy considerations. 355.Upon considering the above matters, which, in my view, have contributed to the conservative development of the laws of maintenance and champerty in Hong Kong, one then has to ask what should be the way forward for Hong Kong. For this, one has to turn to the contemporary public policy and value judgment as to third party funding in Hong Kong. So it is helpful at this stage to consider the recent experience in Hong Kong concerning permission of third party funding in arbitration cases. (d) Experience of third party funding in arbitration cases 356.Background Mr Smith SC cited Cannonway Consultants Limited v Kenworth Engineering Limited to say that as early as in the 1990s Kaplan J had already decided champerty does not apply to arbitration.[231] A similar conclusion was reached by the Court of Appeal in Trinidad and Tobago in Clico Investment Bank Limited (citing Cannonway Consultants Limited):
357.Be that as it may, the CFA in Unruh left open the question whether maintenance and champerty applied to third party funding for arbitration taking place in Hong Kong and suggested the HKLRC to consider it (page 76). In October 2015 the HKLRC issued a consultation paper that invited public submissions, and in October 2016 it issued the final report that recommended legislative reform. In Raafat Imam DHCJ Fee at page 171 said that “[notwithstanding] the above, Hong Kong is still moving in a very cautious and prudent manner in abolishing maintenance and champerty even in relation to third party funding of arbitration, and even though such abolition will be subject to compliance by third party funders with appropriate ethical and financial standards in any event”. Relevant changes to the Arbitration Ordinance Cap 609 (“AO”) were introduced by the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017, which was passed on 14 June 2017 and came into effect in February 2019.[232] A new Part 10A was introduced into the AO, [233] eg section 98K of the AO provides that the common law offences of maintenance and champerty do not apply in relation to third party funding of arbitration,[234] and section 98P of the AO provides that third party funders are expected to comply with a Code of Practice to be issued by an “authorized body”. In December 2018 the SJ (as the “authorized body”) issued the Code of Practice for Third Party Funding of Arbitration (“HKCoP”) following public consultation, and in February 2019 the HKCoP took effect. A number of matters are of note. 358.First, the aforesaid development/process were implemented by legislation subsequent to publication of the HKLRC reports and also public consultation. Such approach was consistent with the observations of the Irish Supreme Court in Persona Digital Telephony Ltd & anor (in response to the argument that the courts could develop the common law on champerty in light of modern policy and constitutional issues) that “[as] to policy issues, this would involve complex situations more suited to legislation, after the benefit of an LRC Report ......” (paragraph 54(v), per Denham CJ – see paragraph 225 above), and also with the observations by Sundaresh Menon CJ in Law Society of Singapore that “...... it is for Parliament, rather that the courts, to decide whether and when such a reform is to be undertaken, and second, any such reform should almost certainly feature carefully drawn parameters that regulate the extent to which such fee arrangements would be permitted and this makes a subject more suited for the legislature rather than for the courts to develop” (see paragraph 338 above). 359.Secondly, the legislative reform was introduced only after extensive public consultation and specialist consideration at various stages, say, by the HKLRC and the legislative process, and further mandatory public consultation by the SJ (as the “authorized body”) on the draft HKCoP. Both Mr Smith SC and Mr Wong SC referred to the observations by Bokhary and Chan PJJ in Waddington Ltd v Chan Chun Hoo[235] on the factors which (singly or in combination) will often have the effect of persuading the judiciary to leave developments to the legislature, including “...... (ii) calls for wide-ranging consultations available only under the legislative process; and (iii) involves laying down a rule that requires conditions and exceptions which the legislature is best placed to prescribe”. Such reasoning echoes the views of the Irish Supreme Court in Persona Digital Telephony Ltd & anor and SPV Osus Limited (see paragraphs 223-234 above), the views of the New Zealand Supreme Court in Waterhouse & anor (see paragraphs 332-334 above) and in PricewaterhouseCoopers (see paragraph 335 above), and the views of Sundaresh Menon CJ in Law Society of Singapore (see paragraph 336-338 above), and is consistent with the self-regulation of litigation funders put in place by the UKCoC (published by the Civil Justice Council and administered by the ALF) in England and Wales (see paragraph 325-328 above) and also with the Civil Law (Third Party Funding) Regulations 2017 that set out the conditions in which funding is permitted in international arbitrations and related proceedings in Singapore (see paragraph 339 above). It was said to be not practically feasible for the court to balance, weigh and assess these public policy considerations (eg the appropriate level that the return to the funder from the litigation spoils (ie the success fees) should bear to the amount of funding provided) against the “totality of the facts” for every application made to the court for pre-clearance declaratory sanction for third party litigation funding, and it is only sensible for the relevant parameters (eg disclosure concerning funding arrangements) to be set on a uniform basis, which are therefore best left to be prescribed by the legislature. 360.Thirdly, in relation third party funding in arbitrations, after rounds of public consultation, both the Hong Kong government and legislature considered there was need to put in place appropriate regulatory measures/safeguards as to the conduct of arbitration funders even before third party funding in arbitration and related proceedings are permitted. Plainly such protective measures/safeguards are to hedge against any risk or tendency of abuse that may arise with third party arbitration funding. Indeed, Mr Scott SC in paragraph 76(3) of his written submissions acknowledged the HKLRC took into account the following in coming up with their recommendations to reform third party funding in arbitration and related proceedings:
Plainly, the Husband also saw the advantage of putting in place measures/ safeguards for using litigation funding as a tool to foster access to justice in face of concerns over “prohibitive costs of litigation” and “inexperienced claimant ...... bringing meritorious claims against a respondent with greater experience and resources”,[236] especially when one transports third party funding from the “private consensual system” (ie arbitration) to the “public justice system” (ie litigation) (see paragraph 369 below). 361.Fourthly, the new legislative/regulatory regime for third party funding in arbitration and related proceedings includes setting up an independent “advisory body” as a supervisory body to oversee the measures/safeguards (in addition to the “authorized body” charged with the promulgation of the HKCoP) rather than to merely entrust these matters to arbitral institutions/tribunals themselves (which have their own procedural measures to address abuse). 362.Fifthly, there is absence of statutory power under the AO (as amended) for an arbitral tribunal to make orders for adverse costs or security for costs directly against the funder. I have expressed reservations as to whether the RHC permits the courts to grant orders for security for costs directly against the litigation funder. But even if there is such power (which I disagree), there is as yet no experience of how effective these procedural measures/safeguards (which Mr Scott SC submitted are important) are in the arbitration setting from which we can draw assistance. Further, in view of the prohibition against conditional fees in Hong Kong, no analogous assistance as to the duty of care and ethical standards between the fundee client and the law firm can be drawn from those quarters to address similar issues in funding arrangements for general litigation. The question then arises as to whether the courts should boldly wade into the waters of third party funding in the litigation setting without the comfort of any guidance/lessons from the arbitration and/or conditional fee settings, which (at least for “contingency fees”) the South Africa Supreme Court of Appeal in Price Waterhouse Coopers Inc & ors regarded as important developments for building up the inner strengths of the civil justice system to withstand abuses (page 167 and see paragraphs 321-324 above). I also reiterate the experience in England and Wales discussed in paragraphs 325-328 above. 363.Sixthly, as explained by DHCJ Fee at page 172 in Raafat Imam, “[such] prudent approach was also reflected in the HKLRC’s approach to conditional fees”. Shortly after the CFA handed down the judgment in Unruh, the HKLRC in 2007 published its report on conditional fees, which advised that the conditions were not appropriate for the introduction of conditional fees as a successful conditional fees regime requires the long term availability of affordable ATE insurance to cover the opposing party’s costs if the underlying action fails. Thus, even up to now, conditional fees are still unlawful in relation to a claim involving the institution of legal proceedings. I note also that the vitality of adverse costs orders (being a procedural safeguard Mr Scott SC relied on to withstand abuses) that may arise in relation to third party litigation funding also required the availability and support of a mature and affordable ATE insurance market. 364.AO as amended As alluded to in paragraph 361 above, the AO as amended introduces various measures/safeguards including an “advisory body” as a supervisory authority to oversee compliance of various statutory requirements, and an “authorized body” to promulgate the HKCoP:
365.It is evident from the above statutory provisions that other than prescribing the key features, risks and terms to be set out in the LFAs, the legislature considered it necessary to put in place measures to monitor proper implementation of the statutory framework for third party arbitration funding, to address complaints by the fundee that the statutory/regulatory regime has not been followed, and to enforce meaningful remedies for legitimate complaints.[240] This is important because breach/abuse is more likely to arise after commencement of the underlying litigation financed by the funding obtained under the funding agreement. 366.This “light touch” [241] regulation for third party arbitration funding is subject to review with possibility that the advisory body may be replaced by a statutory body. The HKLRC’s final report on Third Party Funding for Arbitration (October 2016) recommends as follows:
367.Whilst I am referring to the HKLRC’s final report on Third Party Funding for Arbitration (October 2016), it is useful to note also that public consultation by the HKLRC showed support for a statutory/ regulatory regime even for third party arbitration funding:
This is succinctly reflected in a submission from the public found in the HKLRC’s final report on Third Party Funding for Arbitration:
368.Extending third party funding to general litigation As Mr Wong SC explained, the reasons for permitting third party arbitration funding include the following: (a) the users of commercial arbitrations (especially high value arbitrations that attract third party funders) are more likely to be “mature commercial parties” with necessary sophistication to negotiate funding issues at arms’ length and are less prone to abuse, and (b) such users are likely to include foreigners who choose to arbitrate in jurisdictions that do not recognise concepts of maintenance and champerty (as Ribeiro PJ explained in Unruh[242]). 369.I have discussed the decision of the Court of Appeal in Trinidad and Tobago in Clico Investment Bank Limited in paragraph 356 above. The effect of this decision is that third party arbitration financing will not be subject to the danger of having such funding arrangements being set aside by the courts in Trinidad and Tobago on the ground of champerty. The Court of Appeal in Trinidad and Tobago reviewed the law relating to champerty, and laid down the following principles with emphasis on the examination of the “totality of the facts” which cover all aspects of the arrangements/transaction (and not merely the terms of the LFA and the fundee’s alleged impecuniosity) (paragraph 67):
In concluding that maintenance and champerty did not apply to arbitration, Warner JA explained that (i) arbitration was a “private consensual system” which was different from the “public civil justice system”[243] (paragraphs 33-35), and “the law of champerty exists to protect the integrity of the public civil justice system”, and (ii) “the prevailing approach is to permit private parties, especially in the field of commerce, to make their own arrangement provided that there is no fraud or undue influence, factors which would, in any event, ground a completely separate cause of action” (paragraph 36). Thus, in my view, it does not necessarily follow from relaxation in third party arbitration funding that it will be appropriate to have liberalisation of third party funding for general litigation. There must be careful balancing of the competing public policies for public civil justice in the Hong Kong context against the “totality of the facts”. 370.In my view, the AO as amended is not to be read as an open invitation for the civil courts to grant pre-clearance declaratory reliefs in respect of third party litigation funding for general litigation in Hong Kong, and/or to take up any obligation to monitor such funding arrangements. The purpose of such amendments to the AO is to ensure third party funding in arbitration and associated proceedings will not be prohibited by the common law principles of maintenance and champerty, and to make provisions for appropriate measures and safeguards. [244] 371.The then SJ in his speech on 11 January 2017 in moving the 2nd reading of the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 said the purpose of such amendment legislation is to promote Hong Kong as a major arbitration centre when it is likely that a party to an arbitration taking place in Hong Kong may wish to consider whether or not it should seek third party funding for its participation in such an arbitration if it is clearly permitted by Hong Kong law to do so. The then SJ noted that whilst third party funding arrangements in arbitration “have usually been motivated by a fundee’s lack of financial resources to pursue its own claims in contentious proceedings”, “increasingly, parties who do have the financial resources to fund contentious proceedings may also seek third party funding as a financial or risk management tool”. Thus, the focus of third party funding in arbitration and related proceedings (as in the Cayman Islands case of A Company which concerned enforcement of arbitral awards) is not necessarily premised on the need for “access to justice”, and it may simply be a risk management tool. In my view, such legislative changes to the AO do not affect the imperatives for caution as to third party funding in respect of general litigation for the Access to Justice Exception. 372.So if Hong Kong is to extend third party funding from arbitration (a “private consensual system” usually involving “mature commercial parties” with disputes resolved by independent arbitraror(s) selected by the parties via decisions that do not form binding precedents) to general litigation (which calls for determination of disputes that may not necessarily involve “mature commercial parties” by the judiciary as recognised under the BL via decisions that may form binding precedent), I see the force in Mr Smith SC’s and Mr Wong SC’s contentions that similar if not more robust statutory and/or regulatory measures/safeguards (as for arbitration) should first be put in place to offer protection against abuses, to preserve the integrity of the court’s process and to protect the fundees.[245] Hong Kong saw fit to go down the legislative route by enacting amendments to the AO and by issuing the HKCoP thereunder to regulate third party arbitration funding even though it can be argued that champerty does not apply to arbitration (see paragraph 356 above). This only showed there is all the more reason for a similar if not more rigorous form of regulation for third party funding in general litigation, which lacks the consensual element that underlied the arbitration process and where the prohibition against maintenance and champerty do apply. As Mr Smith SC submitted, it would be strange indeed if, as a matter of policy, litigation funding is free from any regulatory control but arbitration funding has a detailed regulatory framework, and in any event a cautious approach should be taken lest litigation, which should not be commercialised, would become commoditised. 373.In this area of public policy, the social and moral values reflected by maintenance and champerty (albeit in a state of evolution) cannot be ignored. Commoditising litigation has been seen as socially and/or morally corrosive, and as detracting from the prime aim of vindication of rights. The modern equilibrium between improving fairness in civil justice (ie the more level playing field that arguably litigation funding can bring about, especially for the resource challenged and hence weaker litigant who may be fearful of the cost/risk of trial) and protecting justice from commercial corruption (ie the distasteful commoditisation of justice which is highly valued) is delicate and multi-faceted. 374.I accept that modern courts with their armoury of judicial mechanisms (eg powers to order adverse costs, to strike out or stay abusive claims, etc[246]) are better equipped now than in the early days of unruly barons (who used their power unscrupulously to oppress private individuals by bringing abusive suits and by purchasing a share in the litigation with a view to suborn witnesses and to exploit worthless claims to the detriment of defendants who lacked resources/influence to resist such litigation) to withstand abuses. But like arbitral institutions/tribunals, the courts cannot be expected to take on a regulatory or supervisory role. In any event, courts are not well-placed to implement/monitor any regulatory regime, and their armoury of procedural powers can only deal with abuses of the court’s processes after the institution of proceedings, so the courts will have difficulty in enforcing compliance of regulatory matters beyond its process. 375.First, there is no legislative framework or code of practice for third party litigation funding for general litigation, but it is not for the court to issue any such code of practice. It is also doubtful whether third party litigation funding can simply borrow/adopt (a) the UKCoC when the relevant public policies / value judgment must address the unique legal, moral, economic and social make-up of general litigation in Hong Kong, or (b) the HKCoP when section 98R of the AO provides that before issuing such code of practice the SJ (as the “authorized body”) must consult the public and may consult the experts. The courts would not be the appropriate body to carry out such public consultation that is essential for promulgation of a code of practice that regulates third party litigation funding at large. 376.Secondly, there are other important statutory/regulatory measures/safeguards for third party arbitration funding that have been put in place to protect the fundee from possible abuse by the funder,[247] but they cannot and should not be undertaken by the courts. The courts also have no or no sufficient armoury equipped to deal with concerns over the funders’ qualification, implementation of the funding arrangements, and monitoring of ongoing conduct to prevent abuse. Further, the court’s procedural powers over its processes cannot effectively enforce such measures/safeguards. 377.Thirdly, it is clear from the above broad-based considerations for third party arbitration funding that mere pre-clearance of the terms of the particular LFA is not sufficient. Without a statutory/regulatory framework, it is doubtful whether the courts can take on the onerous burden of reviewing and pre-clearing the terms of any LFA on a case-by-case basis. As Mr Wong SC submitted (and I agree), it is no part of the court’s function to act (and indeed it is not equipped to act) as if it were a licensing tribunal, especially when there is no “contradictor” to address any countervailing factual, legal or policy consideration (as the SJ declined to address on the Access to Justice Exception and as an amicus curiae is not a “contradictor”). Must the court with its finite resources appoint an amicus curiae and must the SJ be called upon to intervene for each application for pre-clearance declaratory sanction, especially when the “totality of the facts” in each case necessarily differs and public policies can evolve over time? There is much to be said for Mr Smith SC’s suggestion that the discernible “trend” evident from developments in relation to third party arbitration funding in Hong Kong[248] is not to place additional burden on the court (and/or the SJ), but to involve some form of regulation outside the court process as the legislature sees fit. 378.Whilst on the point of finite resources, Mr Scott SC predicted there will be no flood of applications to the courts for pre-clearance declaratory sanction in respect of third party funding in general litigation if the courts were to accede to the Husband’s present application. The Husband’s application is the 2nd case after Raafat Imam in this jurisdiction for pre-clearance declaration to approve third party litigation funding arrangements/agreement. But bearing in mind that Mr Scott SC did not shy from the reality that the “litigation funding” industry is watching the outcome of the Husband’s application, which was said to be a test case for the “litigation funding” industry with guidance sought for the sake of other applicants,[249] logic suggests that if the Husband is successful in obtaining the 1st/2nd Declarations, there will be other similar applications including those from less sophisticated litigants and all sorts of funders (given the broad range general litigation matters and the unlicensed/unregulated market in litigation funding[250]). I bear in mind that the SCG 2nd Aff said the litigation funders’ concern over provision of funding was whether they would be in breach of the maintenance and champerty rules. Thus, when considering whether the court should augment the Husband’s funding agreement/arrangements by granting the pre-clearance declaratory sanctions as sought, the court will have to consider whether it is appropriate to do so and be able to bear the burden of meeting similar applications without any comprehensive statutory/regulatory framework, measures and/or safeguards. The 1st/2nd Declarations if granted would necessarily be invitations for similar applications in other cases. DHCJ Fee at page 174 in Raafat Imam “...... takes heed of the defendants’ submissions that if the Court accedes to the Application, it will open the floodgates for litigants and potential funders to seek the court’s “legal advice” in relation to other funding arrangements in the light of the particular circumstances of each individual litigant.[251] This is a countervailing policy consideration ......” In my view, this is a further pointer towards a public interest in having a statutory/regulatory regime rather that resolution on individual case basis. 379.In my view, there is much to be said for the prevailing public policy reflected by the AO as amended, ie that the liberalisation of third party funding should be guided by statutory and/or regulatory framework/ safeguards against the mischiefs that inevitably arise in an unlicensed and unregulated litigation funding market. This is echoed by Mr Smith SC who argued that if litigation funders are not prepared to commit themselves to providing funding on the basis of legal advice (see paragraph 135 and footnote 251 above), but require some formal assurance that the LFA will not be regarded as champertous, legislative intervention is required to lay down the statutory/regulatory framework to govern third party funding for general litigation (eg a code of practice for funders to abide, and regulations for provision of funding according to that practice with the consequence that such financing will not be open to challenge as being champertous), and the courts to refrain granting pre-clearance declaratory relief for the reasons discussed above. Mr Smith SC reminded that it is not the function of the court to keep the statute book up to date (see Rusbridger at pages 371 and 377-378) nor to “inquire into or approve or disapprove a plaintiff’s funding arrangements as a condition precedent to instituting or pursuing litigation” (see Seedlings Life Science Ventures, LLC in paragraphs 89 and 195-199 above and Warehouse & anor in paragraphs 332-334 above). (e) Balancing exercise between public policies 380.The CFA in Unruh emphasised that the court would have to conduct a balancing exercise between (a) the public policy to facilitate access to justice and (b) the public policy to prevent abuses that the laws against maintenance and champerty exist to avoid, [252] which is to be carried out upon examining the “totality of the facts” of the particular case (page 69).[253] It is in respect of this need to balance countervailing public policies that Ribeiro PJ stressed that the “totality of the facts” should be examined to ask whether they pose a genuine risk to the integrity of the court’s process, which explained why it was said “the fact that an arrangement may be caught by the broad definitions of maintenance or champerty is not in itself sufficient to found liability” and “it is not enough simply to say that it is the type of agreement which “savours of” champerty” (page 69) (see paragraph 56(b) above). This also explained why DHCJ Fee at page 111 in Raafat Imam said “[what] is important is that all aspects of the transaction should be taken together for the purpose of considering the single question of whether there is wanton and officious intermeddling with the disputes of others where the maintainer has no interest whatever, and where the assistance he renders to the one or other party is without justification or excuse” (my emphasis) (see also paragraph 152 and 311 above). 381.Mr Scott SC submitted that “[the] effect of Unruh was that the access to justice consideration is to be treated as a justification for the third party’s involvement in the litigation”, and that “[it] appears that in cases like Unruh (not involving a bare assignment of a cause of action for tortious wrongs), where the third party involvement would provide access to justice where there otherwise would not have been such access, that may be a sufficient justification”. In my view, Ribeiro PJ’s elucidation of the Access to Justice Exception is more nuanced, and he emphasised the need to consider the “totality of the facts” of the case and to balance the countervailing public policies. Further, Unruh was not decided on the broad-based assertion that “where the third party involvement would provide access to justice where there otherwise would not have been such access, that may be a sufficient justification”. Rather, it was decided on the basis that the Common Interest Exception was applicable, and that an agreement which was to be performed in relation to judicial/arbitral proceedings in a jurisdiction where maintenance did not exist should not be struck down in a Hong Kong court on those grounds. 382.I note Mr Scott SC agreed in principle that the engagement of the right of access to justice per se is not enough (see paragraph 49(2)(f) above) and that there is a need to consider the “totality of the facts” of the case and to balance the countervailing public policies (see paragraph 49(2)(b)-(c) above), but he argued at the Hearing that the relevant facts in the Husband’s case were merely that (a) the Husband had a substantial claim which was being stifled by the Wife’s wrongful asset transfer to the Brother that deprived him of financial resources which would otherwise have been available to him[254] and (b) he had no other resources to pursue the Husband’s Claims, so there is no need for the court to delve into or delve too deeply into the broader policy considerations raised by Mr Smith SC and Mr Wong SC (eg the lack of regulation of third party litigation funding in Hong Kong). Mr Scott SC’s oral submissions at the Hearing suggested there was no need to consider the merits of the Husband’s Claims although he asserted such claims were meritorious (see paragraph 154 above). But if such argument is right (which I disagree), then for any applicant who comes to the court seeking pre-clearance sanction of third party litigation funding on the basis of alleged infringement of the right of access to justice due to his own impecuniosity (especially when such application is made ex parte on the basis of one-sided assertions), there would not be much of the balancing exercise envisaged in Unruh. Such contention cannot be supported, and in my view, it is necessary to consider the “totality of the facts” (and not just the applicant’s alleged impecuniosity and/or the terms of LFA per se) and to balance the countervailing public policies to see whether very or truly “exceptional circumstances” have been made out by reason of the Access to Justice Exception to prevent an injustice being perpetrated and to justify granting any pre-clearance declaratory sanction. After all, the right of access to justice, whilst important, is not absolute (see paragraph 386 below). Actually, Mr Scott SC in his written submissions acknowledged this was the effect of Unruh: “[it] is also clear from Unruh that access to justice considerations, like common interests of a social or commercial character, are to be weighed against the traditional public policies against intermeddling in litigation ......” On such note, I turn to these 2 countervailing considerations. 383.On the one hand, the CFA in Unruh and Winnie Lo made clear there can be no viable constitutional challenge to the legal doctrines of maintenance and champerty, and Mr Scott SC did not suggest otherwise. Further, Winnie Lo made clear that the laws of maintenance and champerty (of which the Access to Justice Exception is part – see Unruh at pages 66-68) are legally certain (pages 31-32). Still further, the traditional legal policies underlying maintenance and champerty continue to apply albeit qualified by other considerations (see Unruh at pages 68-69 and paragraph 56(a) above). 384.On the other hand, “the fact that an arrangement may be caught by the broad definitions of maintenance or champerty is not in itself sufficient to found liability” (ie “[it] is not enough simply to say that it is the type of agreement which “savours” of champerty”) and the “totality of the facts” have to be considered against the weighing of countervailing public policies to see whether the third party litigation funding “might tempt the allegedly champertous maintainer for his personal gain to inflame the damages, to suppress evidence, to suborn witnesses or otherwise to undermine the ends of justice” (see Unruh at page 69 – see paragraph 56(b)-(c) above). This is where the Access to Justice Exception comes in (if it can) to excuse conduct that traditionally may be prohibited by the torts/crimes of maintenance and champerty (see Unruh at pages 66-68). 385.Mr Scott SC submitted that without the court granting pre-clearance declaratory approval as sought by the Husband in the present proceedings, “what Ribeiro PJ in Unruh recognised as the changed public policy towards maintenance and champerty, and the fluidity of the exception for access to justice cases, will become moribund as funders and fundees will not receive adequate assurance of the legality of their funding arrangements where access to justice considerations apply, especially when their actions may attract criminal liability”. 386.But in my view, whilst the right of access to the courts is guaranteed by BL35 and BR10 as a fundamental right, such right is not absolute. 387.In Ng Yat Chi v Max Share Ltd & anor,[255] P was a vexatious litigant whose action against Ds was struck out as an abuse of process on the basis that the subject matter was identical to that in previous proceedings brought by him against Ds. In considering the constitutionality of an extended Grepe v Loam order (or vexatious litigant order), Ribeiro PJ said as follows at page 31:
It was held that restraining vexatious litigants from engaging in abuses of the court’s process do not limit the litigants’ access to court completely, and that statutory orders made under section 27 of the HCO and extended Grepe v Loam orders pursue the legitimate aim of preventing harm to the proper administration of justice and preventing the vexatious oppression of other litigants, so they are proportionate measures and do not involve interference with any constitutional right of access to the courts (pages 31-32). 388.In Leung Chun Ying v Ho Chun Yan Albert,[256] which concerned the constitutionality of the time limit for filing election petitions under section 34 of the Chief Executive Election Ordinance Cap 569, Ma CJ said as follows at page 766:
389.Transposing these principles in the present context, Mr Scott SC submitted the court must ask itself whether any refusal to grant the pre-clearance declaratory relief sought by the Husband meant he would be bereft of financial ability to bring his arguably good and meritorious claim to the court such that the aforesaid qualification of his right of access to justice impaired the essence of such right. Mr Scott SC reiterated his arguments set out in paragraphs 381-382 and 390 above, and submitted the reality for the Husband was that he had no financial means to pursue the Husband’s Claims which he believed to have strong merits, and any hurdle that would prevent him from securing third party funding from the Funder (including refusal to grant the 1st/ 2nd Declarations) would be an unwarranted qualification that would impair/deprive him of the essence of the right of access to the courts. 390.In my view, notwithstanding his acceptance that the “totality of the facts” should be examined (see paragraph 49(2)(b)-(c) above), and his uncertain stance as to the relevance of the merits of the Husband’s Claims, Mr Scott SC in his oral submissions at the Hearing repeatedly took the narrow approach of limiting the “relevant” considerations to the Husband’s alleged impecuniosity to support the Husband’s Claims and the terms of the D-LFA. Mr Smith SC submitted (and I agree), in considering whether the fundamental right of access to the courts is impaired, it is not correct to adopt a blinkered focus on the particular financial circumstances of the individual, and ignore the overall “totality of the facts” as well as the balancing of competing public policies. Likewise, Mr Wong SC reminded that the right of access to justice is sensitive to public policy and public resources considerations of a particular jurisdiction. In Ng Yat Chi, the CFA took into account the diversion of finite judicial resources to deal with abusive proceedings such that litigants with cases of real merit suffer as a result (pages 13-14).[257] In discussing the scope of the right of access to the courts protected by article 6(1) of the European Convention on Human Rights, the European Court of Human Rights in Ashingdane v United Kingdom[258] held as follows at page 546:
391.This is echoed by Ribeiro PJ in Unruh where he also referred to a need for legislative intervention in the context of the “access to justice” inroad into the laws of maintenance and champerty (page 75):
392.Further, as a matter of public policy to prevent abuses, Hong Kong courts have also recognised the public interest against any development of an unlicensed and unregulated market in litigation. In Beijing Tong Gang Da Sheng Trade Co Ltd, Kwan JA at page 262 said as follows:
In Raafat Imam, DHCJ Fee was also of the same view (pages 185-186):
393.The Irish Supreme Court had similar concerns. Clarke CJ at paragraph 2.4 in SPV Osus Limited said “....... there are compelling reasons for considering that any significant change of the law in either of these areas [ie third party funding and assignment of a cause of action – see paragraph 2.3] should take place in the context of an attempt to establish a properly regulated scheme or structure which would ensure that the potential benefits of liberalization are not outweighed by any disadvantages which might flow from an entirely unregulated commoditization of litigation” (my emphasis). As in Hong Kong, maintenance and champerty remain as crimes and torts in Ireland. Both Mr Smith SC and Mr Wong SC agree that the constitutional position in Hong Kong and Ireland are broadly similar (with access to the courts being a fundamental right in both jurisdictions[259]). 394.The above judicial statements suggest that:
395.Mr Scott SC submitted that regulation by the legislature is not necessary as the modern courts have developed inner strengths and possess procedural powers to withstand abuses. Whilst the ability of the courts to make adverse costs orders directly against the funders go some way to prevent abuses, such orders may not be effective unless the relevant funders are amenable to the Hong Kong jurisdiction. There is no evidence of ready availability of any mature local litigation funding industry, and the proposed funders in Raafat Imam and in the present proceedings are from overseas with no evidence of any business presence in Hong Kong. I have set out my reservations about local jurisdictional basis for granting orders for security for costs directly against third party funders, and also the uncertain debate on privilege/confidentiality over disclosure of information about third party funding (and even if that hurdle is crossed, the lack of clarity as to the scope/ambit of such disclosure). 396.Whilst the court do have powers to strike out an action or to stay the proceedings for abuse of process, it must be remembered that champerty is not a defence to an action or a ground to stay the proceedings unless the plaintiff relies on the champertous agreement to found his cause of action, and the above discussions showed that a much wider regulatory regime with comprehensive safeguards is helpful for setting the parameters for relaxation of third party arbitration funding and perhaps even more so for third party litigation funding. 397.Mr Scott SC referred to Unruh at page 70 to say that whilst it may be right in some cases to strike down the arrangements, “[but] in others, doing so (and characterising the conduct as criminal) in reliance on the law of maintenance and champerty may be to use too blunt an instrument. It may, for instance, resulting the litigant being left with no means to pursue a good claim” (see paragraph 56(d) above). But such observations cater for some cases where “[resort] might more appropriately be had to ....... [other] doctrines and remedies in granting relief to the exploited party or confronting professional misconduct”, “[for] example, an agreement to take a share of litigation proceeds may be primarily objectionable because it involves the unconscionable exploitation of a vulnerable litigant. Or it may be considered objectionable for solicitors to enter into such an arrangement because it is thought likely to give rise to conflicts between the solicitor’s interest in financial gain and his duties to the court and to the client”. But where these other doctrines are not available in a case to deal with an abuse that raises an issue of maintenance and/or champerty, the court will not shrink from deciding on the issue and, where applicable and appropriate, to strike down the arrangements on such grounds. 398.Mr Scott SC also drew on overseas experience to say that Hong Kong should follow the international “trend” to grant pre-clearance sanction for third party litigation funding to enable the Husband to secure finance to prosecute his claims (see paragraph 319 above). I have explained in Part VI(p) above that there is no such trend as there are very few cases on pre-clearance declaratory sanction let alone pre-clearance declaration of non-criminality. In any event, the overseas experience encourages some form of regulation (whether voluntary or statutory) of litigation funding one way or another, and deplores unlicensed and unregulated third party funding. 399.In England and Wales, the position is one of self-regulation.[260] The UKCoC does not provide for a supervisory entity comparable to the “advisory body” under the AO in the context of third party funding in arbitration. According to paragraphs 4.62-4.89 of the HKLRC’s Consultation Paper on Third Party Funding for Arbitration (October 2015) which set out the situation in England and Wales, the Jackson Report[261] endorsed in principle that resort be had to regulated third party funding to address access to justice issues, and recommended “that in the first instance what is required is a satisfactory voluntary code, to which all litigation funders subscribe” because “parties who use TPF [third party funding] are generally commercial or similar enterprises with access to full legal advice”, but “[in] the future, however, if the use of TPF expands, then full statutory regulation may well be required, as envisaged by the law society” (paragraphs 4.66-4.67). The HKLRC further noted industry self-regulation through the voluntary UKCoC had come under some criticism. In 2012 there was proposal for statutory regulation of litigation funders, but such proposal was eventually withdrawn on the basis that such need would be revisited if and when third party funding expanded (paragraphs 4.87-4.89). 400.The HKLRC also referred to and considered the situation in Australia before finalising its recommendations on litigation funding in arbitration. Since the decision in Campbells Cash and Carry Pty Limited, there have been many calls for the regulation of third party litigation funding (paragraph 4.33). There is only limited regulation of third party funding under federal legislation governing the financial services industry adopted in response to particular decisions of the courts (paragraphs 4.34-4.40). Calls for further reform continued (paragraph 4.41). 401.For third party arbitration funding to extend and elide into third party litigation funding in this jurisdiction, the balancing between public policies (as seen in the above analysis) suggests it is more appropriate to have in place some form of regulation/safeguards rather than to entrust the courts to deal with pre-clearance on individual case basis. I now turn to see whether there are special considerations when the underlying action concerns matrimonial matters. (e) Matrimonial law dimension 402.Inequality in ability to fund litigation Mr Scott SC submitted that third party funding is needed in divorce ancillary relief proceedings where one spouse has no or little means of funding his/her quest for financial settlement or to respond to the other spouse’s attempts to protect his/her funds, and suggested that the parties’ unequal ability to fund the litigation undermines the ethos of contemporary ancillary relief jurisprudence.[262] 403.Mr Scott SC went on to refer to the following passage from the article titled “Litigation funding for “big money” divorces: an assessment of legal risk” by Capper and Glennon (“Article”) as follows:[263]
404.It was said that these concerns formed the jurisprudential basis for the court to award orders for legal costs funding as maintenance pending suits. In A v A (Maintenance Pending Suit: Payment of Legal Fees),[264] the wife used to be legally aided in the divorce proceedings, but her legal aid certificate was discharged following the making of an order for maintenance pending suit. The wife applied for maintenance which included an amount towards her legal fees. Holman J awarded the wife maintenance pending suit to be paid monthly against the wife’s undertaking to pay a portion thereof to her solicitors. The learned judge at pages 614-615 cited Sears Tooth v Payne Hicks Beach[265] as referred to above, and said as follows:
405.Further, in Moses-Taiga v Taiga,[266] the wife filed a petition for divorce founded upon the husband’s conduct. The husband denied the marriage, the court’s jurisdiction, the alleged conduct and the paternity of the children. The husband raised a number of issues, including a challenge as to the foundation of the inclusion of legal costs in the quantification of the maintenance pending suit. The English Court of Appeal upheld the grant of maintenance pending suit (that included costs allowance) in favour of the wife. Thorpe LJ noted at page 1081 that whilst “[there] is manifestly a risk of unjustified and irrecoverable payments, but that has to be balanced against the risk of a denial of access to justice for the petitioner if she has not the means to sustain herself and the litigation pending its determination”. In coming to such view, Thorpe LJ was affected by the “modern reality” that “the highly specialist solicitors and counsel necessary for the conduct of big money cases will no longer do public-funded work”, so “if the applicant has no assets, can give no security for borrowings, cannot guarantee an outcome that would enable her to enter into an arrangement such as that which was upheld in Sears Tooth (A Firm) v Payne Hicks Beach (A Firm) and Others [1997] 2 FLR 116 then there is no source of funding of the litigation other than the approach to the court for a maintenance pending suit that will include a substantial element to fund the cost of the litigation. Obviously, in all these cases the dominant safeguard against injustice is the discretion of the trial judge and it will only be in cases that are demonstrated to be exceptional that the court will consider exercising the jurisdiction. ......” (pages 1081-1082).[267] 406.Mr Scott SC relied on the Article and the above authorities to suggest that “[the] same gender equality and access to justice concerns are applicable in the present case” where the Husband has exhausted all other avenues of obtaining litigation funding and the only viable option is via third party litigation funding. 407.Given the common reference to Sears Tooth (A Firm) in the Article and the above authorities, that is perhaps an obvious starting point in my analysis. In that case, the wife instructed solicitors PHB to commence divorce proceedings, but subsequently changed solicitors to ST. Due to the attitude of the husband, the financial relief proceedings were acrimonious and protracted. The wife paid ST’s 1st bill but could not meet the 2nd bill. Then the wife at ST’s invitation executed a deed of assignment whereby she agreed to assign her rights in any financial provision and costs orders (other than periodical payment orders) granted to her in the financial relief proceedings to ST. Subsequently, the husband was ordered to pay a lump sum with costs on standard basis to the wife. The husband failed to pay, but eventually reached a compromise with the wife to pay a reduced sum by instalment. In the meantime, PHB obtained judgment against the wife for their outstanding costs, and served a garnishee order nisi on the husband. On ST’s application to set aside the garnishee order nisi and the husband’s application for ST to pay his costs in the financial relief proceedings, the issue was whether the assignment by the wife to ST fell foul of maintenance and champerty. It was held that the assignment was not champertous or contrary to public policy as it enabled a wife ineligible for legal aid to obtain proper advice and representation when in conflict with her husband, but it was a discoverable document and should be disclosed to the court and the husband. Nevertheless, the rights of ST against the husband as a result of the assignment were not so extensive as to preclude PHB’s rights under a valid garnishee order nisi which attached to the husband’s debt when served. 408.But Mr Wong SC submitted that in Hong Kong most impecunious homemaker spouses should be eligible for legal aid when caught up in matrimonial proceedings, so the predicament of the type faced by the wife in Sears Tooth (A Firm) would be limited to situations “where for whatever reason legal aid is not available to an impecunious spouse concerned, in which case the “access to justice” consideration may well be a strong factor rendering any third party funding agreement free of unlawful maintenance and champerty”. 409.Mr Scott SC submitted it was not his experience that spouses engaged in matrimonial proceedings are eligible for legal aid. Initially Mr Scott SC (with confirmation from Withers) suggested that if the matrimonial home is the name of the homemaker spouse, then no legal aid would be available as the capital represented by the matrimonial home would take his/her means over the threshold for having legal aid. Upon this court expressing doubt over such stance, Mr Scott SC upon further research clarified that the value of the matrimonial home would not be included for ascertaining whether the means test is satisfied.[268] The relevant means thresholds for eligibility of legal aid and supplementary legal aid are provided for in the Legal Aid Ordinance Cap 91 (“LAO”) as follows:
There is no provision in Schedule 3 of the LAO for inclusion of claims under the MPPO within the Supplementary Legal Aid Scheme. But since the value of the matrimonial home is excluded from the calculations under the means test, a significant concern raised by Mr Scott SC as to the availability of legal aid has been addressed. Given finite resources, there cannot be universal availability of legal aid, but there is no evidence before me of any worrying contraction of legal aid such that reasonable public legal assistance is not available. 410.In any event, Mr Scott SC submitted that in the present case the proviso put forward by Mr Wong SC in his proposition in paragraph 408 above is applicable because the Director of Legal Aid refused legal aid for the Husband. But, as explained above, it does not follow ipso facto from the fact (if demonstrated) that the Husband is impecunious and had no other financial means to prosecute his claim that he would be granted a pre-clearance declaration of non-criminality. As Mr Wong pointed out (and I agree), whether, exceptionally, the risk of being prosecuted for maintenance and champerty would create such a “chilling effect” to abort the third party funding arrangements, which in turn would inflict such serious or overwhelming impact on a spouse (taking into account matters like matrimonial home, children issues, and financial means to sustain future life) as to persuade the court to grant pre-clearance declaration of non-criminality will be matters for the court to decide on reviewing the “totality of the facts” and balancing the competing public policies. 411.It is also right to note, as Mr Wong SC did, for a spouse to rely on this facet of public policy considerations, the “inequality of arms” should have arisen from the “family economics” or “division of labour”(or, as Mr Scott SC put it, “gender equality” – see paragraph 406 above) between the spouses such that the applicant spouse assumes a homemaker role and thus becomes impecunious. As explained by Holman J in A v A (Maintenance Pending Suit: Legal Fees) (see paragraph 404 above), the relevant injustice addressed by this facet of policy consideration is where “a wife is unable to vindicate it due to the difference in their roles, and its discriminatory effect upon their income and capital and upon a wife’s ability to match the legal representation of her husband”. But here the Husband (being the applicant in the S17 Application, which appeared to be his predominant and imminent concern even though he made last-minute effort by the Amended OS to capture his ancillary relief claim in the Matrimonial Proceedings within the reliefs sought in the present proceedings) was not a “homemaker”, and it did not appear that his alleged impecuniosity arose from “family economics” or “division of labour”, so any “access to justice” concern in the present case does not seem to arise from any question of “gender equality”. 412.Impact of conditional/contingent fees Both Mr Scott SC and Mr Wong SC pointed out that whilst conditional/contingent fees are permissible in England and Wales, they are not allowed in matrimonial cases.[269] As evident from the Schedule, in Australia, Canada, South Africa and New Zealand, matrimonial cases (as is the position for criminal cases) cannot be undertaken using “conditional fees”. Mr Scott SC submitted the reasons why conditional fees are kept out of matrimonial cases do not apply to a third party litigation funder who does not meddle in the litigation, and he relied on the explanation given in the Article at pages 456-457 as italicised below:
413.It will be seen immediately from the above extract of the Article that the kind of litigation funding discussed in the Article was nothing like third party litigation funding with the funder sharing a division of the litigation spoils under analysis in the present proceedings. It is obvious that the litigation funding canvassed by the Article concerned “litigation loans” offered by private banks to divorcing spouses (who have no other means of paying for legal representation) against their own personal covenants to repay although practically speaking the repayment would come from the divorce settlements. This was made clear in the following passage at pages 452-453 of the Article:
414.That being the case, it becomes easy to understand why it was said there was no risk of the funder interfering in the matrimonial litigation. After all, what would be involved was a clean loan of money by the bank to the client (who happened to be a divorcing spouse) against his/her personal covenant to repay, and the only concern is that the client is likely to use the proceeds of the matrimonial litigation (if successful) to repay such loan. But in third party litigation funding by a commercial funder as presently contemplated, the funder will directly seek a division of the litigation spoils and therefore will have some involvement in the conduct of the litigation pursuant to the terms of the LFA. I also note the query expressed by MacMenamin J in Persona Digital Telephony Ltd & ors as to whether third party funding with profit-sharing arrangement be recognised in cases with strong individual “personal rights” dimension which arose out of concern of possible perversion of justice (see paragraph 227 above). This is in line with the rationale for forbidding conditional fees in matrimonial cases. 415.I share Mr Wong SC’s concerns in this regard, which he succinctly summarised as follows: “Where the risk of the funder meddling in litigation cannot be completely excluded (i.e. arising from influence over settlement of claims, speculation and risk share) and thus detailed terms of the funding agreement need to be worked out and agreed upon to hedge against the risk, the wider question of “close and effective monitoring” would come into the overall equation. Compared with the mature commercial litigators in arbitration cases, it seems clear there is a greater need to put in place an effective regulatory regime to protect the impecunious homemaker in matrimonial proceedings”. 416.LLC v LMWA I have referred senior counsel to the recent guidance that fell from the CA in LLC v LMWA that concerned a preliminary issue trial involving third party interest in matrimonial proceedings (akin to the S17 Application in the present case).[270] The trial judge found against the wife, and held that the husband and his father were the beneficial owners of the matrimonial property, and the father was the sole beneficial owner of the carpark. The CA had reservations over prescribing a preliminary issue trial as the only way forward once an issue on third party beneficial ownership is raised, and it went on to say as follows at page 540:
Plainly, the CA was concerned over excesses of matrimonial litigation and legal costs running out of control to the detriment of the parties (pages 540-543), and exhorted the litigants and their lawyers to reduce excesses and costs. 417.Although LLC is not a case on third party litigation funding, it highlighted the policy considerations in relation to curtailing litigation excesses and legal costs in the matrimonial proceedings where excessive litigiousness and consequent escalation of litigation costs may mean there will be less money in the family pool for sharing or for addressing needs. The public policy of fostering access to justice will have to be balanced against the risk that third party litigation funding may encourage excessive litigiousness that may bring more harm than good to matrimonial litigation. In my view, this dovetails with the approach adopted in various common law jurisdictions that conditional fees are not allowed in matrimonial/family proceedings. Mr Scott SC urged this court to consider the particular circumstances of the Husband, which he claimed would strongly persuade this court to grant the pre-clearance declarations sought. But as explained above, it is necessary to consider not just the “totality of the facts” (which of itself is not limited to the Husband’s impecuniosity), but also to conduct a balancing exercise between public policies to see whether “exceptional circumstances” are made out by reason of the Access to Justice Exception to justify granting such pre-clearance declaratory relief. 418.Young v Young Mr Scott SC acknowledged that a particular concern is that parties may be incentivised to unnecessarily prolong the proceedings, since the parties themselves may not feel the immediate pressure from costs. But he argued that just because a system may be susceptible to abuse does not mean its existence is not necessary or justified, especially in light of policy reasons (in addition to the usual access to justice consideration) for justifying third party litigation funding in family cases. He added that any perceived abuse can be sufficiently addressed by proper procedural safeguards as explained by Moor J in Young v Young.[271] 419.In Young, the couple divorced after a long marriage with children who were adults by the time by of the final hearing. The husband was an entrepreneur with various business interests, and the wife had been a housewife for many years with no earning capacity. There was a huge difference between the parties’ stance on the level of the husband’s wealth with the husband claiming he was heavily indebted and therefore insolvent, and the wife claiming he was very wealthy. The parties were engaged in more than 6 years of litigation with 65 preliminary hearings (page 137) for which the wife incurred about £6.4 million in legal costs and costs of forensic accountant costs (which amount Moor J found to be “completely unacceptable”). 420.In the earlier part of the proceedings, the wife engaged different litigation funders with “over £4 million in litigation funding” (page 139), but she ran out of litigation funds long before the 20-day final hearing and had to employ her 3rd legal team on the basis that they would only be paid in the event of her receiving a substantive award. The husband acted in person although he had some legal assistance in the run-up to the final hearing (page 141). The wife made multiple interim applications for inspection and disclosure. Moor J said she made far more applications than any other case he came across, and any more would have amounted to an abuse of process (page 160). On the other hand, the husband was held to be in contempt of court and sentenced to imprisonment for not providing complete/adequate disclosure (page 157), but in some other respects he had not obstructed the wife’s evidence gathering. Moor J found the litigation conduct in the case had fallen foul of the overriding objectives in the Family Procedure Rules, and in many respects the case was “about as bad an example of how not to litigate as any I have ever encountered” (page 137). 421.Mr Scott SC drew my attention to Moor J’s observations at pages 140-141 as follows:
422.I am not persuaded that reference to Young will take the matter much further as Moor J was not saying anything about the wife’s litigation funding. The essence of his criticism was that the wife had spent an unreasonable sum for her legal costs which significantly increased her liabilities when the court has to ponder the parties’ respective financial position and the wife’s needs in coming to a decision on the wife’s award. These observations (absent any discussion on the vitality of the third party litigation funding) would be no different from judicial criticism of any litigant who frittered away unreasonably exorbitant sums on inappropriate litigation conduct. Indeed, such observations would be equally apt in this jurisdiction. 423.Gomez v Ahrens Mr Scott SC submitted that a robust approach towards adverse cost orders may also be taken in family cases and cited the Canadian decision of MacDonald J of the Supreme Court of Nova Scotia (Family Division) in Gomez v Ahrens.[272] But that case did not concern third party litigation funding or adverse costs order against third party funders at all. That case concerned an application by the wife for variation of an interim custody order and a petition by the husband for divorce (paragraphs 1-3). Both proceedings were heard together. After the learned judge rendered his oral decision, the husband applied for costs against the wife on the basis that he was the successful party in both proceedings (paragraphs 4 and 8). The wife resisted such application (paragraph 9). At paragraph 17 of the judgment, MacDonald J referred to “some of the more common principles that guide decision making in cost applications”, and his summary of the principles included the following:
424.The observations of Judge Dyer spoke of the ills of excessive litigiousness and “encouragement of unrighteous suits”, which is an abuse that the laws against maintenance and champerty seek to target. Despite the changing landscape of maintenance and champerty, the traditional legal policies underlying maintenance and champerty continue to apply (see Unruh at pages 68-69). But Judge Dyer and MacDonald J were discussing the principles in relation to inter partes costs (in contra-distinction of adverse costs orders directly against the funder), ie a party’s ability or otherwise to pay costs will be taken into account in the exercise of discretion on inter partes costs so that privately/publicly funded parties will not escape liability for costs by asserting inability to pay. Adverse costs orders against the funders may well be an answer (although not discussed in Gomez), and I have said such orders are a useful safeguard against unfairness and potential abuse, but its effectiveness depends on inter alia the extent and scope of the disclosure regime and the amenability of an overseas funder to the local jurisdiction. (f) Exceptional circumstances by reason of Access to Justice Exception 425.As Mr Wong SC helpfully pointed out, there are 2 questions: (a) whether the Access to Justice Exception (or defence on access to justice considerations) is made out as an exception (or defence) in any prosecution or civil action against the Funder / Husband for entering into the proposed funding arrangements in the context of the laws against maintenance and champerty, and (b) whether this court should grant the Husband’s ex parte application for the 1st/2nd Declarations to sanction the D-LFA prior to any such prosecution or civil action. 426.In my view, these questions raise 2 separate issues. On question (a) above, the essential query is whether the proposed funding arrangements fall foul of the laws against maintenance and champerty since the Access to Justice Exception (or defence) is itself part and parcel of the laws of maintenance and champerty. This is a fact-sensitive question (see Part VI(j) above), which can only be answered by considering the “totality of the facts” of the case and carrying out a balancing exercise between various public policies (eg the public interest of promoting access of justice and the public interest of avoiding the ills/abuses that the laws against maintenance and champerty seek to prevent). On question (b) above, the court is asked to telescope the lis to give pre-clearance sanction even before the intended funder and the intended funded party commit to the proposed funding agreement/ arrangements. I have explained that whether the case is fact-sensitive is an important factor against entertaining question (b) above (see paragraph 144(c) above). Further, it does not follow that an affirmative answer to question (a) above necessarily means question (b) above must also be answered affirmatively. The applicant has to go on to show injustice will result if the court declines to give an early answer to question (a) above on an ex parte basis by granting the 1st/2nd Declarations (see paragraph 144(d) above). 427.Mr Scott SC argued that if the court declines to grant the 1st/2nd Declarations, the Funder’s pre-condition would not be satisfied, and the Husband would not be able to receive third party funding for him to pursue the Husband’s Claims, and consequently the essence of his right to access to justice would be impaired. 428.But as I have already explained, such argument failed to take into account the true criteria for pre-clearance declaration of non-criminality in respect of the proposed third party funding, which requires an assessment of the “totality of the facts” and a balancing of competing policies to determine whether very or truly “exceptional circumstances” are made out by reason of the Access to Justice Exception such that an injustice would result. 429.Further, the Access to Justice Exception is an accepted exception to the laws prohibiting maintenance and champerty and hence is part and parcel of such laws, which Winnie Lo has confirmed to be sufficiently legally certain “to enable a person, with advice if necessary, to regulate his or her conduct so as to avoid liability for that offence” (see Winnie Lo at page 44 and paragraph 58 above). On the assumption that the Husband’s assertions (eg regarding his impecuniosity, exhaustion of all other financial sources, and merits of his case – but more of this in Parts IX and X of Judgment (2)) are proven, and on the basis that the funding arrangements would not create any genuine risk of abuse (as the Husband and his legal advisers have urged – but more of this in Part XI of Judgment (2)), it appears that the Husband (and the Funder) should (as the Husband has been legally advised) have a strong case to make out the Access to Justice Exception, ie he should have a good case for an affirmative answer to question (a) above even without need of any confirmatory advisory opinion by the court. 430.Mr Smith SC and Mr Wong SC submitted (and I have accepted in Part VI(d) above) that it appeared the Husband sought the comfort of the 1st/2nd Declarations not for himself as he was all eagerness to obtain the proposed litigation funding on terms put forward by the Funder but because of the pre-condition imposed by the Funder to hedge against the risks of (a) criminality of the proposed funding arrangements (which risk was not covered under the Husband’s alternative case) and (b) unenforceability of the D-LFA. I agree with Mr Wong SC that in such circumstances the reason why the Husband might not obtain funding if the 1st/2nd Declarations were not granted would not be because of the Husband’s concerns/reluctance but because the Funder insisted on securing of the 1st/2nd Declarations as a condition precedent for the funding arrangements (see paragraph 93 above). Mr Scott SC parried by saying the affirmation evidence made clear that the Husband was financially destitute and had no legal aid to prosecute the Husband’s Claims, which he could not pursue without third party funding, so it would be artificial to say it was just the Funder who insisted on the 1st/2nd Declarations. But, in my view, such argument is itself artificial as ignored the reality that (a) there was no actual lis between the Husband and the Funder, (b) the Husband himself was keen to obtaining the proposed funding from the Funder on the Funder’s terms (ie the Funder’s D-LFA put forward by the Husband in the C-Memo) with no intention to resile from the proposed funding arrangements, and (c) it was just the Funder who required the comfort of the 1st/2nd Declarations by making such funding contingent upon the court granting such declarations (see paragraph 125-126 above). Indeed, Madam Prothonotary Mireille Tahib in Seedlings Life Science Ventures, Inc said at paragraph 8 that “[the] primary reason for the parties to seek prior approval of the manner in which the litigation is funded is to protect the funding party from the consequences of a subsequent finding that the agreement might be champertous”. 431.If the Husband were able to establish his assertions, he would be in an unenviable predicament[273] that would brings into play the access to justice considerations, but he had notput forth a satisfactory case (let alone an exceptional one) that he (in contra-distinction the Funder) is deterred from entering into D-LFA because of the “chilling effect” of his own fear of prosecution or fear of incurring other liability (see Part VI(d) above). In light of the above, if the Husband is eventually unable to obtain third party funding, it will be the result of the Funder’s commercial risk assessment (ie it would not provide funding without the 1st/2nd Declarations to minimise its own risk of liability and/or its own risk of being unable to secure its commercial return from the litigation proceeds) rather than any refusal by the court to make such declarations. 432.I reiterate Madam Prothonotary Mireille Tahib’s observations in Seedlings Life Science Ventures, LLC that the party/parties could not by agreement confer jurisdiction on the Court by making third party funding contingent upon court approval (see paragraph 89 above). Further, in response to an argument that the Federal Court has “plenary powers to control its own process ...... [so as to] give it jurisdiction to enquire into, detect and root out [LFAs] that may be champertous and may constitute abuses of its process” (paragraph 17), Madam Prothonotary Mireille Tahib said as follows (see paragraphs 196-197 above):
In Waterhouse & anor, the New Zealand Supreme Court also held it was not the role of the courts to act as general regulators of litigation funding arrangements, or to give prior approval to such arrangements (at least in cases not involving class/representative action), and it opined that it is a matter for legislation or regulation (see paragraph 333 above). 433.Taking the above matters into account, including my finding the it was not the Husband who felt any chilling effect but the Funder who required comfort, it is difficult to see, as Mr Wong SC submitted, how very or truly “exceptional circumstances” including any perpetration of injustice can be made out from not being able to secure the 1st/2nd Declarations on the basis of established principles[274] when the Husband and no doubt the Funder (who is a commercial/professional funder making a commercial decision to invest in a litigation) have already received detailed legal advice on the legality of the proposed funding arrangements to the effect that the Access to Justice Exception can be made out on the “totality of the facts” as analysed above and on the balancing of competing public policies, which in my view result in strong pointers towards leaving any liberalisation of third party funding for general litigation (including matrimonial cases) to legislative deliberation/determination to be supported by comprehensive statutory and/or regulatory framework/measures. As noted in paragraph 49(2)(f) above, the engagement of the right of access to justice (ie the underlying claim is likely to be stifled without third party funding) per se is not sufficient to give an affirmative answer to question (b) above, and after careful weighing the competing public policy considerations against the “totality of the facts”, I am not persuaded the court’s refusal to grant the 1st/2nd Declarations can be said to be a disproportionate infringement or obstruction that would impair the essence of the right of access to justice. 434.The 1st/2nd Declarations sought are pre-clearance declarations of non-criminality. For all the above reasons, like Mr Wong SC, I do not agree with Mr Scott SC’s written submissions to the effect that “given the importance of public policy of access to justice, the current case would fall into the category of exceptional cases which would justify the granting of a declaration, notwithstanding the possibility of future criminal proceedings”. I do not agree the aforesaid exercise of examining the “totality of facts” and balancing the competing public policies demonstrate that very or truly “exceptional circumstances” have been made out to justify granting the 1st/2nd Declarations despite the Husband’s allegation of impecuniosity that would circumscribe his right of access to justice. The Husband’s allegations as to his financial position are considered in Part X of Judgment (2), but even if I were to assume (as this is said to be a “test case” in this novel area of the area) that he was impecunious, which would amount to a powerful argument for the Access to Justice Exception, based on the above analysis and the discussions in Judgment (2) (especially on the terms of the D-LFA and other matters), I still consider the 1st/2nd Declarations ought not be granted, and it follows that I return a negative answer to question (b) above. As for the “qualified declarations” under the Husband’s alternative case, for all of the above reasons (and in particular the analysis in Part VI(g)-(h) above), their scope is neither practical nor useful to bring them within the category of very or truly “exceptional circumstances” to justify the granting of such enfeebled declarations. 435.Insofar as the Funder is concerned, it is not a party before the court making out its case (in contra-distinction to the Husband’s own case) for the 1st/2nd Declarations. Nor has the Funder come forward in the present proceedings to support the Husband’s reliance on the Access to Justice Exception, which was the essential basis for the 1st/2nd Declarations. In this respect, I refer to the discussion in Part IX(d) below. 436.In my view, upon balancing the competing public policies in light of the developing contours of local public policy / value judgment and (bearing in mind that the local third party litigation funding market is unlicensed and unregulated, and that the UKCoC does not apply to funding even by members of the ALF for litigation in the Hong Kong courts – see Part XI(a) of Judgment (2)), liberalisation of the laws of maintenance and champerty (even after taking into account the significant public interest in making legal proceedings accessible to litigants of ordinary means insofar as possible) should be left to the legislative deliberation/decision. 437.Some may say third party funding with all the concerns it entails is better than having no claim/recovery at all, but the common law is in principle hostile against profiting from someone else’s litigation unless justified and effectively controlled/regulated (otherwise litigation for vindication of wrongs can easily turn into trafficking of commercially commoditised litigation). These concerns retain force and vitality, but no protective scheme exists in Hong Kong at the moment. At the very least, the continued existence of the crimes/torts of maintenance and champerty and of the vitality of such legal principles to invalidate contracts show that these concepts remain important values in the law here. In my view, this is an area in which Hong Kong should move forward with caution and certainty for the stakeholders (rather than on a case-by-case assessment (possibly lengthy and unpredictable) by any court confronted with the issue). VIII. COMMON INTEREST EXCEPTION ISSUE 438.Although the SCG 2nd Aff suggested reliance on the Common Interest Exception, Mr Scott SC did not canvass this ground in his submissions, and he in fact confirmed that the Husband would not rely on such exception. However, given the novelty of the present proceedings, I shall say a few words on this. There was, quite simply, no pre-existing commercial interest on the part of the Funder or any direct/indirect relationship with the Husband that could ground the Common Interest Exception (see also Raafat Imam at page 185). This harked back to the earlier discussion that the Funder was merely making an investment in the Husband’s Claims for profit, but wanted assurance from the court before engaging in such commercial enterprise. As Mr Wong SC submitted, any commercial risk from such proposed transaction (or interest to be relieved from such a risk) is a matter of commercial choice and not pre-existing common interest. IX. COURT GUIDANCE ISSUE 439.In light of my conclusions above, it is unnecessary for this court to give guidance for the conduct (procedural and substantive) in relation to any future similar applications. The above discussions on the Jurisdiction and Public Policy Issues already addressed the exercise of judicial discretion for pre-clearance declaratory relief, and the meaning of “exceptional circumstances” that would justify such declaration. The above discussions on the Access to Justice Exception Issue also addressed various sub-issues including the requirements for making out such exception to the laws against maintenance and champerty, and what aspects of the LFA may have special bearing on this issue. The Husband did not rely on the Common Interest Exception, so little need to be said about the Common Interest Exception Issue. However, for completeness I will say a few words on the Court Guidance Issue on the assumption that an application to the court for pre-clearance declaratory sanction in respect of third party litigation funding based on the Access to Justice Exception is viable or at least arguable. (a) Ex parte application 440.I do not think an application for pre-clearance sanction of third party funding agreement/arrangements should be made ex parte in the sense of only having the applicant before the court. I have explained that such application by nature is different from the Miscellaneous Exceptions. Further, the court in dealing with such pre-clearance application has to consider the “totality of the facts” and to carry out a balancing exercise between competing public policies of promoting access to justice and avoiding abuses that the laws of maintenance and champerty seek to prevent, which will not benefit from an entirely ex parte approach. (b) Involvement of SJ 441.As to whether the SJ should be notified or joined in application for such pre-clearance declaratory relief, I have explained that the nature of such declaratory relief embraced a declaration of non- criminality. The need for a “contradictor” suggests that the SJ should be joined as party or at least be given notice so that she can properly consider whether to intervene or join in the proceedings. In Rusbridger, the Attorney-General was the defendant to proceedings brought by the claimants for declaratory relief. In Raafat Imam, DHCJ Fee at pages 174-177 was of the view that the SJ should be joined given the need to have a proper “contradictor” and also to bring material facts before the Court. In cases cited by the Husband in which similar declaratory relief was sought, it was said that the Attorney-General (or the SJ) should be joined (eg Segal J in A Company took the view that but for the urgency of the matter (ie to seek Mareva injunctive relief in the intended underlying proceedings) the applicant ought to have notified the Attorney-General).[275] (c) Involvement of opposing parties in underlying litigation 442.As to whether the parties in the underlying litigation should be joined in the application for pre-clearance declaratory sanction, the first question to ask is whether they have locus standi to challenge the funding agreement/arrangements even if such declaration as sought is made. Despite some initial uncertainty, Mr Scott SC came around to accept that the Wife and the Brother (ie the opposing parties in the underlying Husband’s Claims) did not have locus to challenge the proposed litigation funding arrangements and/or D-LFA, and that they ought not to be joined as parties to the Husband’s application for pre-clearance declaration. This was the view of Mr Wong SC, and also Mr Smith SC’s stance by the time of the Hearing. 443.I have explained in Part V(e) above that maintenance and champerty cannot be raised as a defence to the underlying action or a ground for stay of the proceedings unless a bare right to sue is assigned and the underlying proceedings were premised on such champertous assignment (which is not the case here). This clearly showed there is no basis for joining the opposing parties to the underlying action for the purpose of seeking pre-clearance declaratory relief, which makes the joinder or the invitation to join the SJ all the more important. After all, it is unrealistic to appoint an amicus curiae on each such application. 444.The letter dated 15 December 2017 by the Brother’s solicitors to Withers suggested they were aware of the Husband’s then intended application to the CFI for a declaration that third party funding for his case would fall under the Access to Justice Exception to the laws of maintenance and champerty, and claimed that “[for] the avoidance of doubt, our client must be heard on your client’s application as it has a direct bearing on our client”. But for all the above reasons, I consider that as a matter of principle, it is not right for the opposing parties in the underlying proceedings (ie the Wife and the Brother) to be joined as parties to the present proceedings. (d) Involvement of funder 445.The Funder cannot independently on its own rely on the Access to Justice Exception. But then in putting forward the Access to Justice Exception, as I have explained in paragraph 129 above, the procedural construct adopted by the Husband in the present proceedings (ie an ex parte application to the court made solely by the Husband) without the Funder being made or invited to be a party to the present proceedings plainly exuded an aura of artificiality (as explained by Segal J’s observations in A Company at page 715 – see paragraph 244 and footnote 95 above).[276] This is especially so when the application was essentially to address the Funder’s concerns. I note, for example, that in Seedlings Life Science Ventures, LLC, both the fundee and the funder jointly applied to the court for approval of the LFA. X. CONCLUSION 446.For all of the above reasons and also for the views/analysis in Judgment (2) which are to be read together with Judgment (1) herein, the Husband’s application for declaratory reliefs be refused. I therefore grant the following orders:
447.It was agreed amongst senior counsel at the Hearing that the matters of costs (including the Amendment Costs) be reserved for further addresses pending the outcome of the Husband’s Amended OS. I urge the parties to constructively confer to see whether some common understanding can be reached on the question of costs. But in the event that further argument is required, I direct that the Husband, the SJ and the Amici to jointly write to the court within 28 days from the date hereof to propose case management directions for restoring this case for arguments/submissions on the matter of costs of the proceedings (including the Amendment Costs) with timetable for lodging/serving submissions, estimated length of the hearing on costs, and the available diary of counsel. 448.It remains for me to express my gratitude to all counsel for their helpful assistance on this novel area of the law in this jurisdiction.
[1] see Jackson, Review of Civil Litigation Costs: Preliminary Report (May 2009) Vol 1 Chapter 15 para 1.1 at p 160 and Jackson, Review of Civil Litigation: Final Report (December 2009) Chapter 11 para 1.2 at p 117 referred to in A Company v A Funder [2017] (2) CILR 710 [2] ie the S17 Application [3] eg discussion of the merits of the S17 Application and the Husband’s proposed third party funding arrangements [4] ie the court might or might not consider it appropriate to deal with any or all of the Issues [5] the written submissions by senior counsel for the Husband for the hearing on 12 September 2018 suggested the Wife and the Brother in the underlying S17 Application had the right to and could well challenge the validity of the proposed LFA because the 1st Declaration (see para 23(a) below) (if granted) would not be binding on them, but by the time of the Hearing the Husband appeared to have come round to the view that the Wife and the Brother would not have locus to challenge the proposed funding arrangements (which view, as seen below, was shared by the SJ and the Amici) (see para 71 below) [6] ie the S17 Application [7] ie the Husband’s ancillary relief claim in the Matrimonial Proceedings [8] ie the FC Application [9] [2018] 4 HKLRD 152, 158 [10] the plaintiff in that case applied by inter partes summons (that was open to the public but not served on the SJ) in the underlying action for the reliefs set out in para 29 above, and the defendants in the underlying action (but not the SJ) appeared at the hearing to resist such summons [11] paragraph 5 of Practice Direction 15.15 provides that the proceedings listed in Schedule 2 (which includes all applications under the MPPO except judgment summonses) would usually not be open to the public as it is considered that having regard to their nature, 1 or more of the reasons for excluding the press and the public laid down in article 10 (“BR10”) of the Hong Kong Bill of Rights (“BR”) are usually justified, but under para 6 of such practice direction, if in a particular case the court is of the view that none of the reasons in BR10 is satisfied in the circumstances of that case, the court may order the hearing to be open to the public [12] eg matters pertaining to the Husband’s proposed third party litigation funding arrangements [13] but by the time of the Hearing the Husband, the SJ and the Amici all seemed to agree that the opposing parties in the underlying proceedings would not have such locus (see footnote 5 above and para 71 below) [14] 2018 SCLR 375 [15] (1957) 11 DLR (2d) 699 [16] the SJ acknowledged the categories of exceptions to the laws of maintenance and champerty are not closed, but argued that the Amended OS invited the court to widen the scope of the jurisdiction to grant declaratory relief in the sense that the court would become involved in “approving” LFAs, which matter is best left to the legislature which may decide to introduce some form of regulatory control, and it is not in the public interest that the courts be used for the purpose of granting declarations of this sort on individual case basis [17] (2007) 10 HKCFAR 31 [18] (2012) 15 HKCFAR 16 [19] see also HKSAR v Mui Kwok Keung [2014] 1 HKLRD 116 and Raafat Imam at p 170 [20] [2014] 1 HKLRD 116 [21] the Criminal Law Act 1967 has abolished the torts and crimes of maintenance and champerty in England, but section 14(2) of such Act expressly provides that is not to affect “any rule of law as to cases in which a contract is to be treated as contrary to public policy or otherwise illegal” [22] see Unruh at pp 61-63 [23] (a) it was also agreed that Mr Unruh and Mr Seeberger would indemnify Egana’s costs (especially legal costs) of acquiring ESCT, but this liability was put in doubt by a subsequent agreement, and Egana, ESCT and Mr Unruh later executed a deed of acknowledgment in which Mr Unruh acknowledged liability for his share of the expenses already incurred and to be incurred, and (b) the deed of acknowledgment, after referring to the MoA, provided that Egana was entitled to set off Mr Unruh’s indebtedness “against the amount of special bonus to be payable by [Egana]” [24] Mr Unruh was uniquely placed to deal factually with Xs’ complaints, so there was no basis to suggest that his participation as a witness in the arbitration was in any way artificial or likely to pose a genuine risk to the integrity of the arbitral process [25] see also Winnie Lo at pp 29 and 45 [26] see also Winnie Lo at pp 29 and 45 [27] see also Winnie Lo at pp 45-46 [28] see also Winnie Lo at p 30 [29] see also Winnie Lo at p 30 [30] eg sale and assignment by a trustee-in-bankruptcy to a purchaser for value of an action commenced in bankruptcy proceeding, or third party funding in insolvency proceedings (see also Winnie Lo at p 30) [31] see also Winnie Lo at p 30 [32] see also Winnie Lo at p 46 [33] eg an agreement to take a share of litigation proceeds may be primarily objectionable because it involves the unconscionable exploitation of a vulnerable litigant, or it may be considered objectionable for solicitors to enter into such an arrangement because it is thought likely to give rise to conflict between the solicitor’s interest in financial gain and his duties to the court and to the client [34] ie doctrines and remedies more suited to granting relief to the exploited party or to confronting professional misconduct [35] ie there is no suggestion they have any constitutional issue with the BL or BR [36] see Unruh at p 62 [37] see Chitty on Contracts 33rd ed Vol 1 paras 16-082 and 16-097 at pp 1291 and 1301 [38] see Re Trepca Mines Ltd [1963] Ch 199 at 219-220 and Regina (Factortame Ltd & ors) v Secretary of State for Transport, Local Government and the Regions (No 8) [2003] QB 381, 400 [39] 2017 FC 826 (12 September 2017) para 22 [40] see Seedlings Life Science Ventures, LLC at para 22 (see para 70 below) [41] see Giles v Thompson and related appeals [1993] 3 All ER 321 (English Court of Appeal) and [1994] 1 AC 143 (House of Lords) (obiter observations – see para 69 below) [42] see In the matter of the Valetta Trust [2011] JRC 227 and Berman v SPF CDO I Ltd [2011] 2 HKLRD 815 (see also Part VI(l) below) [43] see Campbells Cash and Carry Pty Limited v Fostif Pty Limited [2006] HCA 41 (30 August 2006), Re Norglen Ltd (in liquidation) v Reeds Rains Prudential Ltd & ors [1999] 2 AC 1, Re Oasis Merchandising Services Ltd [1997] BCC 282, Re Cyberworks Audio Video Technology Ltd [2010] 2 HKLRD 1137, Re Company A to Company G HCCW384, 409, 637&638/2005, 2421/2007, 120/2008 and 2019/2015 (heard together), Harris J (unreported, 8 October 2015), Re Vanguard Energy Pte Ltd [2015] SGHC 156 (9 June 2015) and PricewaterhouseCoopers v Walker and Marshall as liquidators of Property Ventures Limited (in liquidation) & ors [2017] NZSC 151 (16 March 2017) (see also Part VI(m) below) [44] see Reiner Schnek v Valeant Pharmaceuticals International Inc & ors 2015 ONSC 3215 (8 June 2015), Seedlings Life Science Ventures, LLC and Saunders & ors v Houghton & anor [2009] NZCA 610 (18 December 2009) (see also Part VI(n) below) [45] see Trendtex Trading Corporation v Crédit Suisse [1982] AC 679 (see para 77 below), Brownton Ltd & ors v Edward Moore Inbucom Ltd [1985] 3 All ER 499 (see paras 80-81 below), Giles (see para 76 below), Sears Tooth (a firm) v Payne Hicks Beach (a firm) & ors [1997] 2 FLR 116 (see para 407 below), Beijing Tong Gang Da Sheng Trade Co Ltd v Allen & Overy & anor [2014] 4 HKC 333 (CFI) and [2015] 3 HKLRD 247 (Court of Appeal) (see paras 78-79 below), PricewaterhouseCoopers (see paras 188-190 below), and SPV Osus Limited v HSBC Institutional Trust Services (Ireland) Limited & ors [2018] IESC 44 (31 July 2018) (see paras 231-234 below) [46] see Regina (Factortame Ltd & ors) v Secretary of State for Transport, Local Government and the Regions (No 8) [2003] QB 381 (see para 212 below), Clico Investment Bank Limited v Transport and Marine Enterprises Limited Civil Appeal No 134/2003 (26 July 2004) (see paras 236-237 below), Unruh (see paras 52-56 above), Stiftung Salle Modulable v Butterfield Trust (Bermuda) Limited [2014] SC (Bda) 14 (Com) (21 February 2014) (see para 235 below), and Dr Rohit Dass v Rosemarie Marchand & ors Civil Appeal No 276/2012 (16 July 2018) (see para 238 below) [47] see Reiner Schenk (see paras 192-194 below), Persona Digital Telephony Ltd & ors v Minister for Public Enterprise & ors [2017] IESC 27 (23 May 2017) (see paras 223-230 below), A Company v A Funder 2017 (2) CILR 710 (23 November 2017) (see paras 240-246 below), Seedlings Life Science Ventures, LLC (see paras 195-200 below), and Raafat Imam (see para 152 below) [48] eg the Common Interest, Access to Justice and Miscellaneous Exceptions [49] ie an action commenced in bad faith with no genuine belief in its merits but for an ulterior purpose [50] see Chitty on Contracts 33rd ed Vol 1 para 16-097 at p 1301 [51] see also Raafat Imam at p 175 [52] HCB345/2001, G Lam J (unreported, 30 April 2018) [53] [1993] 3 All ER 321 (English Court of Appeal) and [1994] 1 AC 143 (House of Lords – the appeals were allowed in relation to award of interest but were otherwise dismissed) [54] (a) the car hire company possessed no rights in respect of the amount recovered by the plaintiff from the defendant, (b) the car hire company made its profits from the hiring rather than the litigation, (c) the plaintiff remained personally liable for the hire charges at the conclusion of the proceedings, and (d) even where the proceedings were conducted by solicitors and counsel nominated by the car hire company they would, having regard to the size of the respective claims, be obliged to act in accordance with the instructions of the plaintiff even if the plaintiff’s and the car hire company’s interests diverged [55] [2005] 2 LRC 150 [56] 2017 (2) CLR 710, 715 [57] as explained in Imperial Tobacco Ltd & anor v Attorney-General [1981] AC 718 (see para 98 below). [58] [1981] AC 718, 742 [59] (2013) 16 HKCFAR 324, 333(see paras 207-208 below) [60] see Trendtex Trading Corporation at p 683 [61] see Waterhouse & anor v Contractors Bonding Limited [2013] NZSC 89 (20 September 2013) para 57 [62] see also the observations by Madam Prothonotary Mireille Tahib in para 21 in Seedlings Life Science Ventures, Inc at para 89 below [63] [1982] AC 679 [64] ie the Common Interest Exception [65] see Chitty on Contracts 33rd ed Vol 1 paras 16-086 - 16-087 at pp 1294-1296 [66] [2014] 4 HKC 333 (CFI) and [2015] 3 HKLRD 247 (Court of Appeal) [67] [1985] 3 All ER 499 [68] eg the funder’s control of the underlying proceedings, the role of lawyers acting for the involved parties and/or the proportion of the funder’s share of the litigation spoils [69] eg the funder takes control of the underlying litigation, supports unmeritorious claims, is improperly motivated and/or takes up a disproportionate share of the litigation spoils [70] see the observations by Elias CJ (dissenting) in PricewaterhouseCoopers that “[despite] some conceptual obscurity, it is however striking that judges continue to acknowledge the legitimacy of concern about litigation funding which amounts to a bare cause of action” (para 116) [71] eg the Criminal Law Act 1967 in England and Wales (see Unruh at p 62 and Winnie Lo at p 71) and the Maintenance, Champerty and Barraty Abolition Act 1993 in New South Wales, Australia (see Winnie Lo at p 71 which noted that similar liability has been abolished in Victoria in 1969 and in South Australia in 1992) [72] [2004] 1 AC 357 [73] eg potential prosecution under section 3 of the Treason Felony Act 1848 over the publication of articles advocating republicanism in Rusbridger [74] eg the publication of the articles advocating the abolition of the monarchy in Rusbridger [75] eg the adverse impact on the editor’s and journalist’s right to freedom of expression and of the press in Rusbridger [76] [1993] AC 789 [77] see section 8 of the Criminal Code 1953 (c. 51) [78] see section 2 of an Act Respecting Champerty, RSO 1879 (c. 327) which provides that “[all] champertous agreements are forbidden, and invalid” [79] see Winnie Lo at p 29 [80] [1939] SCR 446 [81] see para 45 of the SCG 2nd Aff [82] see also Part VI(g) below in relation to discussions concerning “qualified declarations” [83] see paragraph 46 of the SCG 2nd Aff which stated that “[the] Husband seeks the Court’s approval of this funding arrangement as [the Funder] (and the third party funding industry as a whole) have a ‘common interest’ in the outcome of this application, and, more particularly, the precise scope of the ‘access to justice’ exception outlined in the Unruh case” (my emphasis) (but by the time of the Hearing Mr Scott SC no longer sought to make out the Common Interest Exception – see para 49(3) above) [84] [2006] 1 WLR 3092 [85] ie even when the prosecuting authority is a party to (a) the civil proceedings in which the declaration of non-criminality is sought and (b) the prosecution of any criminal offence in respect of which such declaration is given in the civil proceedings [86] which is still relevant even if only the funder and not the fundee can be criminally liable [87] [1986] FSR 159 [88] I note with interest that the declaration sought in Amstrad Consumer Electronics Plc made no express reference to criminal liability (ie “[that] the plaintiffs have not by advertising or offering for sale or selling or supplying their audio system ...... acted unlawfully as alleged in ...... certain letters from the defendants’ solicitors to the plaintiffs’ solicitors dated 26th October or at all” – see p 204), but the English Court of Appeal still held that the possibility of criminal conduct and the prejudicial effect of such declaration on any future criminal trial were enough to trigger the principles discussed above, which suggested it is the substance rather than the form of the declaratory relief that is material, and which lent weight to the view that the 1st/2nd Declarations embraced a declaration of non-criminality [89] [2009] FSR 13 or [2009] SGCA 9 (2 March 2009) [90] ie Sankey v Whitlam (1978) 142 CLR 1 [91] [2006] 4 HKC 582 [92] [2000] 2 AC 326 [93] Mr Smith SC submitted that if there is dishonesty, mala fides and/or exceptional circumstances, the expectation is that no prosecution will ensue, but there is no theoretical restriction that bars any prosecution being brought; but in my view, if such mala fide prosecution is brought to court, the court will have procedural powers to combat such abuse (see para 22 in Re C (a bankrupt) at para 118 above) [94] which probably reflected the absence of any “live practical question” between the Funder and the Husband over the validity/enforceability of the D-LFA (to be made between them) on the terms proposed by the Funder [95] Segal J at p 715 in A Company acknowledged the artificiality of the procedural construct used by the plaintiff in that case (intended fundee) as it was in substance an ex parte application for declaratory relief when the defendant (intended funder) “has not taken part in the proceedings and is not adverse to the plaintiff nor does it contest the relief which the plaintiff seeks (indeed it must be taken to support the plaintiff’s application)” [96] [1987] 1 WLR 379, 380-381 [97] [1970] 1 WLR 603 [98] the Wife and the Brother disputed such allegation, and disagreed the asset / income therefrom were matrimonial property [99] see similar provision in the LFA in Seedlings Life Science Ventures, LLC (see para 3 which states that “the LFA is made conditional upon court approval. Specifically, the LFA provides that if the Court does not approve its terms, [the funder] may, at its sole discretion, declare the LFA null and void”) and in Rafaat Imam (see the terms of the declaration sought in para 29 above) [100] see Seedlings Life Science Ventures, LLC at paras 26-27 [101] the Access to Justice Exception is part and parcel of the laws of maintenance and champerty which the CFA in Winnie Lo found to be sufficiently legally clear/certain to enable a person, with advice if necessary, to regulate his or her conduct so as to avoid liability – see paras 55(b) and 58 above [102] it was held in A Company that the terms of the LFA in that case did not give rise to a tendency to corrupt public justice, undermine the integrity of the litigation process or give rise to a risk of abuse except for a provision that allowed termination at will by the funder (which right posed serious risk of the funder having an unacceptable level of indirect control and was inconsistent with the code of conduct for litigation funders, ie the UKCoC referred to in para 325 below), so the court required such term to be amended to conform to the UKCoC (ie the funder can terminate the LFA if it or its subsidiary or related entity reasonably ceased to be satisfied about the merits of the dispute, reasonably believed that the dispute was no longer commercially viable, or reasonably believed that there had been a breach of the LPA by the funded party) (pp 736-737), but the Grand Court did not exactly blue-pencil the declaration sought [103] eg Imperial Tobacco Ltd & anor, Tiger Asia Management LLC, Amstrad Consumer Electronics Plc, Wing Joo Long Ginseng Hong (Singapore) Co Pte Ltd and Raafat Imam [104] see Wing Joo Long Ginseng Hong (Singapore) Co Pte Ltd at para 181 [105] Lord Steyn said “if in accordance with present practice the Attorney General simply declines to indicate any view [on potential prosecution], there is no dispute. But that cannot by itself conclude the matter or be a weighty criterion if there are otherwise good reasons to allow the claim for a declaration to go forward. ......” [106] Lord Steyn said “...... it has always been recognised that a question of pure law may more readily be made the subject matter of a declaration ......” [107] the Amici drew attention to the interaction between “exceptional circumstances” and “the interests of justice” by drawing analogy with Bourke & anor v Hamilton & anor [1977] 1 NSWLR 470, 493 in which the applicants who were charged with offences relating to the forging and uttering of instruments applied for a declaration to the effect that the magistrate had no power to commit them for trial because, on any correct view of the law, a prima facie case had not been made out, but Needham J observed that the power to interfere with committal proceedings is a drastic one “to be exercised only in those cases where the Supreme Court takes the view that a failure to exercise it will necessarily result in an injustice being perpetrated” [108] Lord Steyn said “the jurisdiction is in no way limited to life and death issues” (eg the case of Airedale NHS Trust which involved a life-and-death situation where the grant of a declaration as to the lawfulness of the cessation of life-sustaining medical support would have serious impact on the overwhelming interest of the concerned individual (see para 85 above)) as brought out in the case of Rusbridger which suggested that freedom of expression and of the press (to advocate republicanism) “may be a matter of constitutional importance” and “may fall within the exceptional category”, so the scope of very or truly “exceptional circumstances” is not closed or confined to (a) cases that involve life and death issues and/or (ii) “cases where the integrity of the relevant criminal proceedings is questionable”, and I respectfully disagree insofar as DHCJ Fee in Raafat Imam suggested otherwise (pp 173-174) [109] whilst Mr Scott SC agreed with the Amici that “exceptional circumstances” could arise if failure to grant the 1st/2nd Declarations would necessarily result in an injustice being perpetrated, he suggested this was not the only situation of “exceptional circumstances”, but I disagree because (a) Lord Steyn (at para 144(d) herein) and Lord Rodger (at para 145 below) explained that perpetration of injustice was part of the overall criteria for deciding whether there were very or truly “exceptional circumstances”, and (b) quite simply there would be no reason to grant any pre-clearance declaratory sanction if no injustice would be perpetrated (see footnote 107 above) [110] see Winnie Lo at p 44 (see para 58 above) [111] but if the integrity of the criminal justice system is in issue such that fair prosecution cannot be assumed, this may amount to “exceptional circumstances” for the civil court to consider granting a declaration of non-criminality [112] [2003] QB 381, 400 [113] [2011] 2 HKLRD 815 [114] ie a Miscellaneous Exception which is also an exception to the general principle that the court will not answer academic questions (see para 173 below) [115] see the factual details canvassed under the headings of “background facts”, “the plaintiff’s evidence” and “the funding agreement” at pp 335-340 [116] HCA697/2007, Sakhrani J (unreported, 11 June 2008) [117] see Sakhrani J’s observations in Lam Hei Shing Joseph at para 153 above [118] see Remedy Asia Limited v Yick Shing Contractors Limited HCCT4/2012, Au J (as he then was) (unreported, 26 June 2014) (see para 186(b) below) [119] see Unruh at p 69 (see also para 56(c) above) [120] see Order 85 rule 2(1) of the RHC [121] see Order 85 rule 2(2) of the RHC [122] see Order 85 rule 2(3)(c) and (e) of the RHC [123] see Chan Gordon v Lee Wai Hing (No 2) [2011] 2 HKLRD 1029, 1035-1037 in which DHCJ Queeny Au-Yeung (as she then was) decided that the costs of the administrator of the estate of the deceased in respect of litigation taken without seeking a Beddoe order or the court’s direction should not be borne out of the estate [124] Order 85 rule 2(3)(d) of the RHC provides that an action may be brought for an order approving any sale, purchase, compromise or other transaction by a person in his capacity as inter alia trustee, and a LFA can be said to involve a sale or other transaction relating to an asset of the trust [125] [2011] JRC 227 [126] see para 65(3) of Mr Scott SC’s written submissions [127] see para 75 of the Amici’s written submissions [128] see also Barclays Wealth Trustees (Jersey) Limited & anor v Equity Trust (Jersey) Limited & anor [2013] JRC 094 that affirmed In the matter of the Valetta Trust [129] [2013] JRC 094 [130] ie “no person may contract for things or matters in litigation” (para 24) [131] the evidence in that case suggested the LFA provided that control of the proceedings would remain with the plaintiffs and their lawyers, and that the funder would satisfy any adverse costs against the plaintiffs (see paras 7 and 60) [132] which is an exception to the general proposition that the court does not answer academic questions and which falls within the Miscellaneous Exceptions (see page 827 in Berman and para 62(a)(i) above) [133] [1991] 3 All ER 198, 201 [134] see section 82(3) of the BO, and section 199 and Part 3, Section 1 of Schedule 25 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance Cap 32 [135] (2006) 80 ALJR 1441 [136] see Campbells Cash and Carry Pty Ltd at para 75 [137] [1999] 2 AC 1 [138] [1997] BCC 282 [139] cited with approval by Harris J in Re Cyberworks Audio Video Technology Ltd [2010] 2 HKLRD 1137, 1140-1141 [140] [1996] AC 243, 257-258 [141] [2010] 2 HKLRD 1137 [142] HCCW384, 409, 637&638/2006, 2421/2007, 120/2008 and 2019/2015 (heard together), Harris J (unreported, 8 October 2015) [143] and presumably his decision in Re Cyberworks Audio Video Technology Ltd and Berman as well [144] HCCT4/2012, Au J (as he then was) (unreported, 26 June 2014) [145] Au J (as he then was) at para 27 of the judgment said as follows: “[applying] these principles, in my view, the fundamental questions that I need to consider are firstly whether the arrangement under the Assignment Deed falls into one of the established exceptions, and if not, then secondly whether it results in such officious intermeddling of litigation or trafficking of litigation that oppresses Yick Shing or endangers the integrity of the judicial process” [146] see Raafat Imam at p 177 [147] [2017] NZSC 151 (16 March 2017) [148] 2015 ONSC 345 (8 June 2015) [149] this case appeared to fall within Category A, so maintenance and champerty ought not to be raised a defence to the underlying claim [150] Mr Smith SC suggested the only case that came to light in which the funder was a party to an application for a pre-clearance declaration that embraced a declaration of non-criminality was the Cayman Islands case of A Company, but he suggested it was not a sound precedent or guide, and in any event was not relevant as the “access to justice” component was entirely absent (see discussion in paras 240-246 below) [151] [2009] NZCA 610 [152] funding arrangements have been approved by Anderson, Glazebrook and Heath JJ in Re Nautilus Development Ltd [2000] 2 NZLR 505 (HC), Re Gellert Development Ltd (In liq) (2002) 9 NZCLC 262, 714 (HC), and Auckland City Council as Assignee of Body Corporate 16113 v Auckland City Council [2008] 1 NZLR 838 (HC) respectively (but it was unclear from the judgment in Saunders & ors or from the submissions by Mr Scott SC and/or Mr Smith SC whether these cases are related to litigation funding in insolvency cases) [153] [2013] NZSC/89 (20 September 2013) [154] which provides inter alia that where a person has contravened any of the relevant provisions of section 291(5) of the SFO, the CFI on application by the SFC may make 1 or more of the orders specified in section 213(2) of the SFO which includes the making of a declaration [155] [2012] 1 HKC 517, 526 [156] (1978) 142 CLR 1 [157] see also Wing Joo Long Ginseng Hong (Singapore) Co Pte Ltd at para 181 [158] I have omitted from the Schedule the Amici’s observations on certain case law in response to Mr Scott SC’s written submissions [159] ie once maintenance and champerty have been abolished as crimes/torts, they cannot be used to found a challenge to proceedings which are being maintained or champertous, and the only relevance is in relation to a dispute between the fundee and the funder over the enforceability of the LFA [160] this issue involved 3 separate elements: (a) what was the public policy regarding the financial support of a litigant by a stranger to the litigation, (b) whether an agreement in terms of which the funder undertook to contribute funds to the plaintiff in return for a share of the proceeds of the action was contrary to public policy and therefore void, and (c) whether that fact constituted a defence to the plaintiff’s claim against the former auditors (page 152) [161] [2017] IESC 27 (21 May 2017) [162] see para 54(iii) per Denham CJ [163] see para 51(iii) per Denham CJ [164] see para 51(i) per Denham CJ [165] see Thelma International Fund plc v HSBC Institutional Trust Services (Ireland) Limited [2011] 3 IR 654, 661-662 [166] see paras 14(x), 15(xv) and 17(vii) per Denham CJ [167] see para 52 per Denham CJ [168] see paragraph 54(v) per Denham CJ [169] such as difficulties of funding long and complex cases [170] [2018] IESC 44 (31 July 2018) [171] [2014] SC (Bda) (21 February 2014) [172] eg the applicability of Swiss or Bermuda law, the nature of the underlying contract, the trustee’s right to terminate the contract, etc [173] see A Company at p 729 [174] Civil Appeal No 134/2003 (16 July 2006) [175] ie the existence of the original loan that gave the appellant a pre-existing interest in the litigation, the lack of any coercive measures on the appellant’s part, the increased element of risk to the appellant, the absence of any evidence that the respondent could obtain better terms elsewhere, and the lack of disproportionality in the terms [176] Civil Appeal No 276/2012 (16 July 2018) [177] 2002 CILR 161 [178] Segal J said that “[on] any subsequent application it is likely to be appropriate to notify the Attorney General so that he has the opportunity to intervene if he considers that to be appropriate” (pp 735-736) [179] DHCJ Fee at p 192 in Raafat Imam explained that “...... the purpose of the access to justice exception is to ensure that a litigant can gain access to justice, not to facilitate access to his ideal or preferred legal representation” [180] “Hong Kong residents shall have the right to confidential legal advice, access to the courts, choice of lawyers for timely protection of their lawful rights and interests or for representation in the courts, and to judicial remedies” [181] “All persons shall be equal before the courts and tribunals. In the determination of any criminal charge against him, or of his rights and obligations in a suit at law, everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law. The press and the public may be excluded from all or part of a trial for reasons of morals, public order (ordre public) or national security in a democratic society, or when the interest of the private lives of the parties so requires, or to the extent strictly necessary in the opinion of the court in special circumstances where publicity would prejudice the interests of justice; but any judgment rendered in a criminal case or in a suit at law shall be made public except where the interest of juvenile persons otherwise requires or the proceedings concern matrimonial disputes or the guardianship of children” [182] see Winnie Lo at p 31 [183] [2004] EWCA Civ 292 (15 March 2004) [184] but also see historical developments in this area of the law in New Zealand (see paras 332-335 below) and Singapore (see paras 336-342 below) [185] see Unruh at p 64 [186] see Winnie Lo at p 31 [187] see Unruh at p 69 [188] ie proceedings that deceive the court, that use the court’s process in an unfair/dishonest way or for ulterior/improper purpose, that are without merit/foundation or serve no useful purpose, and/or that are vexatious and frivolous (see Jeffrey & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43) [189] [2005] 1 WLR 3055 [190] see equivalent in Order 62 rule 3(2)-(2A) of the RHC [191] [2017] 1 WLR 2221 [192] see Chapelgate Credit Opportunity Master Limited v James Money & ors [2019] EWHC 997 (Ch) (25 February 2020) para 25 – judgment handed down after the Hearing [193] see Jackson, Review of Civil Litigation Costs: Final Report Chapter 11 paras 4.5-4.7 at p 123 [194] see Jackson, Review of Civil Litigation Costs: Final Report Chapter 11 para 4.7 at p 123 [195] [2017] EWHC 3195 (QB) (8 December 2017) [196] [2016] EWCA Civ 23 and [2016] 4 WLR 17 (see Chapelgate Credit Opportunity Master Fund Limited at para 30) [197] [2019] EWHC 2995 (Ch) (see Chapelgate Credit Opportunity Master Fund Limited at para 29) [198] [2019] EWHC 997 (Ch) (25 February 2020) [199] [2015] NZHC 548 (24 March 2015) para 15 – not cited by senior counsel [200] Tomlinson LJ at page 2242 said “...... I particularly agree and wish to associate myself with the judge’s general approach, which is to emphasise the derivative nature of a commercial funder’s involvement should ordinarily lead to his being assessed against those whom he chose to fund. That is not to say that there is an irrebuttable presumption that that will be the outcome, but rather that that is the outcome which will ordinarily, in the nature of things, be just and equitable” [201] [2017] 1 WLR 4635 [202] see In re RBS Rights Issue Litigation at pp 4640-4641 [203] “(1) whether it is sufficiently clear that the non-party [ie the funder] is to be treated as having in effect become in all but name a real party motivated to participate by its commercial interest in the litigation; (2) whether there is a real risk of non-payment such that security against the contingent liability should be granted; (3) whether there is a sufficient link between the funding and the costs for which recovery is sought to make it just for an order to be made; (4) whether a risk of liability for costs has sufficiently been brought home to the non-party, either by express warning, or by reference to what a person in its position should be taken to appreciate as to the inherent risks; (5) whether there are factors, including for example, delay in the making of an application for security or likely adverse effects such as to tip the overall balance against making an order” (page 4642) [204] [2017] EWHC 2805 (Ch) (10 November 2017) [205] (1884) 27 Ch D 1 [206] ie privilege can apply to documents which provide a clue or which betray the trend of the advice given by a lawyer, or to put it in another way, where the substance of the advice can be inferred from the contents of the document [207] see also A Company at pp 732-733 [208] [1876] 2 App Cas 186, 210 [209] para 54 (see para 254 above) [210] (1946) 72 CLR 1, 28 [211] see Price Waterhouse Coopers Inc & ors at pp 161-162 (see para 315 above) [212] eg some jurisdictions have liberalised the laws against maintenance and champerty and allowed conditional/contingency fees to facilitate access to justice, but others rely on legal aid as the mainstay effort to facilitate access to justice and leave any relaxation of the laws against maintenance and champerty to legislative deliberation and regulation (see also para 268 above) [213] [2008] EWHC 526 at para 103 (omitting the authorities quoted) (see Giles (Court of Appeal at p 333 – para 315 above) [214] see Winnie Lo at p 31 [215] the Amici have helpfully surveyed significant developments in the laws of maintenance and champerty, conditional or contingency fees, and third party funding in different common law jurisdictions, which are now set out in the Schedule [216] notwithstanding Ribiero PJ’s observation in Unruh at pp 62-63 that “...... the rules relating to maintenance and champerty survive in England for the purpose of deciding whether contracts are invalidated on such grounds. This gives continued relevance to post-1967 developments in English case-law. Although in our jurisdiction, where no equivalent to the 1967 Act exists, such authorities bear not only on the enforceability of contracts, but also on potential tortious and criminal liability. The same apply to Australian jurisprudence in the field” [217] eg frivolous and vexatious litigation, and litigation for an ulterior purpose or improper motive has been held to be abuse of the court’s process [218] Ribeiro PJ in Unruh said that “[in] England and Wales, conditional (but not contingency) legal fee agreements have received statutory support in certain types of cases. This has entailed the development of [ATE] insurance against adverse costs orders” (at pp 67-68) [219] but it is noted that even in England and Wales where many third party funders who provide funding have a place of business, a significant proportion have not joined the ALF (see footnote 241 below) [220] [2017] 2 HKLRD 60 [221] that the public interest requires the court to resolve the particular issue in the context of the particular piece of litigation in question [222] which reports clearly influenced the decision of the majority in R (Comptom) v Wiltshire PCT [2009] 1 WLR 1436 that held there was no additional requirement of exceptionality apart from the criteria set out in paragraph 74 of R (Corner House Research) v Secretary of State for Trade and Industry) [2005] 1 WLR 2600 (ie the criteria that (a) the issues raised were of general public importance, and (b) public interest required that those issues should be resolved)(pp 93-94) [223] the New Zealand Court of Appeal did not comment on the supervisory role of the courts under High Court Rule 4.24 or on the approach taken in the Saunders litigation [224] there may be exceptional cases where a court has to act on its own motion to prevent an abuse of its process [225] security for costs against the funder as a procedural measure/safeguard is probably not available in Hong Kong (see para 305 above) [226] eg “(a) proceedings which involve a deception on the court, or those which are fictitious or constitute a mere sham; (b) proceedings where the process of the court is not being fairly or honestly used but is employed for some ulterior or improper purpose or in an improper way; (c) proceedings which are manifestly groundless or without foundation or which serve no useful purpose; and (d) multiple or successive proceedings which cause or likely to cause improper vexation or oppression” (para 31), and where a LFA effectively “assigns a cause of action to a third party funder in circumstances where that is not permissible, then this would be an abuse of process” (para 57) [227] the New Zealand Supreme Court noted (a) the proceedings were already funded and on foot when the assignment was made, and (b) all realisable assets had been realised before the assignment, and held it was arguable that the assignment constituted an assignment of a bare cause of action but for the late undertakings given to the court [228] [2013] SGHC 135 [229] [2015] SGHC 156 (9 June 2015) [230] [2011] BVIHC (COM) 2011/13 and 14 (14 June 2011) [231] [1995] 2 HKLR 475, 487 [232] except for the new provisions in relation to mediation funding [233] a Code of Practice may be issued by an “authorized body” appointed by the SJ to set out the practice and standards which third party funders are generally expected to comply with in carrying on activities in relation to third party funding in arbitrations (section 98P), and whilst non-compliance with such Code of Practice does not render any person liable to judicial/other proceedings, it is admissible as evidence in other proceedings [234] the key amendments provide that (a) the new law allows a third party funder (including those who do not have an interest in the arbitration) to provide funding for arbitrations (which includes arbitration proceedings, related court proceedings, proceedings before an emergency arbitrator and mediation proceedings – section 98F) to the fundee under a funding agreement in return for financial benefit upon success in the arbitration, (b) arbitration funding can be in the form of money or other financial assistance as to costs in the arbitration, (c) the funding agreement must be in writing and includes only those made on/after the new legislation comes into effect, (d) there is no prohibition against lawyers / legal firms funding arbitrations, but they cannot do so if they act for a party in the arbitration (section 98O), (e) maintenance and champerty as crimes and torts do not apply to third party funding in arbitrations (sections 98E, 98K and 98L), (f) the new legislation also applies to arbitrations outside Hong Kong in relation to costs/disbursements of services provided in Hong Kong in relation to such international arbitrations (section 98N), and (g) the funded party must give written notice to the arbitrator and other party(ies) to the arbitration of the fact there is a funding agreement, the name of the funder and the termination of the funding agreement [235] (2008) 11 HKCFAR 370, 377 [236] see paragraph 76(4)-(5) of Mr Scott SC’s written submissions [237] the key features, risks and terms that the funding agreement must set out (section 98Q(1)(b) of the AO) include: “(i) the degree of control that third party funders will have in relation to an arbitration;(ii) whether, and to what extent, third party funders (or persons associated with the third party funders) will be liable to funded parties for adverse costs, insurance premiums, security for costs and other financial liabilities; and (iii) when, and on what basis, parties to funding agreements may terminate the funding agreements or third party funders may withhold arbitration funding;” [238] clause 2.3(4) of the HKCoP elaborated on section 98Q(1)(d) of the AO by requiring that the third party funder must “set out the name and contact details of the advisory body responsible for monitoring and reviewing the operation of third party funding under Part 10A of Cap 609” [239] clause 2.5(3) of the HKCoP elaborated on section 98Q(1)(e) by requiring that the third party funder must “provide the advisory body with either – (a) a copy of the audit opinion on the third party funder’s most recent annual financial statements (but not the underlying financial statements) within 1 month of receipt of the opinion and in any case within 6 months of the end of each fiscal year; or (b) reasonable evidence from a qualified third party (preferably from an auditor, but alternatively from a third party administrator or bank) that the third party funder satisfies the minimum capital requirement set out in subparagraph (2) ......” [240] eg (a) the purpose of section 98Q(1)(d) of the AO as elaborated by clause 2.3(4) of the HKCoP (see para 364 and footnote 238 above) is to enable the funded party to report to or to seek help from the advisory body should he have any complaint against the funder in the implementation of the terms of the funding agreement, and section 98Q(1)(i)-(j) (see para 364 above) shows that the advisory body is the authority responsible for monitoring and reviewing the operation of third party funding in arbitration, and the authority to whom the third party funders in arbitration are accountable [241] this has been deemed a suitable approach because concerns have been expressed over (a) the possibility of a statutory regime in light of the early stage of development of third party funding for the arbitration sector in Hong Kong as well as the likely time required for a statutory body to be set up (clause 5.18), and (b) the possibility of a self-regulatory model in light of the fact that most third party funders are based outside Hong Kong, and even in England and Wales where many third party funders who provide funding have a place of business, a significant proportion have not joined the ALF [242] Ribeiro PJ at p 75 of Unruh said “it [is] particularly inappropriate for Hong Kong to seek to impose its current public policy against maintenance and champerty on mature commercial parties (who are likely to include foreigners) who have chosen to arbitrate in a jurisdiction which does not recognize those concepts and who may accordingly have made arrangements in Hong Kong to finance the arbitral (or judicial) proceedings without being aware of any constraints” [243] see also the observations by Lord Steyn in Giles (Court of Appeal) in para 269 above [244] this much was evident from the then SJ’s speech on 11 January 2017 in moving the 2nd reading of the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 and in subsequent discussions by the Bills Committee (see para 371 below) [245] after all, the regulatory framework for third party arbitration funding includes the appointment of statutory “advisory body” and “authorized body” (section 98X of the AO), a HKCoP that set out wide-ranging aspects of practices, standards and requirements for funders (sections 98P and 98O of the AO), and exclusion of lawyers acting for the parties in the arbitration from the third party funding regime (section 98O of the AO) [246] Mr Scott SC submitted that the courts can also grant security for costs against non-party third party funders, but I find it doubtful given the difference between the procedural framework in the CPR and RHC (see para 305 above) [247] eg (a) to ensure and entrust “any promotional materials in connection with third party funding of arbitration is clear and not misleading” (section 98Q(1)(a) of the AO), (b) to ensure “third party funders have a sufficient minimum of capital” (section 98Q(1)(e) of the AO) or for that purpose to receive third party funders’ financial statements etc (clause 2.5(3) of the HKCoP), (c) to be the point of contact to receive any complaint by the fundees against third party funders (section 98Q(1)(d) of the AO), and (d) to receive annual returns by third party funders on “any complaints against them by funded parties received during the reporting periods, and any findings by a court or arbitral tribunal of their failure to comply with the code of practice” (section 98Q(1)(i) of the AO) [248] see also the arrangements put in place to supervise third party funding of litigation in England and Wales, the approach adopted by the Irish Supreme Court in Persona Digital Telephony Ltd & anor and SPV Osus Limited, the observations by the Singapore Court of Three Judges in Law Society of Singapore, and the observations by the New Zealand Supreme Court in Warehouse & anor and PricewaterhouseCoopers (see paras 358-359 above) [249] the SCG 2nd Aff stated that “[the] Husband seeks the Court’s approval of this funding arrangement as [the Funder] (and the third party funding industry as a whole) have a ‘common interest’ in the outcome of this application, and, more particularly, the precise scope of the ‘access to justice’ exception outlined in the Unruh case” (my emphasis) [250] I refer to footnote 241 above which noted that most third party funders are based outside Hong Kong, and even in England and Wales where many third party funders who provide funding have a place of business, a significant proportion has not joined the ALF (and consequently are not subject to the UKCoC) [251] Mr Smith SC submitted rather it is for the applicant to seek his own legal advice and decide whether to commit to the third party funding agreement/arrangements (see paragraph 135 above) [252] see also Berman at p 828 in which Harris J said “[the] importance of access to justice ...... is to be balanced against the policy reasons that require the control of such actions” [253] Ribeiro PJ said “[the] traditional public policies against intermeddling in litigation must be weighed against such competing values and if the balance is in favour of the latter, the conduct complained of should not be regarded as contrary to public policy” (see para 56(c) above) [254] the Wife and the Brother disputed such assertion and claimed the asset was the Brother’s and not the Wife’s [255] (2005) 8 HKCFAR 1 [256] (2013) 16 HKCFAR 735 [257] Bokhary PJ at pp 19-20 said a court “...... is not a place for inflicting vexation or wasting the resources available to the judiciary for serving those who seek justice at its hands. To protect others from vexation and its resources from wastage the judiciary can constitutionally curb the private litigation court access of persons who have a history of initiating such litigation vexatiously. There is inherent jurisdiction unsuperseded by statute to do that by way of extended Grepe v Loan orders operating as explained by the Chief Justice and Mr Justice Ribeiro PJ”, and Ribeiro PJ at pages 25-26 said “[such] abusive activities ...... also made grossly disproportionate demands on the judicial system for spurious purposes. Such an unproductive diversion of limited judicial resources results in what may be damaging delays to bona fide litigants with serious actions to try ......” [258] (1985) 7 EHRR 528 [259] see article 14(1) of the International Covenant on Civil and Political Rights [260] see the HKLRC’s Consultation Paper on Third Party Funding for Arbitration (October 2015) para 4.80 [261] Review of Civil Litigation Costs: Final Report by Jackson LJ dated December 2009 [262] it appears such contention is drawn from the article by Capper and Glennon, Litigation funding for “big money” divorces: an assessment of legal risk” (2007) 26 CJQ 447 [263] (2007) 26 CJQ 447, 449 [264] [2001] 1 WLR 605 (followed in G v G (Maintenance Pending Suit: Costs) [2003] 2 FLR 71) [265] [1997] 2 FLR 116, 118-119 [266] [2006] 1 FLR 1074 [267] see also TL v ML [2006] 1 FLR 1263 ie the applicant (a) had no assets, (b) could not raise a litigation loan, and (c) could not persuade her solicitors to enter into a Sears Tooth v Payne Hicks Beach charge [268] according to regulation 5(1) of the Legal Aid (Assessment of Resources and Contributions) Regulations Cap 91B, “in computing the financial resources, income, disposal income or disposable capital of the person concerned there shall be excluded the value of the subject matter of the dispute in respect of which application has been made” [269] see section 58(1)(b) of the Courts and Legal Services Act 1990 [270] [2019] 2 HKLRD 529 [271] [2014] 2 Costs LO 136 [272] 2015 NSSC 3 (6 January 2015) [273] ie the Funder will not grant him litigation funding if the 1st/2nd Declarations are not granted and the allegedly meritorious Husband’s Claims will be stifled [274] see Bourke & anor at p 493 (see footnote 107 above) and Rusbridger at p 368 which referred to the criterion of whether “there is a cogent public or individual interest which could be advanced by the grant of a declaration” which is not limited to life and death issues [275] Segal J said at pp 735-736 that “[on] any subsequent application it is likely to be appropriate to notify the Attorney General so that he has the opportunity to intervene if he considers that to be appropriate” [276] Segal J at p 715 in A Company acknowledged the artificiality of the procedural construct used by the plaintiff in that case (fundee) when it was in substance an ex parte application for a declaration (ie the defendant funder “has not taken part in the proceedings and is not adverse to the plaintiff nor does it contest the relief which the plaintiff seeks (indeed it must be taken to support the plaintiff’s application)”) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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