Introduction

In the case of Unruh v Seeberger (2007) 10 HKCFAR 31, the Court of Final Appeal considered the current law on maintenance and champerty, setting out four categories of considerations which inform an assessment of whether or not an arrangement is objectionable. However, on the issue as to how the commercial character of the funder would affect the assessment of whether or not a proposed funding agreement infringes the common law rules against maintenance and champerty, there has not been a direct authority in Hong Kong. The Court in the recent case of Re Company A, HCCW 384/2006 (8 October 2015), took a practical approach in determining the issue.

Background of Re Company A

The liquidators of seven companies applied to Court for leave to enter into a funding arrangement to the companies to pursue a claim, which would otherwise be abandoned. The court accepted the submissions by the liquidators that the companies’ debt was held by a number of bond holders and it was unrealistic to approach one or a group of them individually to fund the claim. The intended funder was a Cayman Islands incorporated closed end fund, whose only interest in the proposed proceedings would be that arising under the funding agreement. The funder was a “stranger” to the proposed litigation.

Findings of Court

In determining the case, Harris J referred to the rules set out in Unruh v Seeberger, and concluded that the funding litigation, which can be loosely described as commercialising the litigation process, for the purposes of making a profit rather than enforcing a right, is objectionable. Funding litigation “ought to be carefully watched” as the arrangement may involve “abetting and encouraging unrighteous suits”, which is contrary to public policy.

Taking into account the rules, Harris J considered that the funder in the present case was purely an investment, which indicated that the funding litigation would be likely for the purposes of making a profit. He was concerned that this kind of arrangement tended to commoditise litigation and encourage it being viewed as a commercial venture rather than the enforcement of legal rights. The commercialisation in turn may threaten the maintenance of proper standards of conduct. Notwithstanding the above, Harris J noted that in determining whether a funding arrangement infringes the common law, a practical approach should be taken by weighting all the considerations set out in Unruh v Seeberger and no one consideration is necessarily determinative. The Court should assess whether, in an individual case, the risks of allowing a party with no interest in the dispute financing litigation are substantially controlled and there are countervailing public policy considerations which justify permitting the arrangement.

In the present case, as the Court was satisfied that (a) the liquidators would remain in control of the intended litigation, and (b) there was limited risk of the funder being able to pressure the liquidators or the lawyers to conduct the litigation improperly. The Court also recognised that it was desirable that the intended claim be pursued and there was no other practical way to fund the litigation. The Court therefore held that the proposed funding arrangement for the companies did not infringe upon the common law rules of maintenance and champerty.

 Conclusion

The Court granted the order sought by the liquidators in the present case and confirmed the rules set out in Unruh v Seeberger.

Nevertheless, Harris J left open the broader issue of whether an arrangement between a solvent company and a third party funder of a similar commercial character to that in Re Company A would infringe the common law rules against maintenance and champerty in Hong Kong.