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Funding Declined! – Raafat Imam v Life (China) Co Ltd

by Stephen Chan and Sherry Ng

 

The age-old common law doctrines of maintenance and champerty prohibit third parties from funding an unconnected party’s litigation. Whilst some other common law jurisdictions, such as Australia and Singapore, have abolished the torts and crimes of maintenance and champerty, developments in this area of law have been slow in Hong Kong.

In Unruh v Seeberger [2007] 2 HKC 609, the Court of Final Appeal developed exceptions to the common law doctrines, allowing third party funding in litigation in three narrow areas.  In the more recent case of Raafat Imam v Life (China) Co Ltd [2018] HKCFI 1852, the Court affirmed the narrow exceptions but refused to approve a proposed commercial litigation funding agreement.

 

Background

The Plaintiff brought an action against the Defendants for breach of a consultancy agreement. The Plaintiff claimed that he did not have the financial means to pursue the action himself without the support of a third party litigation funder. He then applied to the Court for a declaration that a proposed commercial litigation funding agreement to be entered into between the Plaintiff and a commercial third-party funder (the “Funding Agreement”) did not offend the law prohibiting maintenance and champerty and that the Funding Agreement be approved by the Court.

The issues before the Court were:

  1. Whether the Court should exercise its discretion to grant the declaration sought?
  2. Whether the Funding Agreement per se fell foul of the common law prohibitions of maintenance and champerty?
  3. Whether the Funding Agreement fell within the access to justice exception?

 

Decision

The Court found that the declaration sought by the Plaintiff was essentially a declaration of non-criminality and recognised that a civil court would be slow to grant a declaration relating to the criminal consequences of conduct. The fact that there was no criminal prosecution against the Plaintiff or the funders at the time of the application was of no significance. As long as there was a possibility of prosecution, a civil court should not grant a declaration of innocence with respect to the subject matter of the potential criminal proceedings unless there are exceptional circumstances. The two established exceptions are where the integrity of the relevant criminal proceedings is questionable and where human life is at stake. The Court went on to find that the Plaintiff’s case did not fall under either of the exceptions.

The Court also found that the Plaintiff had failed to join a proper contradictor in the proceeding, i.e. a party who has an interest in opposing the declaration sought by the Plaintiff. The real dispute in the Plaintiff’s application was therefore not between the Plaintiff and the Defendants but between the Plaintiff and the Director of Public Prosecutions or the Secretary for Justice.

Further, though the Plaintiff attempted to support their case by referring the Court to third party funding cases in insolvency contexts, the Court found that such cases did not assist the Plaintiff’s application. In fact, the Court of Final Appeal in Unruh expressly treated insolvency proceedings as a special category which was excluded from the ambit of the prohibition against maintenance and champerty.

In light of the above, the Court refused to grant the declaration sought or to approve the Funding Agreement and considered it unnecessary to rule on issues 2 and 3. Nevertheless, the Court made the following useful observations:

 

  1. Having considered the terms of the Funding Agreement, the Court expressed its concerns that there was a real risk that the Plaintiff may easily become a figurehead in the conduct of the litigation and that the litigation may be controlled by some unknown third party.
  2. The Court recognised 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 legal representation and in any event, the Plaintiff’s alleged impecuniosity appeared artificial.

 

Conclusion

Though Raafat confirms that Hong Kong courts adopt a cautious approach in permitting third party funding in litigation cases, the Court accepted that the totality of facts must be considered when assessing whether a litigation funding agreement poses as a genuine risk to the integrity of the Court’s processes and that countervailing public policies must be taken into account.

Whether the Plaintiff may succeed on appeal (if any) remains to be seen but a successful appeal would open up the possibility for wider litigation funding in Hong Kong.

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