The Role of the Doctrines of Champerty and Maintenance in Arbitration

1. INTRODUCTION

   This article considers whether a law introduced in the Middle Ages to curb the power of influential English barons has any application, half a millennium later, to a domestic or international arbitration held in a common law-based jurisdiction. The growth in third-party dispute-resolution funding in recent years and the increasing involvement of financial institutions such as hedge funds in providing external funding to arbitration and litigation, bring into sharp focus the question as to the extent to which such a modern approach is reconcilable with the centuries-old doctrines of champerty and maintenance.

   The mixed signals which have emerged from the courts of different common law jurisdictions over the years have only served to muddy the waters further in what is an already complex area. There is a dearth of authority but one of the more recent cases dealing with the tension between the strictures of the doctrines of champerty and maintenance on the one hand, and the modern approach toward the funding of commercial arbitrations on the other, is the decision of the Hong Kong High Court in Cannonway Consultants Ltd v Kenworth Engineering Ltd,1 where Kaplan J. found that the doctrine of champerty was of no application to the field of arbitration.

   However, the Singapore Court of Appeal took a different view in Otech Pakistan Pvt Ltd v Clough Engineering Ltd,2 relying on the reasoning that the public policy consideration of the need to protect "the purity of justice and the interests of vulnerable litigants" militated against allowing champertous agreements to prevail, even in an arbitrational context.

   The role of the doctrines of champerty and maintenance in a modern context received further treatment by the Hong Kong Court of Final Appeal where, in a masterful analysis of the case law in the area, Ribeiro P.J., delivering the judgment of a unanimous bench in Unruh v Seeberger,3 emphasised the need for the public policy considerations upon which the doctrines of champerty and maintenance were pivoted to be evaluated through modern lenses and to be balanced against other countervailing public policy considerations such as the promotion of access to justice and the recognition of legitimate common interests in litigation.

2. HISTORIC ORIGINS

   Any evaluation of the role which the doctrines of champerty and maintenance should play in a modern day context should begin with an examination of their historic origins, for it is only against such a background that they can be analysed properly for the purpose of ascertaining the extent to which they should have any role to play in regulating the conduct of arbitrations.

   The doctrine of maintenance is an invention which was directed against wanton and officious intermeddling with the disputes of others in which the intermeddler has no interest whatever, and where the assistance rendered is without justification or excuse.4 Champerty, on the other hand, is an aggravated form of maintenance, the distinguishing feature of which is the receipt of a share of the proceeds of the litigation by the intermeddler.5

   The doctrines of champerty and maintenance are common law creations of considerable antiquity which trace their origins back to a bygone era. They were created in response to the medieval practice of assigning doubtful or fraudulent claims to persons of wealth and influence in the expectation that such individuals would enjoy greater success in prosecuting those claims in court, in exchange for which they would receive an entitlement to the spoils of the litigation. In order to safeguard the administration of justice, instances of champerty and maintenance were made subject to criminal and tortious liability and a common law rule was developed, striking down champertous agreements and contracts of maintenance as being unenforceable on the grounds of public policy.

   Criminal and tortious liability for champerty and maintenance has since been abolished in England,6 although the doctrines continue to survive in respect of the litigation of contractual claims albeit that their strength has been eroded over the years.

3. DEFENDERS OF THE INTEGRITY OF JUSTICE: BEVAN ASHFORD AND OTECH

   When confronted with the question as to the extent to which the doctrine of champerty had any role to play in regulating the conduct of parties in arbitration, the Singapore Court of Appeal adopted a purist approach in Otech, holding obiter that the application of the doctrine of champerty should not be confined to litigation as the need to protect "the purity of justice and the interests of vulnerable litigants", which the doctrine of champerty is designed to protect, is as important in arbitral proceedings as in court proceedings.7

   The...