Third Party Funding In Hong Kong

Third party funding has become increasingly common in numerous common law jurisdictions over the last decade. Hong Kong is at a relatively early stage of development in this regard, likely due to the fact that third party funding of litigation with a view to profit may potentially constitute both tort and the criminal offences of champerty and maintenance in Hong Kong. As regards third party funding of arbitrations in Hong Kong, the position is not clear although that may be about to change.

This Article considers the restrictions on third party funding in Hong Kong, the current position in relation to third party funding of litigation in Hong Kong, as well as the much anticipated Consultation Paper recently released by the Law Reform Commission of Hong Kong recommending that third party funding for arbitrations should be permitted in Hong Kong.

The restrictions on third party funding in Hong Kong

Third party funding is historically prohibited under the traditional common law doctrines of maintenance and champerty, which were developed in mediaeval England to prevent "oppression of poor men by rich men, through the means of legal proceedings"1. "Maintenance" is defined as "an officious intermeddling in a suit which in no way belongs to one by maintaining or assisting either party with money or otherwise to prosecute or defend it."2 "Champerty" is defined as a form of maintenance, and occurs when the person receives consideration for the maintenance out of the proceeds of successful litigation; in other words, taking a share of any damages award.

Traditionally the doctrine involves value judgements as to whether: (i) third party funding "may encourage the perversion of justice and endanger the integrity of judicial processes"3 where a "champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses"4, and (ii) third party funding may involve "a stranger to the litigation in "trafficking" or "gambling" in the outcome of the litigation"5, which should be made unlawful. As a result, exceptions exist including an exception for those who have a legitimate common interest in the outcome of the litigation.

In March 2014, the Hong Kong Government considered the issue of whether to abolish the offences of maintenance and champerty. It was decided that the offences should be preserved for the time being, as the abolition would raise legal and public concerns including those of recovery agents and litigation funding companies.6

Despite the abolition of prohibition of maintenance and champerty in some other common law jurisdictions7, the crimes and torts of maintenance and champerty, and the...

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