RE A

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)

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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 1^st 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 1^st 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:

(a)	a declaration be made that the proposed third party funding of the Husband’s case in the Matrimonial Proceedings at the CFI (upon transfer from the FC)[2] shall not breach the laws of champerty and maintenance as the funding arrangements fell within the “access to justice” exception;
(b)	an order that the affirmation of the Husband’s solicitor SCG in support of the OS (“SCG 1st Aff”) be kept on the court file in a sealed envelope and not be released to any person/organisation other than the Husband due to the privileged nature of the documents contained therein;
(c)	all necessary further consequential orders and directions as might be requisite;
(d)	further or other relief.

9.  On the same day, the Husband via Withers issued an ex parte summons for the reliefs in (b)-(c) above. The SCG 1^st 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 1^st 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 2^nd 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”):

(a)	whether the orders sought by the Husband were ones which the court had power to make (“Jurisdiction Issue”);
(b)	whether there was any point of public policy which should prevent the court from making such orders, or whether any caveats to or drafting of the proposed orders might meet any public policy concern (“Public Policy Issue”);
(c)	whether the terms of the proposed funding agreement in this case were suitable for court sanction, either because the proposed funding agreement did not offend against the rules as to champerty or maintenance, or because it came within the “access to justice” exception (“Access to Justice Exception Issue”);
(d)	“whether the proposed funding of this application for a declaration should be permitted under the ‘common interest’ exception outlined in Seeberger v Unruh or otherwise AND whether, for the same reasons, the funding of any appeal of the judgment of this application should be permitted” (“Common Interest Exception Issue”);
(e)	“[whether] it is appropriate for this Court to issue any what guidance the Court might give for the conduct (both procedural and substantive) of any future similar applications in the future and, if so, what guidance might be given” (“Court Guidance Issue”).

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 (“1^st and 2^nd 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 2^nd 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 2^nd 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):

              

(a)	a declaration be made that the proposed third party funding of the Husband’s case in the Matrimonial Proceedings in the CFI (upon transfer from the FC)[6] “, the [Husband’s] ancillary relief claim in [the FC][7] and all related proceedings” shall not breach the laws of champerty and maintenance as the funding arrangements fell into the “excluded category of ‘access to justice’” (“1st Declaration”);
(b)	“[a] declaration be made that the proposed third party funding of the [Husband’s] case in these stand-alone proceedings (HCMP2728/ 2017), including any hearings related thereto, and Counsel’s fees in relation to the ex-parte application made to the [FC] on 15 September 2017[8] as well as Counsel’s fees in relation to this stand-alone High Court Application, shall not breach the laws of champerty and maintenance as the funding arrangement falls into the excluded category of ‘access to justice’ exception” (“2nd Declaration”);
(c)	“[no] order is made as to whether the funding of the claim referred to in [(a) and (b) above] constitutes a criminal offence”;
(d)	an order that the SCG 2nd Aff be kept on the court file in a sealed envelope and not be released to any person or organisation other than the Husband due to the privileged nature of the documents contained therein;
(e)	all necessary further consequential orders and directions as might be requisite;
(f)	further or other relief.

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 1^st/2^nd 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 1^st Day, Mr Scott SC started his oral submissions on the premise that the 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd Declarations.

28.  Mr Scott SC’s revised submissions were quite different from the Husband’s original stance that the 1^st/2^nd 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 1^st Day was perhaps prescient in view of the Husband’s presently altered position. So on the 2^nd 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 1^st 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 1^st/2^nd Declarations] save that no order is made as to whether the funding of the claim referred to in paragraphs 1-2 above [ie the 1^st/2^nd 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 1^st/2^nd Declarations

29.  As pointed out by the Amici, the 1^st/2^nd 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:

“(1) a declaration that the proposed [LFA] for the plaintiff to carry on the Action ...... (Funding Agreement) does not offend the law prohibiting maintenance and champerty and/or falls within the recognised exception relating to access to justice; and

(2) the Funding Agreement be approved.”

30.  The declaration sought in Raafat Imam essentially concerned the “proposed [LFA]”, which was necessarily narrower in scope/ambit than the 1^st/2^nd 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 1^st/2^nd 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):

(a)	the possibility of future prosecution which gave rise to a present need to avoid any prejudice to a fair trial by disclosure of confidential/privileged matters;
(b)	the materials analysed in Appendix A (and no doubt in relevant parts of Mr Scott SC’s written submissions) involved confidential matters disclosed by the Husband[12] and/or related to the underlying Matrimonial Proceedings / S17 Application;
(c)	as at the Hearing this court had yet to decide whether the opposing parties in the underlying S17 Application / Matrimonial Proceedings (ie the Wife and the Brother) would have locus to challenge the legality of the  D-LFA and/or proposed funding arrangements put forward by the Husband,[13] and the C-Memo might contain privileged materials beyond what the Husband would have to disclose even on occasion of such a challenge (if permissible in law).

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 2^nd 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:

“23. ...... It is of some importance that we restate the role and function of the amicus which is to assist the court by presenting a neutral appraisal of the issues which require to be decided and by raising for consideration matters which might not otherwise come to the court’s attention. The amicus does not represent the interests of any defender and does not represent the view of the appellant. The amicus does not represent either the public interest or public policy on any aspect of these cases. However, the amicus curiae has very properly alerted the court to issues in these appeals where there may be a public interest aspect. ......” (my emphasis)

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:

“ Osborn’s Concise Law Dictionary, 1927 ed., p. 19, defines amicus curiae as: ‘A friend of the Court. A person who calls the attention of the Court to some point of law or fact which would appear to have been overlooked.’

          The definitions in Corpus Juris are generally to the same effect. Amicus curiae is defined as a bystander, usually a lawyer, who interposes and volunteers information upon some matter of law in regard to which the Judge is doubtful or mistaken, or upon a matter of which the Court may take judicial cognizance. He is one whom as a standerby, where a Judge is doubtful or mistaken in a matter of law, may inform the Court. In its ordinary use the term implies the friendly intervention of counsel to remind the Court of some matter of law which has escaped its notice and in regard to which it is in danger of going wrong ......”

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:

Amici and SJ	Husband
1. Jurisdiction and Public Policy Issues
(a) Amici – the 1st/2nd Declarations involved a declaration of non-criminality, but the court has jurisdiction/power to grant such declaration as a matter of discretion; SJ – the 1st/2nd Declarations involved a declaration of non- criminality;	(a) Husband – agreed; Husband – agreed;
(b) Amici – save in “exceptional circumstances”, it would not be appropriate for the court to grant the 1st/2nd Declarations as it might prejudice any subsequent prosecutorial decision or trial; SJ – declaratory relief is not available for the purpose of obtaining a declaration of non-criminality save in “exceptional circumstances”, and in any event such declaration will not bind the criminal court or operate as a bar to criminal prosecution;	(b) Husband – agreed; Husband – not disputed;
(c) Amici – “exceptional circumstances” could arise if failure to grant the 1st/2nd Declarations would necessarily result in injustice being perpetrated; SJ – “exceptional circumstances” did not apply here;	(c) Husband – agreed, but this was not the only case of “exceptional circumstances”; Husband – disagreed;
(d) Amici – where the subject matter of such declaration is fact-sensitive, “exceptional circumstances” are unlikely to be made out;	(d) Husband – agreed, but the 1st/2nd  Declarations were not fact- sensitive;
(e) SJ – the courts do not express opinion or give advice on the lawfulness of proposed conduct;	(e) Husband – not agreed;
(f) SJ – (i) the question whether the D-LFA and proposed funding arrangements would contravene the law against champerty was of no concern to the other parties in the S17 Application / Matrimonial Proceedings, and (ii) the enforceability of the D-LFA was simply a matter between the Husband and the Funder who was not a party to the Amended OS / Summons;	(f) Husband – agreed with (i);
2. Access to Justice Exception Issue
(a) Amici – the subject matter of the 1st/2nd Declarations (ie the proposed third party funding arrangements came within the “access to justice” exception so there would be no breach of the laws against maintenance and champerty) was wider than the question formulated in the Access to Justice Exception Issue (ie whether the terms of the D-LFA were suitable for sanction);	(a) Husband – not agreed (but see my views and conclusion in Part III(c) above);
(b) Amici – whether the “access to justice” exception would apply could only be determined after the court (i) considered “the totality of the facts” of this case and (ii) conducted a balancing exercise between competing public policies (ie promoting access to justice versus avoiding the mischiefs the laws against maintenance and champerty seek to prevent);	(b) Husband – agreed with (i) but this did not mean the court had to decide all factual disputes, and the relevant facts here were simple (ie the Husband had no source of funding and could not fund the underlying litigation), and also agreed with (ii) but contended the court had power to engage in the balancing exercise between competing public policies;
(c) Amici – “the totality of the facts” that had to be investigated went beyond the terms of the D-LFA;	(c) Husband – agreed;
(d) Amici – in the balancing exercise, to prevent stifling a meritorious claim due to lack of means is a powerful argument for the exception;	(d) Husband – agreed;
(e) Amici – there is clear public interest in preventing development of an unlicensed and unregulated market in litigation, and in protecting proper administration of justice and vulnerable litigants; SJ – (i) public policy in Hong Kong is to continue to uphold the common law principles of maintenance and champerty, and (ii) there is public interest in preventing development of an unlicensed and unregulated market in litigation for fear of abuses by the unscrupulous and in avoiding undesirable development whereby litigation becomes commercialised and commoditised, so (iii) a cautious approach should be taken and LFAs should be regulated by the legislature backed by comprehensive institutional safeguards against abuses;	(e) Husband – agreed, but questioned whether this would be a strong factor here; Husband – agreed with (i)-(ii), but disagreed with (iii);
(f) Amici – engagement of the right of access to justice per se would be insufficient to give rise to “exceptional circumstances” for granting the 1st/2nd Declarations;	(f) Husband – agreed;
(g) Amici – the subject matter of the 1st/2nd Declarations was fact-sensitive, which was considered to be an important factor against granting the 1st/2nd Declarations;	(g) Husband – only agreed that where the subject matter of the declaration is fact-sensitive it will be an important factor against granting such declaration, but disagreed the 1st/2nd Declarations were fact-sensitive;
3. Common Interest Exception Issue
Amici – could not see any pre-existing commercial interest on the part of the Funder to ground the “common interest” exception;	Husband – agreed, but did not seek to make out this exception;
4. Court Guidance Issue
Amici – this court’s rulings on the various issues would themselves give guidance, but where necessary, future applications of this kind should not be made on ex parte basis, and the applicant should join the SJ or at least give notice to the SJ to consider whether to intervene or take any action, but the parties to the underlying action should not have locus to challenge the LFA between the fundee and the funder;	Husband – agreed that (i) applications of this kind should be made in the absence of the opposing parties to the underlying action who had no locus to raise challenge, but should be made in the presence of someone who can make useful observations (eg an amicus curiae), (ii) the SJ should be invited to participate, and (iii) the court can give useful guidance for future applications of this kind;
5. Summary
SJ – the Husband’s application should be dismissed because (i) the 1st/2nd Declarations were simply not available or (ii) the court in granting such declarations would be extending the grounds on which declaratory relief is normally granted,[16] especially when this would be without justification and also undesirable on policy grounds as developments in this area of the law should be left to the legislature to devise a system of regulatory control.	Husband – not agreed.

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 1^st/2^nd 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 1^st/2^nd 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 2^nd 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]

(a)	legitimate “common interest” in the outcome of litigation including genuine commercial interest (“Common Interest Exception”) (pages 65-66);[28]
(b)	cases involving “access to justice” consideration (“Access to Justice Exception”) (pages 66-68);[29]
(c)	miscellaneous category of practices accepted as lawful even though they do not differ in substance from practices which have traditionally been condemned (“Miscellaneous Exceptions”, see paragraph 62(a)(i)-(iii) below) (page 68).[30]

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:

(a)	the traditional legal policies underlying maintenance and champerty continue to apply although they are substantially 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 litigatiousness, which means that whilst funding a poor person’s litigation may advance the course of justice, LPAs have to be carefully watched in view of inter alia the risk that such arrangement may, contrary to public policy, encourage unrighteous suits (pages 68-69);
(b)	the fact that an arrangement may be caught by the broad definitions of maintenance and champerty is not in itself enough to find liability, and the “totality of the facts” must be examined in asking whether they pose a genuine risk to the integrity of the court’s processes, ie “[it] is not enough simply to say that it is the type of agreement which “savours of” champerty” (page 69);[31]
(c)	countervailing public policies must be taken into account, ie the traditional public policies against intermeddling in litigation must be weighed against competing policies in favour of ensuring access to justice and of recognising, where appropriate, legitimate common interests of a social or commercial character in a piece of litigation, and if the balance is in favour of the latter, the conduct complained of should not be regarded as contrary to public policy (page 69);[32]
(d)	one should not confuse other related but separate policies[33] with those which properly underline the operation of maintenance and champerty, and whilst it may be right to strike down the arrangement in some cases for maintenance and champerty, doing so in others (and characterising the conduct as criminal) in reliance of the law of maintenance and champerty “may be to use too blunt an instrument” (eg it may leave the litigant with no means to pursue a good claim), in which case resort should more appropriately be had to other more suitable doctrines/remedies[34] (page 70).

(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:

(a)	where the fundee claimant is pursuing his own claim, ie the fundee claimant is “the original holder of the rights asserted” as explained in Seedlings Life Science Ventures, LLC v Pfizer Canada Inc,[39] in which case litigation funding under a champertous arrangement does not disqualify the fundee claimant from pursuing an action otherwise properly vested in him,[40] and also is not a defence to the underlying action or a ground for a stay of such proceedings,[41] and further by the Miscellaneous Exceptions the court may be asked by the following applicants to approve third party litigation funding: (i) trustees under Order 85 of the Rules of the High Court (“RHC”),[42] (ii) liquidators or trustees-in-bankruptcy under insolvency legislation[43] and/or (iii) representatives in class actions under relevant procedural rules (“Category A”);[44]
(b)	where the claimant is not “the original holder of the rights asserted” but is typically an assignee of a cause of action tainted or allegedly tainted by champerty, whereby the champertous assignment will provide a defence to the action (“Category B”);[45]
(c)	where a third party LFA is sought to be enforced directly or indirectly as part of the litigation (“Category C”).[46]

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:

“[48] The fact that a litigant has entered into an unlawful agreement with a third party to provide funds to finance his case is a matter extraneous to the dispute between the litigant and the other party and is therefore irrelevant to the issues arising in the dispute, whatever the cause of action. Accordingly, the illegality of the agreement between a plaintiff and his legal representatives cannot be a defence to the action ......”

Still further, in Seedlings Life Science Ventures, LLC, Madam Prothonotary Mireille Tahib of the Canadian Federal Court said as follows:

“[22] In the case before me, the action has been instituted and is proposed to be pursued by Seedlings itself, the original holder of the rights asserted. The manner in which Seedlings chooses to fund a litigation it has every right to bring is of no concern to the Court or to the Defendant ...... the mere existence of a champertous agreement or maintenance is not a defence to the action and does not disqualify the plaintiff from pursuing an action otherwise properly vested in it.

[23] The Defendant has no legitimate interest in enquiring into the reasonability, legality or validity of Seedlings’ financial arrangements, its counsel’s fee structure or the manner in which Seedlings chooses to allocate the risks and potential returns of the litigation, because they do not affect or determine the validity of the rights asserted by Seedlings in this action ......”

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 1^st/2^nd 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:

“3. ...... Furthermore, the defendants to the action which the plaintiffs intended to commence (to enforce the arbitration award and New York judgment) would not be bound by the order in these proceedings and would, to the extent that the issue of illegality on the grounds of maintenance and champerty subsequently arose in those proceedings, be able to make their own submissions and argue the point afresh (although no doubt my decision would be taken into account).

......

5. Whilst expressing some reluctance to grant the relief sought in these circumstances but recognizing that a real issue arises because of the risk of criminal liability and that an order of the court may be of some assistance to the plaintiffs in the event that the issue of criminal liability was subsequently raised, I was prepared to allow the application to proceed and ...... I make a declaration (in a modified form to that which the plaintiff sought).” (my emphasis)

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 1^st/2^nd 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]

(a)	Steyn LJ observed obiter that the defendant can raise champerty as a defence if the champertous agreement forms part of the plaintiff’s cause of action (eg where the plaintiff is a mere assignee of the claim sued on and the assignment is part of a champertous bargain with the assignor) (pages 336-337);
(b)	likewise, Ralph Gibson LJ observed obiter that if a plaintiff is obliged to rely on an unlawful agreement to found his claim, this will afford a defence for the defendant (page 340);
(c)	Sir Thomas Bingham MR explained that “[this] exception reflects the principle that the courts will not assist a plaintiff whose action is founded on an illegal contract” (pages 348-349).

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 1^st defendant, and as result entered into a contract with the 2^nd defendant for the supply, installation and maintenance of a computer system, which never worked and had to be scrapped. The plaintiffs sued the 1^st defendant who alleged breach of contract by the 2^nd defendant, so the plaintiff joined the 2^nd defendant in the action. Before the trial, the 1^st 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 2^nd defendant regarding payment of costs. The 2^nd defendant refused to forgo its costs against the plaintiffs, so the plaintiffs and the 1^st defendant agreed that the plaintiffs would accept the payment into court, and on the basis that the 1^st defendant would indemnify the plaintiffs in respect of any claim by the 2^nd defendant for costs, the plaintiffs would assign to the 1^st defendant all their rights of action against the 2^nd defendant. The 2^nd 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 1^st defendant had a genuine commercial interest in taking the assignment of the plaintiffs’ cause of action against the 2^nd defendant because the contracts by the plaintiffs with the 1^st defendant and with the 2^nd 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 1^st defendant would reduce the sum recoverable from the 2^nd defendant, hence the 1^st defendant had a genuine commercial interest in reducing the amount of their own loss. Further, the sum paid into court by the 1^st defendant which the plaintiffs sought to take out under the assignment agreement was in reality the consideration paid by the 1^st 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 2^nd defendant’s liability to the plaintiffs which correspondingly increased the 1^st 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 1^st/2^nd 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 1^st/2^nd 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:

(a)	Mr Scott SC’s written submissions lodged just prior to the Hearing contended that the 1st/2nd Declarations were mere civil matters and not declarations of non-criminality. But as seen in paragraphs 27-28 and 49(1)(a)-(c) above, Mr Scott SC at the Hearing revised the Husband’s stance to the effect that (i) the 1st/2nd Declarations did embrace a declaration of non-criminality which was said to be justified as there were “exceptional circumstances” (ie the Husband’s primary case), but (ii) if the court were not satisfied there were “exceptional circumstances”, any declaration of non- criminality inherent in the 1st/2nd Declarations should (and could) be hived off and removed (ie the Husband’s alternative case).
(b)	Mr Smith SC contended that (i) the terms of the 1st/2nd Declarations were clear invitations to the court to exonerate any relevant person from the reach of the laws of maintenance and champerty that are both criminal and tortious, so (ii) the 1st/2nd Declarations involved a declaration of non-criminality which was not applicable to the Husband’s situation, but (iii) even if the court were to grant the 1st/2nd Declarations, they would not bind any future prosecution by the SJ (see paragraph 49(1)(b) above), hence (iv) the court should not grant such declarations as they would be “meaningless” in light of (iii) above (and all the more so if any declaration of non-criminality was to be hived off or removed under the Husband’s alternative case);
(c)	Mr Wong SC submitted that in light of the wording of the 1st/2nd Declarations, the purpose for which they were sought, and the relevant authorities discussed below, the 1st/2nd Declarations did involve a declaration of non-criminality (see paragraph 49(1) above).

84.  Given the eventual consensus among senior counsel that the 1^st/2^nd 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 1^st/2^nd Declarations, it would be useful to explore the reasons why the 1^st/2^nd 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)):

(a)	I repeat the analysis in paragraphs 29-30 above which suggested the 1st/2nd Declarations in seeking pre-clearance sanction for the proposed third party “funding arrangement” between the Husband and the Funder were wider in scope than the declaration in Raafat Imam that only covered the terms of the LFA. But even on the narrower ambit of the declaration sought in Raafat Imam, DHCJ Fee found the plaintiff in that case was “asking for a declaration that a proposed act is lawful”, and the effect of such application “[was] to declare if the plaintiff’s and/or [funder’s] conduct in entering into the Funding Agreement is criminal or not” (page 167).
(b)	The common law in Hong Kong made maintenance and champerty crimes as well as torts, so in the absence of any qualification, the 1st/2nd Declarations in seeking pre-clearance approval of the proposed funding for inter alia the Husband’s pursuit of the underlying Husband’s Claims as not being in breach of the laws of champerty and maintenance necessarily embraced a declaration of non-criminality. The situation may be otherwise in jurisdictions where maintenance and champerty as crimes/torts have been abolished[71] and they remain relevant only as “a ground of public policy for invalidating tainted contracts”.
(c)	In A Company, the plaintiffs sought declaratory relief as follows (page 714): “2. The plaintiff intended to commence proceedings in Cayman (and apply for an ex parte freezing injunction) against parties who are subject to an arbitration award obtained by the plaintiff. The plaintiff intended to rely on the funding made available by the defendant in these proceedings. But the plaintiff is concerned that by doing so it risks committing the crime and tort of maintenance or champerty and has therefore commenced these proceedings for the purpose of obtaining a declaration from the court to the effect that the funding agreement is not unlawful and that entering into and commencement of proceedings with funding made available pursuant to the agreement will not be unlawful by reason of maintenance or champerty.”

(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:

“[18] To the extent the doctrine of champerty and maintenance remains relevant in Canadian common law, even as means of protecting the courts and vulnerable litigants against abuses, its purpose is not and was never intended to be achieved by conferring on the courts the discretion to inquire into and 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.

[19] The doctrine of maintenance and champerty does not seek to penalize or sanction the conduct of the rightful holder of litigious rights, but only the conduct of the maintainer. Even when it was a misdemeanor, maintenance was an offence of the maintainer, not of the person being maintained ...... Indeed, the inquiry as to whether an agreement constitutes maintenance or champerty focuses on and is determined by the motives of the maintainer, not of the person being maintained.

[20] The sanction for champerty or maintenance, the unenforceability of the agreement, therefore directly addresses and is sufficient to discourage the reprehensible motive and conduct, by depriving the maintainer of the benefits of its conduct.

[21] Where the champertous agreement takes the form of the sale or assignment of a bare right of action it is the maintainer who purports to bring suit and recover under the rights assigned, it is possible for the defendant to the action to raise the champertous nature of the assignment and its unenforceability as a defence, and thus achieve the public policy objectives of preventing champerty and maintenance by ensuring the maintainer’s inability to pursue and recover under improperly assigned rights ...... What gives the defendant the right to raise and the Federal Court the jurisdiction to determine whether the agreement is champertous in such cases is that the alleged champertous agreement goes to the foundation of the action: the plaintiff’s entitlement and standing to assert the rights against the defendant. The determination of the validity of the assignment becomes necessary to the disposition of the action asserted by the plaintiff against the defendant.” (my emphasis)

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 1^st/2^nd 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 1^st/2^nd Declarations did not include any declaration of non-criminality (see paragraphs 27 and 83(a) above), and (c) the SCG 2^nd 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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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:

“(3) That there were concurrent proceedings in different courts between parties who for practical purposes were the same in each, and the same issue would have to be determined in each, the court had jurisdiction to stay one set of proceedings if it was just and convenient to do so or if the circumstances were such that one set of proceedings was vexatious or an abuse of the process of the court. That where, however, criminal proceedings had been properly instituted and were not vexatious or an abuse of the process of the court it was not a proper exercise of the court’s discretion to grant to the defendant in those proceedings a declaration that the facts to be alleged by the prosecution did not in law prove the offence charged, and that therefore in the present case a declaration should not have been made ......” (per Lord Lane at page 752)

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):

“Such a declaration is no bar to a criminal prosecution, no matter the authority of the court which grants it. Such a declaration in a case such as the present one, made after the commencement of the prosecution, and in effect a finding of guilt or innocence of the offence charged, cannot found a plea of autrefois acquit or autrefois convict, though it may well prejudice the criminal proceedings, the result of which will depend on the facts proved and may not depend solely on admissions made by the accused. If a civil court of great authority declares on admissions made by the accused that no crime has been committed, one can foresee the use that might be made of that at the criminal trial.” (my emphasis)

Lord Lane also said at page 752 as follows:

“Counsel ...... were unable to fund any case in which a defendant in criminal proceedings already properly and not vexatiously instituted had applied for a declaration that the criminal proceedings were unfounded or based on a misapprehension as to the true meaning of the criminal statute. I do not find that dearth of authority surprising. It would be strange if a defendant to proper criminal proceedings were able to pre-empt those proceedings by application to a judge of the High Court whether sitting in the Commercial Court or elsewhere. What effect in law upon the criminal proceedings would any pronouncement from the High Court in these circumstances have? The criminal court would not be bound by the decision. In practical terms it would simply have the inevitable effect of prejudicing the criminal trial one way or the other.” (my emphasis)

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 1^st Declaration (with which I agree):

“27. As to the effect of the [1^st] Declaration: If the Court grants the [1^st] Declaration after consideration of the specific facts and evidence of this case, including the Husband’s (alleged) personal circumstances and the terms of the [D-LFA] (which he urges the Court to consider), any declaration made will not be sound in ‘high level principle’ only, but will be an adjudication based on the Court having examined the specific facts and evidence of this case. Even though strictly speaking the [1^st] Declaration does not preclude any future prosecution, it seems to us unreal not to recognize the [1^st] Declaration is bound to affect, influence or prejudice any prosecutorial decision or criminal trial in respect of the subject matter in future.”

This rationale also applied to the 2^nd Declaration. This meant that the very nature of the 1^st/2^nd 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):

“16. The general principle has often been stated that, save in exceptional circumstances, it is not appropriate for a member of the public to bring proceedings against the Crown for a declaration that certain proposed conduct is lawful and name the Attorney General as the formal defendant to the claim. ......”

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:

“...... If in this case where the declaration sought was not in respect of future conduct but in respect of what had already taken place, it could properly be granted, I see no reason why in such cases a declaration as to future conduct could not be granted. ......” (page 741)

“My Lords, it is not necessary in this case to decide whether a declaration as to the criminality or otherwise of future conduct can ever properly be made by a civil court. In my opinion it would be a very exceptional case in which it would be right to do so. ......” (page 742)

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):

“...... that although a court might as a matter of judgment hold that exceptional circumstances made it proper for a member of the public to bring proceedings against the Crown for a declaration that certain proposed conduct was lawful and to name the Attorney General as the formal defendant to the claim, since section 3(1) of the Human Rights Act 1998 made it beyond doubt that section 3 of the Treason Felony Act 1848 could not be used to mount a successful prosecution against a person publishing material advocating political change to a republic by peaceful and constitutional means, no purpose would be served by requiring the courts to accommodate unnecessary litigation seeking a formal declaration to that effect; and that, accordingly, notwithstanding that ([as held by a majority of 3 Law Lords with] Lord Hutton and Lord Rodger of Earlsferry dissenting) the claimants’ application might be categorised by reason of the constitutional import as being exceptional, the claim for a declaration would be dismissed ......” (my emphasis)

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:

“...... I do not find it either necessary or proper to adjudge whether, on the evidence before the court, [the plaintiff] have incited anyone to commit an offence contrary to section 21(3) of the 1956 Act. In the event of anyone instituting criminal proceedings in respect of [the plaintiff’s] advertising activities, a finding by this court would prejudice the trial. In these circumstances, in my judgment, it would not be right, in the exercise of the court’s discretion, to grant the declaration requested.”

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 1^st/2^nd 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:

“42. ...... In the Imperial Tobacco case, the civil proceedings for a declaration represented a contrived device. J’s care proceedings did not. As it happened, in that case, as in this, the civil proceedings were concluded after the criminal proceedings had begun. The House of Lords did not address the possible impact of a decision in concluded civil proceedings on criminal proceedings which were begun after their conclusion. The point did not arise. In our judgment, however, the broad observations of principle apply with equal force.” (my emphasis)

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):

“[T]he procedure [involved in the grant of declaratory orders] is open to abuse, particularly in criminal cases, and if wrongly used can cause the very evils it is designed to avoid. Application for declarations as to the admissibility of evidence may in some cases be made by an accused person for purposes of delay, or by a prosecutor to impose an additional burden on the accused, but even when such an application is made without any improper motive it is likely to be dilatory in effect, to fragment the proceedings and to detract from the efficiency of the criminal process.”

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 1^st to 3^rd 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 1^st/2^nd 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 1^st/2^nd 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:

“58. We are being invited to conclude that although Hedley J’s decision and findings in the care proceedings were inadmissible in the [trial of E’s father] ...... nevertheless his decision was conclusive, or should be treated as if it were conclusive, of the criminal proceedings, and that it was an abuse of process for the prosecution to seek to prosecute [E’s father] to conviction before a jury. In effect, therefore, if this is right, to the extent that it was favourable to [E’s father], the decision in the care proceedings resulted in a terminating, unappealable ruling against the prosecution in the criminal proceedings, which by long established constitutional principle should, unless the defendant pleads guilty, be decided in open court by a jury, or magistrates. This would be an astonishing result of litigation in care proceedings to which the prosecution was a stranger, and which were ultimately concerned with the future care and welfare of J rather than criminal responsibility for E’s death.

59. In our judgment the decision in the care proceedings was not, and could not be, a final determination of the criminal proceedings. Moreover, no question of autrefois acquit, or issue estoppel, or double jeopardy could arise. Even if Hedley J had invited the Crown to attend the hearing of the care proceedings as an interested party, and said in terms (and he did not) that he intended his decision finally to decide the outcome of all proceedings involving [E’s father], for the purposes of the criminal proceedings, any such observations would, on proper analysis, have been meaningless. In the language of Lord Lane in Imperial Tobacco Ltd v Attorney General [1981] AC 718, 752 the criminal court would not be bound by any such pronouncement. Moreover, if the second trial of Humphreys, following his acquittal at the first trial, did not constitute an abuse of process (see R v Humphreys [1977] AC 1), it is difficult to see how any purported ‘acquittal’ of [E’s father] in the care proceedings could do so.” (my emphasis)

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:

“18. The prosecutorial independence of the [SJ] is a linchpin of the rule of law. He is in the discharge of that duty to be ‘actuated by no respect of persons whatsoever’ ...... and ‘the decision whether any citizen should be prosecuted or whether any prosecution should be discontinued, should be a matter for the prosecuting authorities to decide on the merits of the case without political or other pressure. ... any practice savouring of political pressure, either by the executive or Parliament, being brought to bear upon the Law officers when engaged in reaching a decision in any particular case, is unconstitutional and is to be avoided at all costs.’ ......

......

20. I apprehend that it is to such interference, that is to say, interference of a political kind, to which art 63 is directed. But the rule that ensures the [SJ’s] independence in his prosecutorial function necessarily extends to preclude judicial interference, subject only to issues of abuse of the court’s process and, possibly, judicial review of decisions taken in bad faith ......

21. ...... What art 63 does, apart from its prime purpose of prohibiting political interference is to reflect the boundary that protects the [SJ] from judicial encroachment upon his right to decide whether to institute a prosecution, what charge to prefer, whether to take over a private prosecution, and whether to discontinue proceedings ......

22.       This is not to say that the courts are powerless to prevent an abuse of their process, but the exercise of such a judicial power, even though it may have the effect of bringing proceedings to a halt, arises after the institution of proceedings and, as the phrase ‘abuse of process’ itself illustrates, is a power directed at the preservation of the integrity of the judicial process. It is a necessary corollary to the exercise of judicial authority, itself preserved by the [BL]. There is also authority for the proposition that ‘dishonesty, bad faith or some other exceptional circumstances’ might found a basis for challenge in the courts of the exercise in a particular case of a prosecutorial prerogative ......”

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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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 2^nd 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:

(a)	Taking the last point first, the Husband did not provide much support for his contention that the risk of criminal prosecution of maintenance and/or champerty is low or remote. The prosecutions of X and S in Winnie Lo and the barrister defendant in HKSAR v Miu Kwok Keung suggest that the SJ/DoJ do not consider such offences to be dormant crimes. The fact there has not been a great many modern prosecutions in this jurisdiction does not necessarily mean there will be none or few in future, and I am comforted by DHCJ Fee’s similar view at page 172 in Raafat Imam. I also bear in mind the SJ in the present proceedings jealously guarded her prosecutorial independence by refraining from addresses on matters that might touch on such function. But if Mr Scott SC’s submissions were correct, they would lend weight to the view the Funder (let alone the Husband) was not “losing sleep” over the potential criminal consequences of the D-LFA and the proposed funding arrangements, which in turn would raise doubt as to whether there was any real “chilling effect” that would justify granting pre-clearance declaratory relief.
(b)	Mr Scott SC’s submissions also reinforced the view in paragraphs 125-126 above that there was no lis or “live practical question” between the Husband and the Funder, which would lead one to query whether the court should (i) decide on a hypothetical issue, especially when the Funder was not a party to the present proceedings (see discussion in paragraphs 129-131 below) and/or (ii) give advisory legal opinion that would not be dispositive of the cause (see discussion in paragraphs 132-135 below).
(c)	It is not practical to adopt a blinkered focus on the civil consequences of future conduct and to put aside the criminal consequences when under the common law in Hong Kong maintenance and champerty are both crimes and torts on the same factual scenario as well as on the same legal analysis (see discussion in paragraph 140 below).

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):

“35. ...... It is not the function of the courts to decide hypothetical questions which do not impact on the parties before them. This point was well put by the Lord Justice-Clerk (Thomson) in Macnaughton v Macnaughton’s Trustees 1953 SC 387, 392:

‘Our courts have consistently acted on the view that it is their function in the ordinary run of contentious litigation to decide only live issues, practical questions, and that they have no concern with hypothetical, premature or academic questions, nor do they exist to advise litigants as to the policy which they should adopt in the ordering of their affairs. The courts are neither a debating club nor an advisory bureau. Just what is a live practical question is not always easy to decide and must, in the long run, turn on the circumstances of the particular case.’” (my emphasis)

(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:

“...... The plaintiff says ...... that he has no intention at all of canvassing anyone. If he has no intention of canvassing anyone, what can be the purpose of this originating summons? If he does not canvass, it does not matter very much whether or not the clause prohibits him from doing so. He says, however, that if he did canvass (which he does not intend to do), or if the defendants falsely accused him of canvassing (which they say they do not intend to do), he would be protected by the declaration which he seeks. A more academic question I find it difficult to imagine. It is certainly not the sort of question about which the court ought, in its discretion, to make any declaration.”

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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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:

(a)	whether the applicant has “an interest and standing” to seek the relief claimed (page 367);
(b)	whether the prosecuting authority has “threatened to prosecute” (ie whether there is “any genuine dispute about the subject matter”) (pages 367-368);[105]
(c)	“whether the case is fact sensitive or not” which is “a factor of great importance and most claims for a declaration that particular conduct is unlawful will founder on this ground” (page 368);[106]
(d)	whether there is a cogent public or individual interest which can be advanced by the grant of a declaration such that injustice will be perpetrated[107] if no declaration is made[108] (page 368).[109]

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:

“A civil court can make such a declaration [as to the criminality or otherwise of future conduct], although it would be right to do so only in a very exceptional case ...... The authorities do not spell out what constitutes a very exceptional case for these purposes. So, broadly speaking, a very exceptional case must be one where, unusually, the interests of justice require that the particular claimant should be able to obtain the ruling of the civil court before embarking on, or continuing with, a particular course of conduct which, on one view, might expose him to the risk of prosecution.” (my emphasis)

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 1^st/2^nd 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:

“60. Lord Steyn has described section 3 of the 1848 Act as a relic of a bygone age. I agree. It is inconceivable that it could be invoked in the 21^st century in order to punish anyone who advocates that a republican form of government should be established by peaceful means. Mr Rusbridger himself (in his first letter to the Attorney General) said that the law had ‘become in effect a dead letter’. In the statement of facts which Mr Rusbridger verified he said no more than that he was ‘concerned’ about the law. Before this House his counsel did not challenge the Court of Appeal’s observation that Mr Rusbridger was not losing sleep because of the 1848 Act.”

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):

“102. Secondly, the fact that an arrangement may be caught by the broad definitions of maintenance or champerty is not in itself sufficient to found liability. The totality of the facts must be examined asking whether they pose a genuine risk to the integrity of the court’s processes. ......” (my emphasis)

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]

“36. Where the law expressly restricts the circumstances in which agreements in support of litigation are lawful, this provides a powerful indication of the limits of public policy in analogous situations. Where this is not the case, then we believe one must today look at the facts of the particular case and consider whether those facts suggest 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.” (my emphasis)

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:

“43. ...... In a proper case, where the totality of the facts makes it plain and obvious that the transaction relied on makes no or little commercial sense and gaps in the challenged party’s evidence are intentionally unfilled, creating self-induced disputed issues, it is open to the court to draw the appropriate inferences and conclude that it is champertous.” (my emphasis)

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):

“46. ...... What is important is that ‘all the aspects of the transaction should be taken together for the purpose of considering the single question’ whether there is, ...... ‘wanton and officious intermeddling with the disputes of others in which the [maintainer] has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse’ ......

47. It is apparent from a fair reading of the judgment that the judge had examined the totality of the facts in coming to the view that the transactions would pose ‘a genuine risk to the integrity of the court’s processes’ (Unruh v Seeberger at [102]). Nor do I accept she had not given sufficient consideration to the abuses mentioned in Factortame as she had quoted in [38] the relevant passage in the judgment of Lord Phillips. ......” (my emphasis)

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):

“111. 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.

......

133. The defendants submitted that the Application is necessarily fact-sensitive. In deciding whether the Funding Agreement would attract criminal liability for champerty, the Court would have to consider a number of facts on top of its terms. Such facts would include a full examination of the actual financial position of the plaintiff. It is impossible to determine such matters in an interlocutory application. As Ribeiro PJ held in Unruh v Seeberger at [102]: ‘The totality of the facts must be examined asking whether they pose a genuine risk to the integrity of the court’s processes.’ (Collectively ‘Fact-Sensitive Submissions’).

134. At this juncture, the defendants’ Fact-Sensitive Submissions are relevant, and accepted by the Court. ......” (my emphasis)

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:

“25. It is abundantly clear that the totality of the facts must be examined asking whether they pose a genuine risk to the integrity of the court’s process. Also, countervailing public policies must be taken into account. The traditional public policies against intermeddling in litigation must be weighed against 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. In my view one can only have a proper weighing exercise when the totality of the facts have been examined.” (my emphasis)

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 1^st/2^nd 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:

(a)	the extent to which the Husband and the Funder would control the underlying litigation;
(b)	the Funder’s ability to terminate the D-LFA at will or without reasonable cause;
(c)	the level of communications between the Husband and Withers;
(d)	the prejudice likely to be suffered by the Wife and the Brother (ie the opposing parties in the Husband’s Claims) if the Husband’s claims failed;
(e)	the extent to which the Husband was provided with information about, and was able to make, informed decisions concerning the underlying litigation;
(f)	the amount of profit that the Funder stood to make;
(g)	whether or not the Funder was a commercial/professional funder and/or was regulated.

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):

(a)	Merits of the Husband’s case Although Mr Scott SC submitted this factor was irrelevant, he was also at pains to emphasise the Husband’s case had strong merits. I do not see this factor as irrelevant. There is little point in granting any pre-clearance declaratory sanction if the underlying case is unsound, and funding an unmeritorious claim may savour of abuse. Nevertheless, the court should not “test drive” the fundee’s claim or any countervailing scenario apparent from the available evidence, but will only make broad assessment of the merits from the available objective (and hence probably undisputed) evidence and also self-serving allegations (which would be “untested” rather than undisputed) to see whether at that stage the claims so clearly amount to oppression or are abuse of process if allowed to proceed.[118] But such enquiry may involve credibility issues. The merits of the Husband’s case are discussed in Part IX in Judgment (2).
(b)	Circumstances in which the Husband and the Funder would enter into the D-LFA This must be relevant as the Amended OS sought prior court sanction of the proposed “funding arrangement” for the Husband’s Claims in contra-distinction merely to the terms of the D-LFA. This factor would include consideration of the relationship between the Husband and Funder and also the position of the legal representatives (eg Withers who act for the Husband), and the nature of such exercise is surely fact-sensitive.
(c)	Value judgment in striking the balance between competing public policies In deciding whether the Access to Justice Exception would apply (and there is more discussion on this in Part VII below), it would be necessary to conduct a balancing exercise between competing public policies (ie the need to foster access to justice and the need to avoid the mischiefs that the laws of maintenance and champerty seek to combat),[119] which can only be made in the factual context of the particular case. Harris J brought out this point quite clearly in Berman at page 828 as follows: “29. I accept that in the present case the Company cannot recover the debts it is proposed be assigned without further funding and that the Assignor has obtained the approval of the beneficiaries to the deed of assignment. The importance of access to justice in such circumstances, ...... is to be balanced against the policy reasons that require the control of such actions.” (my emphasis)
(d)	There is also need to consider whether there are sufficient safeguards to protect against the “tendency” or risk of the mischiefs targeted by the laws of maintenance and champerty, eg the need to safeguard against the pitfalls of an unlicensed and unregulated litigation funding market. I will discuss this further in Part VII below, but suffice to state here that balancing competing public policies in the Hong Kong context against the “totality of the facts” is likely to be a fact-sensitive exercise.

160.  Bearing in mind that (a) the subject matter of the 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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:

“30. From our review of all the material put before us, we have come to the clear conclusion that English law would not regard the funding agreement in this case as champertous. Whilst it undoubtedly provides [the funder] with a share of the proceeds, it is calculated to ensure compliance with the principles derived from the English and Australian authorities and in our judgment cannot be said in any way to corrupt the purity of justice. On the contrary, it facilitates access by the plaintiffs who would otherwise be unable to bring the proceedings because of a lack of resources. Importantly, the agreement provides that control of the proceedings will remain with the plaintiffs and their lawyers; the sole right of [the funder] will be to be kept informed. Secondly, it does not prejudice any potential defendants by leaving them unable to recover any costs orders (in the event of the failure of the proceedings) against the unsuccessful plaintiffs because the agreement provides that [the funder] will satisfy any adverse costs order against the plaintiffs.

......

36.       For the reasons set out in paras 30 and 31 above, we are satisfied that the public policy considerations point strongly in favour of upholding the validity of the funding agreement in this case. In our judgment, it does not have any tendency to corrupt or adversely affect the purity of justice. The control of the proceedings remains with the plaintiffs, they will still retain a substantial proportion of the damages if successful and the defendants are protected in respect of costs if the claim fails. On the other hand, the agreement facilitates access to justice by the plaintiffs who would not otherwise be able to afford to bring the litigation in question. For these reasons we authorised the trustee to become party to the funding agreement.”

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:

(a)	the plaintiff beneficiaries had already entered into a LFA, so this was not a case of seeking pre-clearance declaratory sanction;
(b)	there was an established statutory procedure (eg Order 85 of the RHC in the Hong Kong context) under which a trustee may apply to the court for directions or for approval of a course of action;
(c)	the matter came before the court because the new trustee sought directions by way of a Beddoe application, and the nature/effect of such application was to obtain an order of the type made under Order 85 rule 2(3)(d) of the RHC (see paragraphs 163-164 above);
(d)	it was the court who took the initiative to query the validity of the LFA;
(e)	such application under Order 85 of the RHC may amount to a request for guidance as an exception to the principle that the court does not answer academic questions (see Berman discussed in paragraph 173 below and observations in Unruh referred to in paragraphs 55-56 above);
(f)	in authorising the new trustee to become a party to the LFA, the court was at pains to emphasise that no adversarial argument had been received, that its sole role was to consider whether there was a reasonable prospect of the LFA being held to be lawful, and that the court was not required to and did not make any declaration that the LFA was not champertous.

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:

“8. ...... The Assignor comes before the Court seeking its guidance as to whether or not the course of conduct on which he wishes to embark is lawful and appropriate. Generally the court does not give opinions on whether or not a proposed course of conduct is lawful. As Lord Bridge explained in the decision of the House of Lords in Ainsbury v Millington [1987] 1 WLR 379:

[i]t has always been a fundamental feature of our judicial system that the courts decide disputes between the parties before them; they do not pronounce on abstract questions of law when there is no dispute to be resolved.

Different considerations may arise in relation to what are called ‘friendly actions’ and conceivably in relation to proceedings instituted specifically as a test case.

......

10. As Lord Bridge acknowledged in the passage I have quoted above from Ainsbury v Millington, there are qualifications to the principle that the court does not answer academic questions and O.85 is one such exception. The nature of the guidance which a trustee seeks under O.85 is by necessity both prospective and contingent on future events. The Privy Council recognised as such in Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198, 21D (Lord Oliver), stating that:

trustee whAo is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper professional advice and, if so advised, to protect his position by seeking the guidance of the court.”

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:

“3. Assignment of causes of action in bankruptcy

The law is traditionally hostile to the assignment of causes of action in return for a share of the proceeds. Such transactions were described as champerty (division of the field) and regarded as illegal and unenforceable. It is unnecessary to examine the reasons: judges said that it would encourage malicious suits, but treating such arrangements as criminal was also, before the introduction of legal aid, an effective way of preventing poor people from obtaining legal redress. The position of liquidators and trustees in bankruptcy is however quite different. The courts have recognised that they often have no assets with which to fund litigation and that in such case the only practical way in which they can turn a cause of action into money is to sell it, either for a fixed sum or a share of the proceeds, to someone who is willing to take proceedings in his own name. In this respect they are of course no different from many other people. But because trustees and liquidators act on behalf of creditors, the courts have for the past century construed their statutory powers as placing them in a privileged position.” (my emphasis)

In the latter case, Peter Gibson LJ at pages 287-288 held as follows:[139]

“There is a long line of authorities to the effect that where a trustee in bankruptcy or a liquidator wishes to exercise a power of sale to assign a cause of action for valuable consideration, the trustee or liquidator can enter into an agreement which otherwise would be void for maintenance or champerty ......

......

In Grovewood Holdings plc v James Capel & Co Ltd [1995] B.C.C. 760; [1995] Ch 80 Lightman J aptly summarised the state of the law in this way (at p. 764D; 86E):

‘Accordingly the authorities established beyond question that both a trustee in bankruptcy and a liquidator are given power to sell a cause of action on terms that the assignees by way of consideration will pay over a share of the recoveries. This statutory power necessarily precludes any challenge on grounds of maintenance or champerty to such an agreement.’”

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:

“...... The duty of the trustee under section 305(2) is to realise the bankrupt’s estate ...... One method of realization is to transfer or assign the individual assets for value. In Ramsey v Hartley [1977] 1 W.L.R. 686 the Court of Appeal, following authority which went back more than a century, held that even a bare right of action was property which the trustee was entitled to assign. His statutory duty to realise the estate excluded the doctrines of maintenance and champerty which would otherwise have struck down such an assignment.”

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:

“8. In the present case I am satisfied that the Liquidators remain in control of the intended litigation and there is limited risk of the funder being able to pressure the Liquidators or the lawyers to conduct the litigation improperly. I am also satisfied that given the constituency of general creditors finding a funder within that group is not practical. It is, however, desirable that the claim is pursued. This will generally be true in the case of an insolvent company.

9. I will, therefore, grant the order sought by the Liquidators. I would, however, note that I leave open the broader issue of whether or not an agreement between a solvent plaintiff and funder of a similar commercial character to that in the present case would infringe the rules prohibiting maintenance and champerty.” (my emphasis)

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):

(a)	the evidence showed that the liquidators could not pursue the action without the plaintiff’s involvement and financial support;
(b)	it could not be said at that stage the claims were so clearly without merits as to amount to oppression or an abuse of process if allowed to proceed;
(c)	“[there] is no evidence to suggest that the action has been brought for purposes other than to pursue a genuine claim to recover losses said to have been suffered by [the insolvent company]” (paragraph 28).

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:

“[13] Judicial approval of solicitors’ fee structures and associated funding agreements has also been sought and considered in the context of class actions ...... However, in these cases, the court held that judicial approval was mandated and governed by the provisions of the Class Proceedings Act, 1992, SO 1992, c. 6, which requires court approval of fee arrangements or the judicial review of class counsel’s fees and disbursements. The court’s prior approval of third party funding agreements, whereby a portion of any recovery or settlement would be diverted from the class to pay the third party funder, is an extension of this practice.

[14] The prior vetting of third party funding agreements in class proceedings is not merely a matter of ensuring that the agreement is not contrary to public policy as champertous, but a matter of ensuring the protection of the interests of class members against unreasonable agreements, as well as protecting the courts against potential abuses specific to class proceedings. Class action legislation is designed to foster access to justice by overcoming economic barriers to litigating mass wrongdoings, increasing judicial economy by permitting courts to adjudicate numerous claims fairly and efficiently, and ensuring means for wrongdoers to be brought to account. Given the potentially significant returns available to third party funders in class proceedings, the Ontario Superior Court in Fehr acknowledged a legitimate concern that ‘if not regulated, third party funding might subvert the public policy purposes of class proceedings’. The court concluded that, in class proceedings, third party funding agreements were required to be promptly disclosed to the court, and could not come into force without court approval ......

[15] It is easy to see, in the context of a class proceeding, why the preservation of the class members’ interests and the protection of the court from abuses of its process by unscrupulous funder would require the court’s prior approval of LFAs. The Federal Court has, for matters falling within its jurisdiction, its own class proceeding rules, including provisions giving it oversight of agreements respecting solicitors’ fees and disbursements ...... The Federal Court’s jurisdiction to consider, and even to give prior approval to an LFA in the context of class proceedings would hardly be in doubt as an exercise of the Court’s plenary power to control its own process in matters falling within its jurisdiction ......” (my emphasis)

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:

“[78] We have concluded that the common law in other jurisdictions has moved on and access to justice and comity with other states mean we should follow. ......

[79] We have concluded that, like the common law of Australia and that of Canada, the common law of New Zealand should refrain from condemning as tortious or otherwise unlawful maintenance and champerty where:

(a) the court is satisfied there is an arguable case for rights that warrant vindicating;

(b) there is no abuse of process; and

(c) the proposal is approved by the court.

We have discussed the need for proper controls, appropriate to the nature of the case and the particular funder and funding terms proposed.

[80] We are not in a position to determine whether any of these conditions should be found to be satisfied here. Whether there is an arguable case and the strength of that case cannot be assessed by this Court which has not received the respondents’ intimated amended statement of claim. The same is to be said about the issues of abuse of process and approval.”

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:

(a)

maintenance and champerty were no longer crimes in New Zealand (see paragraph 203 above), so the essential consideration was whether the LFA was contrary to public policy (paragraph 67) in my view, this is a material difference as noted by Gummow, Hayne and Crennan LLJ in Campbells Cash and Carry Pty Limited who left open the position in jurisdictions where maintenance and champerty are still torts/crimes (see paragraph 215 below);

(b)

“the important reality of [New Zealand’s] relationship with Australia” in considering whether and how the judicial lawmaking power in the practical administration of justice is to be exercised, and it was said “[there] are powerful reasons to minimise any unnecessary differences in the ways we deliver justice from those of our close friend and partner [ie Australia] in most kinds of activity in which litigation can arise” (see paragraphs 72 and 79).

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:

“17. ...... The second objection was that a civil court should only in exceptional circumstances make a declaration that certain conduct is or is not (or will or will not be) a criminal offence. He referred us to the well-known observations of Viscount Dilhorne in Imperial Tobacco Ltd v Attorney-General [1981] AC 718, 742. But that is to misunderstand the principle stated in that case. Imperial Tobacco was asking for a declaration that promoting their Spot Cash scheme would not be a criminal offence, for the purpose of forestalling a prosecution or guiding a judge or magistrate at a criminal trial. But the SFC is not seeking a declaration that [X] has committed a criminal offence. It is seeking a declaration that [X] has done acts which found jurisdiction under s.213 but which also happen to be criminal offences. The question of whether [X] has committed a criminal offence remains entirely a matter for the criminal court. There is no question of the civil court’s declaration being admitted or in any influencing a criminal trial. ...... the effect of a declaration by the [CFI] under s.213 that [X] has contravened the prohibition on insider dealing is therefore no different from a finding by a civil court that [X] is liable on the same grounds for damages under s.305.” (my emphasis)

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:

(a)

It is well-established that a civil court has the jurisdiction to grant a declaration even if it pertains to criminal proceedings. Mr Wong SC noted the Singapore Court of Appeal in Wing Joo Long Ginseng Hong (Singapore) Co Pte Ltd cited with approval the following observations by Gibbs AJC in Sankey v Whitlam[156]: “[it] is clear enough that the power of the court is not excluded [merely] because the matter as to which a declaration is sought may fall for decision in criminal proceedings” (paragraph 180). Tiger Asia Management LLC falls within this category as the terms of section 213 of the SFO requires certain acts to be proved before a determination can be made, and the fact that proving those acts also gives rise to criminal offences is not to be a ground to object to the making of a determination under section 213 of the SFO.

(b)

It is equally well-established that a civil court will, in normal circumstances, be slow to grant a declaration relating to the criminal consequences of conduct.[157] Imperial Tobacco Ltd falls into this category. Although the plaintiff in Raafat Imam essentially sought a declaration that a proposed future act is lawful, the effect of the application in that case was to declare whether the plaintiff’s and/or the funder’s proposed conduct in entering into the LFA was criminal or not, which therefore fell into this category. In my view, the 1st/2nd Declarations also came within this category.

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:

“5. It may be true that such third party funding can enhance access to justice and foster development of the law but there are, also other consequences. Should law cases which have a strong individual ‘personal rights’ dimension be capable of assignment to a funder or open to some kind of profit sharing arrangement? One of the historical objection to maintenance and champerty was the risk of the perversion of justice. Perhaps that concern is less now. More modern concerns may involve the complexities of multi party actions perhaps of low social value, which might have the effect of creating difficulties in already busy court lists. There may be problems as to how to deal with cases with a multiplicity of plaintiffs, some with highly meritorious cases, and others less so. Not all parties will be deserving of the same level of damages in such cases. In those circumstances who will be the arbiter if some parties settle a claim and others do not?

6. There are, too, broader ‘regulatory’ issues. Among these lie the questions as to whether third party funders should themselves be regulated in law, and whether there should be statutory limits on the level of recovery. Who should bear responsibility for adverse costs orders?

7. Clearly, therefore, significant policy questions might arise in the event of a finding of unconstitutionality in the case of maintenance and champerty. But legislation takes time. All these are matters for another day, and, perhaps for the legislature rather than for the courts.” (my emphasis)

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:

(a)	the CFA in Unruh did not seek to impose the public policy of Hong Kong against maintenance and champerty “on mature commercial parties (who are likely to include foreign entities) who have chosen to arbitrate in a jurisdiction which does not recognise the concepts and who may have made arrangements in Hong Kong to finance the arbitral proceedings without being aware of any constraints” (paragraph 46);
(b)	“[it] has been well recognised that contracts of a champertous nature relating to other jurisdictions may be lawful” (paragraph 47), so the champerty argument advanced on behalf of Mr Unruh and ECST failed on such ground (paragraph 48);
(c)	“[in] addition, Unruh may be distinguished as there is no doubt that Mr Unruh had an independent interest in the outcome of the litigation” (paragraph 48).

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:

(a)	champerty has always been regarded as more obnoxious than maintenance because it involves not merely the involvement in the proceedings of a third party, but also the possibility that the party will recover some proportion of any award of damages if the claim is successful (paragraph 88);
(b)	the law considers this suspect because the third party funder recovers a portion of the award not as damages for an injury done or for a right breached but rather as a profit in a commercial transaction, which by definition is at the expense of the wronged plaintiff, and such “third party profit is regarded, in principle at least, as offensive to the common law unless justified, and – even when capable of justification – unless controlled and regulated” (paragraph 88);
(c)	thus, there is a longstanding prohibition on assignment of a bare right to litigate that savoured of champerty because (i) “the litigation loses its character as one brought between parties to vindicate their rights to seek to recover compensation for wrongs done” and (ii) the structure of the transaction envisages (and in most cases will be driven by) the prospect of a profit being made by the assignee with the assignor recovering less (on this hypothesis) than they are properly entitled as a matter of justice (paragraph 89);
(d)	the public policy grounds for such prohibition retain force and validity in Ireland notwithstanding international developments in relation to the laws of maintenance and champerty (paragraphs 93-94).

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):

“2.2 I would wish to emphasise that I remain strongly of the view that it is necessary that some measures be taken to attempt to address this problem. Indeed, the observations which I made in concurring judgment in Persona were designed to suggest that there is a problem which requires to be addressed, but that by far the best way of attempting to provide solutions is by means of legislation. This is not just a case where legislation may be considered as the appropriate constitutional route because of the separation of powers between the courts and the legislature. It is at least arguable that permitting entirely unregulated third party funding, as was at issue in Persona, or the unregulated assignment of causes of action, as is at issue in this case, as a means of solving the problem of access to justice runs the real risk of creating more problems than it solves.

2.3 That is not to say that the issues which arise in respect of third party funding are the same as those which arise in the context of a potential assignment such as is at issue here. In the case of third party funding, the party (whether corporate or natural) who suffered the wrong continues to maintain the cause of action themselves, albeit in circumstances where some of the proceeds of a successful case may go to the third party funder. In the case of an assignment, the entire beneficial interest in the proceeds of the cause of action passes to the assignee so that the proceedings are thereafter wholly maintained by a party who did not suffer the original alleged wrong. There may, therefore, be entirely legitimate policy considerations which might lead the legislature to take a different view of, on the one hand, third party funding and, on the other hand, assignments of causes of action.

2.4 Be that as it may, it seems to me that there are compelling reasons for considering that any significant change of the law in either of these areas 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 commoditisation of litigation.

...

2.6 That is not to say that either third party funding or permitting the assignment of causes of action may not form part of a solution. However, what the best solution may be and what rules should be applied to the solution chosen, are primarily a matter for the legislature.

......

2.8 ...... But I have ultimately come to the view that an unregulated change in this area has the potential to do more harm than good. As a matter of common law, therefore, it seems to be that the position identified by O’Donnell J needs to be maintained unless and until there is considered legislative change.

2.9 I would finally add that, undesirable as unregulated change might be, I would wish to reiterate the point made in Persona that a point might be reached where the courts had no option but to go down such a route if it became clear that no real effort was being made on the part of the legislature to address issues such as those which came into focus on this appeal.” (my emphasis)

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 1^st/2^nd 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:

(a)	such declaration was made in the context of an intended underlying application for an urgent Mareva injunction to aid the enforcement of the arbitration award (pages 717 and 735);
(b)	Segal J’s views were only preliminary as he did not have the benefit of full argument given the ex parte nature of the application, and the impracticability of notifying the Attorney-General as a result of the urgency of the intended underlying proceedings (pages 735-736);[178]
(c)	Segal J expressed some reluctance in granting the declaratory relief sought (page 715).

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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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]

“54. ...... Public policy now recognises that it is desirable, in order to facilitate access to justice, that third parties should provide assistance designed to ensure that those who are involved in litigation have the benefit of legal representation. ......”

255.  In Unruh, Ribeiro PJ said as follows at pages 66-68:

“95. ...... It follows that an attack on an arrangement said to constitute maintenance or champerty could well result in a claim which is perfectly good in law being stifled where the plaintiff, deprived of the support of such an arrangement, is unable to pursue it. This is a powerful argument for such cases to be excluded from the ambit of maintenance and champerty. ......

......

97. It is again obvious that this access to justice category is not static. The developments of policies and measures to promote such access is likely to enlarge the category and to result in further shrinkage in the scope of maintenance and champerty. Different measures, whether statutory or judicial, may be taken in different jurisdictions. Here, in Hong Kong, a litigant who is funded by the Supplementary Legal Aid Scheme is required to make a contribution out of recovered proceeds for the benefit of the Fund. In England and Wales, conditional (but not contingency) legal fee have received statutory support in certain type of cases. This has entailed the development of after the event insurance against adverse costs orders. The development of multi-party litigation or class actions raises questions concerning the conduct of promoters and funders of such litigation.” (my emphasis)

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:

“92. If the Husband can prove he is indeed impecunious, third party funding would be an important means to facilitate and protect his right of access to justice. This would provide a strong starting premise for him and/or the funder to make out the ‘access to justice’ exception against any challenge of the funding arrangement, before the criminal or civil court, based on maintenance and champerty. If the Husband can further satisfy the Court that the mischiefs that the laws against maintenance and champerty seek to address have been sufficiently addressed, the Court may well conclude that the balance should be struck in favour of the Husband and/or the funder.”

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):

“46. It does not seem to me ...... there is any reason why this jurisdiction should treat with greater circumspection or impose additional constraints on commercial funding of litigation in this jurisdiction. The principles outlined above apply to ensure that any such funding must not have a tendency to corrupt public justice and to protect the integrity of the litigation process in this jurisdiction. Provided that these principles are respected and these important policy goals are achieved then commercial funding of litigation, which can promote access to justice, should not be objectionable or subject to enhanced requirements or constraints (I note and have regard to the four key points in the policy analysis identified by Chadwick, P Barrett (3), se para.25 above). I take into account that this is not a case involving an impecunious plaintiff who would be unable to bring the proceedings without the benefit of third party funding. This is a relevant factor but should not in my view be determinative. There are clearly benefits that may flow from allowing plaintiffs with genuine claims the opportunity to litigate them on terms which they consider commercially attractive and provide them with a better risk-reward ratio than if they were to fund the costs of the litigation themselves (there are I accept also concerns about promoting the proliferation of speculative or unjustifiable claims but at least in principle and for the purpose of the present application these do not seem to be so great as to require me to treat commercial litigation as being inconsistent with Cayman public policy). Nor is there anything in the 2015 Discussion Paper which requires a different approach. Cayman has an important, world-class court system and litigation culture and there is no reason why responsible, properly regulated commercial litigation funding undertaken in accordance with the principles I have set out should not have a place in this jurisdiction. As has been accepted in other leading financial centre common law jurisdictions, and as the Chief Justice noted in Quayum, the law of maintenance and champerty has evolved reflecting the evolution of public policy and that evolution should be reflected in Cayman law. ......” (my emphasis)

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:

“It will now be necessary to examine the scope of this head of public policy. From the classic judgment of Dankwerts J in Martell v Consett Iron Co Ltd [1954] 3 All ER 339, [1935] Ch 363 to the decision of the House of Lords in Trendtex Trading Corp v Crédit Suisse [1981] 3 All ER 520, [1982] AC 679 the cases are harmonious on one point, namely that the purpose of this head of public policy is to protect the integrity of public civil justice. The specific fears underlying the doctrine were described by Lord Denning MR in Re Trepca Mines Ltd [1962] 3 All ER 351 at 355, [1963] Ch 199 at 219-220, as follows:

‘The reason why the common law condemns champerty is because of the abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses. These fears may be exaggerated; but, be that so or not, the law for centuries has declared champerty to be unlawful, and we cannot do otherwise than enforce the law; and I may observe that it has received statutory support, in the case of solicitors, in s. 65(1)(a) and (b) of the Solicitors Act, 1957.’

The doctrine of champerty evolved to protect from injustice not the maintained party but the other party, who will usually be the defendant but may be a plaintiff.” (my emphasis)

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):

“45. It seems to me that the following features are likely to have a particular significance:

......

(d) The prejudice likely to be suffered by a defendant if the claim fails. A funding agreement under which the funder is not liable to meet any adverse costs order raises a risk of abuse and prejudice to the defendant. A funder has a commercial risk in the outcome of the litigation and an upside on a successful outcome but no risk or exposure to the costs in the event that the claim fails has an incentive to put pressure on the funded party to adopt an unduly aggressive litigation strategy (although the funded party will need to consider the costs consequences of its actions). There is also a risk that the defendant might be prejudiced if the funded party cannot pay any costs order. If a funder is not prepared to fund the costs of an adverse costs order it is open to them to require the funded party to take out and fund the cost of the ATE insurance. Once again the risk of abuse is reduced to the extent that the funder can be made subject to a costs [order] as a non-party.

......

51.       ......The other points of concern were, first, the provisions in the funding agreement pursuant to which the funder was not required to fund an adverse costs order and which did not require the plaintiff to take out ATE insurance to cover this ...... As regards the first concern, the evidence adduced demonstrated that the plaintiff was a very substantial international company which appeared to have more than sufficient resources to cover any costs order. Furthermore there was provision in the funding agreement for ATE insurance to be obtained by the plaintiff if the funder so required. Therefore there appeared to be no material risk to the award debtors in the present case. ......”

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 1^st defendant brought Part 20 contribution proceedings against the 2^nd and 3^rd defendants and others (including 3 Part 20 defendants), who participated in the trial and who (except the 1^st 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 1^st 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:

“(1) Subject to the provisions of rules of court, the costs of and incidental to all proceedings ...... in the [CFI], ...... shall be in the discretion of the Court, and the Court shall have full power to determine to whom and to what extent the costs are to be paid.

(2) Without prejudice to the generality of subsection (1), ...... the [CFI] may, in accordance with rules of court, make an order awarding costs against a person who is not a party to the relevant proceedings, if ...... the [CFI] ...... is satisfied that it is in the interests of justice to do so.”

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:

“Where the Court is considering whether to exercise its power under section 52A or 52B of the [HCO] to make a costs order in favour of or against a person who is not a party to the relevant proceedings –

(a) that person must be joined as a party to the proceedings for the purposes of costs only;

(b) that person must be given a reasonable opportunity to attend a hearing at which the Court shall consider the matter further.”

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):

“Judges, as it seems to me, retain a discretion and, depending on the facts, may consider it appropriate to take into account matters other than the extent of the funder’s funding and not to limit the funder’s liability to the amount of that funding. In the case of a funder who funded only a distinct part of a claimant’s costs, a judge might well decide that it should pay no larger sum towards the defendant’s costs. A judge could also, however, consider the funder’s potential return significant. The more a funder had stood to gain, the closer he might be thought to be to the ‘real party’ ordinarily ordered to pay the successful party’s costs ...... In the case of a funder who had funded the lion’s share of a claimant’s costs in return for the lion’s share of the potential fruits of litigation against multiple parties, it would not be surprising if the judge ordered the funder to bear at least the lion’s share of the winners’ costs, regardless of whether the funder’s outlay on the claimant's costs had been a lesser figure.”

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):

“35.     ...... Suppose, for example, that the total costs of pursuing a claim for £10 million had been £300,000 and that £100,000 of this had come from a funder who would have taken 90% of the net proceeds had the claim succeeded. On that doubtless unlikely set of facts, a judge might very well consider it ‘just’ for the funder to bear more than £100,000 of the defendant’s costs. In such a case, a judge might wish to have regard to what the funder had stood to gain, not just to its outlay. The course favoured by the Court of Appeal in Arkin, however, focuses exclusively on ‘the extent of the funding provided’.”

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]

“[14] ...... As the Court of Appeal has observed, maintaining access to justice is a significant, although not dominant, factor supporting the New Zealand position in limiting a losing party’s liability for costs. New Zealand may be some way behind larger common law jurisdictions in adjusting to the presence of litigation funders as a feature in the conduct of civil litigation. There is no justification in the circumstances of this case to impose indemnity costs merely because the plaintiff was supported by litigation funders, when that would inevitably have some chilling effect on the potential availability of such arrangements in cases where they may well be justified in the interests of facilitating access to justice.

[15]      The nature of the funding arrangements and the influence that their involvement had on the course of the proceedings cannot justify attributing liability to the funders for indemnity costs, if there was otherwise no basis for doing so. Funding arrangements are one factor in assessing the overall conduct of the litigation when considering the defendants’ entitlement to an award of increased costs beyond scale, but this factor cannot of itself transform the defendants’ entitlement to one for indemnity costs.”

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:

“(1) The defendant may seek an order against someone other than the claimant, and the court may make an order for security for costs against that person if – (a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and (b) one or more of the conditions in paragraph (2) applies.

(2) The conditions are that the person – ...... (b) has contributed or agreed to contribute to the claimant’s costs in return for a share of any money or property which the claimant may recover in the proceedings; and is a person against whom a costs order may be made.”

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:

“[76] We summarise our conclusions as follows:

(a) On the issue of proceedings that are to be funded by a third party unrelated litigation funder who has no prior interest in the proceedings and whose remuneration is tied to the success of the proceedings and/or who has the ability to exercise some form of control over the conduct of the proceeding, the following details should be disclosed:

(i) the identity and location of any such litigation funder; and

(ii) the amenability to the jurisdiction of the New Zealand courts.

(b) No litigation-sensitive material need be disclosed, including the terms on which funding may with withdrawn. There is no need to disclose details of the financial standing of the litigation funder.

(c) Where an application for a stay on abuse of process grounds is made (or any other application where the terms of a funding agreement may be relevant), then the courts may order disclosure of the litigation funding agreement, subject to redactions relating to confidentiality, and litigation sensitive and privileged matters.

......”

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:

“[63] ...... If an application for security for costs had been required, whether or not there was litigation funding would have had obvious relevance. It seems strongly arguable, therefore, that the courts would have had the power to order disclosure, at least of the existence of a litigation funder and the relevant terms of the funding agreement. We make no definitive comment on this matter as it was not argued before us.

......

[67] We consider that the fact that there is a litigation funder and the funder’s identity should be disclosed to the other party or parties when the litigation is commenced. As we have indicated, the assistance of a litigation funder is relevant to applications for security for costs and costs. The non-funded party would also have to know of the existence of a litigation funder before it can decide whether to make an application for a stay on abuse of process grounds.

[68] In addition, as a matter of principle, we consider that the courts (and the other party or parties) are entitled to know the identity of the “real parties: to the litigation.” (my emphasis)

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 2^nd 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]

“...... I also accept that in relation to these aspects of the law of champerty it is necessary first to consider whether the transaction bears the marks of unlawful champerty and then to inquire whether it is validated by the existence of a legitimate interest in the person supporting the action distinct from the benefit which it seeks to derive from it. ...... the law of maintenance and champerty has not stood still, and has accommodated itself to changing times: as indeed it must if it is to retain any useful purpose ...... Meanwhile, I believe that the law of maintenance and champerty can best be kept in forward motion by looking to its origins as a principle of public policy designed to protect the purity of justice and the interests of vulnerable litigants. For this purpose the issue should not be broken down into steps. Rather, all the aspects of the transaction should be taken together for the purpose of considering the single question whether, ...... there is wanton and officious intermeddling with the disputes of others in where the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse.” (my emphasis) [Giles at pages 163-164]

“To the extent the doctrine of champerty and maintenance remains relevant in Canadaian common law, even as a means of protecting the courts and vulnerable litigants against abuses ......” (my emphasis) [Seedlings Life Science Ventures, Inc at paragraph 18]

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):

“Relevance of ‘access to justice’. Secondly, the Court of Appeal said: ‘the law now looks favourably on funding arrangements that offer access to justice so long as any tendency to abuse of process is controlled. It would be truer to say that the law prevents litigation funding contracts from being enforced, even though they may offer access to justice, if they have the character of maintenance or champerty, and the law looks neutrally on the prosecution of the proceedings being funded unless they are an abuse of process. Of the four cases cited by the Court of Appeal in support of the proposition stated only one actually supports it. Two of the cases do not support it, and one is against it. In the fourth, Gulf Azov Shipping Co Ltd v Idisi, the English Court of Appeal stated:

‘Public policy now recognizes that it is desirable, in order to facilitate access to justice, that third parties should provide assistance designed to ensure that those who are involved in litigation have the benefit of legal representation.’[209]

But that statement was made in relation to circumstances very different from the present. Any suggestion that the principles of abuse of process have been diminished by a more ‘relaxed common law attitude to litigation funding’ because of a recent recognition of the importance of assisting impecunious plaintiffs to sue is unrealistic. The importance of not preventing ‘humble men’ from receiving ‘contribution to meet a powerful adversary’ has been long recognised, and underlied the exceptions to the common law doctrines of maintenance and champerty. The facilitation of access to justice, however, is not to be treated as having absolute priority over traditional principle.” (my emphasis)

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:

“...... Ultimately, it is necessary to consider the question posed in this case [concerning champerty] in the light of the contemporary public policy.

The correct approach is not to ask whether in accordance with contemporary public policy the agreement has in fact caused the corruption of public justice. The court must consider the tendency of the agreement. The question is whether the agreement has the tendency to corrupt public justice. This question requires the closest attention to be given to the nature and surrounding circumstances of the particular agreement.” (my emphasis)

Likewise, the South African Supreme Court of Appeal reiterated in Price Waterhouse Coopers Inc & ors at pages 161-162 as follows:

“24. What public policy is and when an agreement is contrary to public policy are often difficult and contentious questions. ...... The fundamental values enshrined in the Constitution and the interests of the community or the public are accordingly of the utmost importance in relation to the concept of public policy. Therefore, an agreement will be regarded as contrary to public policy when it is clearly inimical to these constitutional values, or the interests of the community, whether it be contrary to law or morality or runs counter to social or economic expedience ...... It is important to bear in mind that views about what public policy entails are constantly evolving ...... and the court must be careful not to conclude that an agreement is contrary to public policy just because some of its terms against its sense of propriety and fairness. ...... It is also important to bear in mind that to decide whether an agreement is against public policy a court must look at the tendency of the proposed transaction, not its actually proved result ......” (my emphasis)

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]

“The law of maintenance is founded not so much on general principles of right and wrong or of natural justice as on considerations of public policy (per Lord Esher): Alabaster v Harness [1985] 1 QB 339. Notions of public policy are not fixed but vary according to the state and development of society and conditions of life in a community. The exceptions or justifications which allow a person or body of persons to maintain a litigant in a suit do not form a closed category ...” (my emphasis)

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):

“119. ...... Access to a court is recognized internationally as a fundamental right and the many countries which have acceded to relevant international instruments can be expected to pursue measures appropriate to their individual circumstances to give effect that right. They will strike their own balances between countervailing demands, determining the scope to be accorded to that right in the light of their resources, institutions and traditions. Moreover, as we have noticed, public policy in a particular jurisdiction in this respect is apt to change. ......” (my emphasis)

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]

“[41] ......the [Law Reform Commission] has looked at the issues of maintenance and champerty in other jurisdictions. It points out that the Criminal Law Act, 1967, abolished the crimes and torts of maintenance and champerty in England and Wales. As in England and Wales, many other States have abolished the torts and crimes of maintenance and champerty, and thus their case law is of less relevance to the situation in Ireland, where the crimes and torts of maintenance and champerty still exist. ......”

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:

“[44] In my view, upholding agreements between a litigant and a third party who finances the litigation for reward is also consistent with the constitutional values underlining freedom of contract. ......

[46] ...... According, it must be held that an agreement in terms of which a stranger to a lawsuit advanced funds to a litigant on condition that his remuneration, in case the litigant wins the action, is to be part of the proceeds of the suit, is not contrary to public policy. Price Waterhouse are therefore not entitled to base a defence on the assistance agreement.”

Southwood AJA at page 169 concluded as follows:

“[52] To summarise:

(1) an agreement in terms of which a person provides a litigant with funds to prosecute an action in return for a share of the proceeds of the action is not contrary to public policy or void;

(2) the illegality of such an agreement to an attorney’s contingency fee agreement would not be a defence to the action;

......”

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:

“[52] To summarise:

......

(3) litigation pursuant to such an agreement may constitute an abuse of the process which in appropriate circumstances a court may prevent notwithstanding a litigant’s right of access to the courts enshrined in s 34 of the Constitution.”

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:

(a)	the ALF “promotes best practice in Litigation Funding, including by seeking adherence to the [UKCoC] and by improving the understanding of the uses and applications of Litigation Funding” (paragraph 2);
(b)	membership of the ALF “is open to those persons or entities that satisfy the eligibility requirements set out in the [UKCoC] and the Articles and comply with these Rules” (paragraph 3.1);[219]
(c)	when a funder (applicant) “applies for Membership or renewal thereof the Applicant shall ...... provide to the [ALF] written confirmation that the Applicant accepts responsibility to the [ALF] for compliance with the [UKCoC] by a Funder’s Subsidiary or Associated Entity on whose behalf the Applicant acts in respect of Litigation Funding within England and Wales; and ...... identify, from time to time, any such Funder’s Subsidiary and/or Associated Entity” (paragraph 3.4);
(d)	“[every] member and Associate Member shall abide by the [UKCoC]” (paragraph 6.1).

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:

“81. To overcome the potential injustice to a respondent occasioned by a PCO [protective costs order] being made in a case which after the substantive hearing turns out not to be a PIL case, there has to be some additional justification compelling such an exceptional measure to be adopted. Thus, at the interlocutory stage when the court is asked to assess whether a PCO should be made without knowing with some certainty that the PIL criteria would be satisfied at the end of the day, we are of the view that the court should bear in mind the following additional considerations (on top of those set out at [70] and [71] above)[221] which are germane to assessing whether a PCO should be made in the public interest:

(d) Because of the lack of full understanding of the issues and their merits at the interlocutory stage, a PCO represents a more exceptional departure from the general rule of costs following the event as compared with a Chu Hoi Dick order made after judgment on account of PIL;

(e) The mere raising of a point of general public importance by an altruistic litigant (viz. one having no private gain or interest in the proceedings) is not a ground for the making of a PCO. The issue raised must be sufficiently special so that it would be contrary to the public interest and the interests of justice to deprive the court of the opportunity to adjudicate on the same in this particular case;

(f) As the applicant would have to fund his legal representation and as appropriate legal representation is necessary for the proper determination of an issue of such importance, and since a conditional fee agreement is not permitted in this jurisdiction, the court should be provided with information on how the applicant’s litigation is to be funded.”

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:

“...... highlighted the requirement in the Aarhus Convention (against the background of inadequacy of legal aid in England based on the policy of litigation funding by conditional fee agreements) had influenced the development of PCOs by the English Courts ...... However, the European Court still held that such developments fell short of the requirement under the relevant Council Directive ...... Eventually, these decisions led to statutory changes setting up two different regimes: one for environmental cases and one for other cases. We shall not go into the details of such developments in this judgment as the Aarhus Convention and the Council Directive have no application in Hong Kong. As we said above, we do not see a compelling case in Hong Kong for similar developments in this jurisdiction.” (my emphasis)

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:

“89. As Mason P rightly pointed out in the Court of Appeal, many people seek profit from assisting the processes of litigation. That a person who hazards funds in litigation wishes to control the litigation is hardly surprising. That someone seeks out those who may have a claim and excites litigation where otherwise there would be none could be condemned as contrary to public policy only if a general rule against the maintenance of actions were to be adopted. But that approach has long since been abandoned and the qualification of that rule (by reference to criteria of common interest) proved unsuccessful. And if the conduct is neither criminal nor tortious, what would be the ultimate foundation for a conclusion not only that maintaining an action (or maintaining an action in return for a share of the proceeds) should be considered as contrary to public policy, but also that the claim that is maintained should not be determined by the court whose jurisdiction otherwise is regularly invoked?

90. Two kinds of consideration are proffered as founding a rule of public policy – fears about adverse effects on the processes of litigation and fears about the ‘fairness’ of the bargain struck between funder and intended litigant. In Giles v Thompson, Lord Mustill said that the law of maintenance and champerty could best ‘be kept in forward motion’ by looking to its origins: these his Lordship saw as reflecting ‘a principle of public policy designed to protect the purity of justice and the interests of vulnerable litigants’.

91. Neither of these considerations, whatever may be their specific application in a particular case, warrants formulation of an overarching rule of public policy that either would, in effect, bar the prosecution of an action where any agreement has been made to provide money to a party to institute or prosecute the litigation in return for a share of the proceeds of the litigation, or would bar the prosecution of some actions according to whether the funding agreement met some standards fixing the nature or degree of control or reward the funder may have under the agreement. To meet these fears by adopting a rule in either form would take too broad an axe to the problems that may be seen to lie behind the fears.” (my emphasis)

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”:

“93. As for the fears that “the funder’s intervention will be inimical to the due administration of justice”, whether because “the greater the share of the spoils ...... the greater the temptation to stray from the path of rectitude” or for some other reason, it is necessary first to identify what exactly is feared. In particular, what exactly is the corruption of the process of the Court that is feared? It was said, in In re Trepca Mines Ltd (No 2), that “[t]he common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress the evidence, or even to suborn witnesses”. Why is that fear not sufficiently addressed by existing doctrines of abuse of process and other procedural and substantive elements of the court’s processes? And if lawyers undertake obligations that may give rise to conflicting duties there is no reason proffered for concluding that present rules regulating lawyers’ duties to the court and to clients are insufficient to meet the difficulties that are suggested might arise.” (my emphasis)

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:

“[28] ...... It is not the role of the courts to act as general regulators of litigation funding arrangements. If that is considered desirable, it is a matter for the legislation or regulation. It is certainly not the courts’ role to give prior approval to such arrangements, at least in cases not involving a representative action. Whether or not the courts have a wider supervisory role in a representative action is not before me and we make no comment on it.

[29] The role of the courts is to adjudicate on applications brought before them in a proceeding.[223] This leads onto a consideration of the type of application where the existence and terms of a litigation funding arrangement may have some relevance. The other party may, as happened in this case, apply for a stay of the proceeding on the basis that the funding arrangement is an abuse of process.[224] The existence of a litigation funder may also be relevant in any application for security for costs.[225] Finally, the successful party could apply for third party costs orders against the funder.

......

[76] We summarise our conclusions as follows:

......

(e) A stay on the grounds of abuse of process should only be granted where there has been a manifestation of an abuse of process on traditional grounds or where the funding arrangement effectively constitutes the assignment of a cause of action to a third party in such circumstances where an assignment is not permissible. In assessing whether there has been an assignment, the court will have regard to the funding arrangements as a whole, including the level of legal control able to be exercised by the funder, the profit share and the role of the lawyers acting.” (my emphasis)

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):

“82. ...... it would be permissible and even honourable for an Advocate and Solicitor to act for an impecunious client in the knowledge that he would likely only be able to recover his appropriate fees or disbursements if the client were successful in the claim and could pay him out of those proceeds or if there was a costs order obtained against the other side.”

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:

“[45] In our view, one of the key elements in effectively representing a client’s interests is the ability of the lawyer to maintain a sufficient sense of detachment so as to be able to discharge his duty to the court. That duty is ultimately paramount and trumps all other duties. It follows that the considerations most engaged by the offence of champerty are those concerning the administration of justice and the related need to safeguard confidence in and the honour of the professional that is tasked with the vital role of assisting the judiciary in their mission: see Ravindra Samuel at [12]. But these are not static principles; with the passage of time comes a better understanding of how these should be appreciated and weighed with new considerations. ......

[46] There is an emerging trend in some jurisdictions towards recognising that champertous fee agreements properly regulated can help some litigants gain access to justice. As Lord Phillips of Worth Matravers noted in R (Factortame Ltd) v Transport Secretary (No 8) [2003] 1 QB 381 (at 408):

Conditional fees are now permitted in order to give effect to another facet of public policy – the desirability of access to justice. Conditional fees are designed to ensure that those who do not have the resources to fund advocacy or litigation services should none the less be able to obtain these in support [of] claims which appear to have merit.

So too, in Singapore, has there been some push to reform the law in this direction. But we reiterate two points: first, 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.” (my emphasis)

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):

“42. ...... This is that (a) in considering whether a [LFA] is unlawful on the grounds of maintenance and 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 circumstance of a particular agreement; and (b) the rules against champerty are primarily concerned with the protection of the integrity of the litigation process in this jurisdiction. The underlying concern is the risk of abuse. The funder’s prospect of and need to protect and maximize profits may tempt the funder to interfere with the litigation process in a way that might inflame (inflate) claims, suppress evidence or suborn witnesses.”

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:

“44. This brings us to the second practical matter: legal aid. Notwithstanding the submissions of Mr Kat and the evidence the applicant relied upon, it is quite clear to us that legal aid in Hong Kong is much more liberal and generous than that available in England and Wales. ...... Unlike England and Wales, the resources devoted to legal aid in Hong Kong have been ever increasing. ...... Further, again unlike the position in England and Wales, budgetary constraints have not been the concerns of the Director of Legal Aid in the exercise of his power to grant or refuse legal aid. Decisions are strictly made according to the statutory criteria of merits and financial eligibility (and the latter can be waived). The merits threshold is low and the decision of the Director is subject to review by way of an legal aid appeal heard by a Master of the High Court. ......

......

84. In the Hong Kong context, with our experience on the funding of public law cases by legal aid in the past two decades, including public law challenges in important environmental cases, we do not find a compelling case for the revolutionary liberalization of the PIL costs regime as has been gone through in England in terms of the post- Corner House jurisprudence. The English developments culminated in the recent legislative changes in the form of Pt.4 of the CJCA [Criminal Justice and Courts Act 2015]. It is not for us to comment on those changes in the English context. In the Hong Kong context, it suffices for use to say that under our legal aid regime, it is unimaginable that the scenario in Re appeals by the Government Body of JFS [2009] 1 WLR 2353 would occur in Hong Kong, and as stated above we believe our legal aid regime has so far done a good service to promote and facilitate access to justice in public law cases.” (my emphasis)

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:

“28. In my judgment the deed of assignment is not caught by the prohibition against champerty. I reach this conclusion because it clearly has a legitimate commercial purpose, namely, the funding of a claim that might otherwise not be capable of prosecution and it is the type of transaction that ought not to be stifled by the prohibition against champerty. This conclusion is consistent with my decision in Re Cyberworks Audio Video Technology Ltd which would require (in line with the decision in Bank of China (Hong Kong) Ltd v Chan Yeuk Wai) an independent indication that the agreement would give rise to trafficking or gambling in litigation before a funding agreement became objectionable.”

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):

“36. I therefore hold that the arbitration proceedings were not affected by the law of champerty for the reasons that –

1. the law of champerty exists to protect the integrity of the public civil justice system.

2. the prevailing approach is to permit private parties, especially in the field of commerce, to make their own arrangements provided that there is no fraud or undue influence, factors which would, in any event, ground a completely separate cause of action.”

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:

“It can be seen that properly structured litigation funding does not infringe the rules against maintenance and champerty, primarily because it is considered to be a means of providing access to justice.” (my emphasis)

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:

s.98E	The purposes of Part 10A (Third Party Funding of Arbitration) are to: “(a) ensure that third party funding of arbitration is not prohibited by particular common law doctrines; and (b) provide for measures and safeguards in relation to third party funding of arbitration” (my emphasis).
s.98X	“(1) The [SJ] may, by notice published in the Gazette, appoint as the advisory body a person the [SJ] considers appropriate to monitor and review the operation of this Part.
s.98Q	“(1) Without limiting section 98P, the code of practice may, in setting out practices and standards, require third party funders to ensure that – (a) any promotional materials in connection with third party funding of arbitration is clear and not misleading; (b) funding agreement sets out their key features, risks and terms, including [degree of control, liability for adverse costs, insurance premiums, security for costs, and other financial liabilities, termination of funding agreement];[237] (c) funded parties obtain independent legal advice on funding agreements before entering into them; (d) third party funders provide to funded parties the name and contact details of the advisory body;[238] (e) third party funders have a sufficient minimum amount of capital;[239] (f) third party funders have effective procedures for addressing potential, actual or perceived conflicts of interest and the procedures enhance the protection of funded parties; (g) third party funders have effective procedures for addressing complaints against them by funded parties and the procedures allow funded parties to obtain and enforce meaningful remedies for legitimate complaints; (h) third party funders follow the procedures mentioned in paragraphs (f) and (g); (i) third party funders submit annual returns to the advisory body on – (i) any complaints against them by funded parties received during the reporting periods; and (ii) any findings by a court or arbitral tribunal of their failure to comply with the code of practice or Division 5; and (j) third party funders provide to the advisory body any other information it reasonably requires.”
s.98R	“(1) Before issuing a code of practice, the authorized body must – (a) consult the public about the proposed code of practice; and (b) publish a notice to inform the public of the proposed code of practice. (2) In preparing the proposed code of practice for public consultation, the authorized body may consult a person with knowledge or experience of arbitration or third party funding of arbitration. ...... (4) After considering all written submissions made before the specified time, the authorized body may issue the code of practice (with or without revision) by publishing it in the Gazette. ......”

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:

“2.10 We recommend that:

(1) At this first stage of Third Party Funding of Arbitration in Hong Kong, a ‘light touch’ approach to its regulation should be adopted for an initial period of 3 years, in line with international practice and in accordance with Hong Kong’s needs and regulatory culture.

......

(8) After the conclusion of the first three years of operation of the Code, the Advisory Body should issue a report reviewing its operation and make recommendations as to the updating of the ethical and financial standards set out in it. At this time the Advisory Body should also make recommendations on whether a statutory or other form of body is needed, how it could be set up and as to the criteria for selecting members of such a body. In the meantime, the Advisory Body could at the end of each year review whether or not to speed up the process for regulation by an independent statutory or other form of body. The report should also deal with the effectiveness of the Code and make recommendations as to the way forward.”

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:

“5.17 We have noted the strong public support for the need to have some regulatory regime in place to ensure that the development of Third Party Funding for Arbitration in Hong Kong is fair and transparent, providing parties with access to further sources of funding for their cases while preserving the integrity of the arbitration process.”

This is succinctly reflected in a submission from the public found in the HKLRC’s final report on Third Party Funding for Arbitration:

“4.5 One Respondent stated that:-

‘... from a business perspective, there is a potential for a whole new Third Party Funding industry to develop with multiple players competing with each other creating segmentation and specialisation.  If something like this is to be developed, it has the potential to shift the focus of the arbitration from litigants to the Third Party Funders and the law firms.  To ensure that the ultimate purpose of the whole new set-up is to support litigants, a strong regulatory environment for the requisite ethical and financial standards is needed to monitor the activities of the stakeholders in this industry in particular the Third Party Funders. Such ethical and financial standards should apply to both Third Party Funders and lawyers who are effectively funding the proceedings.’”

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):

(a)	the modern doctrine of champerty is one of public policy which is not fixed and changes with the passage of time
(b)	trafficking in litigation remains unlawful;
(c)	the question whether an agreement to fund litigation in return for a share of the litigation proceeds has a tendency to corrupt public justice is to be determined in light of the facts of each case;
(d)	whenever there is a profit element beyond the amount of the funder’s pre-existing loss, that may not necessarily be champertous as it depends on the agreement and the circumstances in which it was made;
(e)	all the aspects of the transaction are relevant, and the court ought therefore to place such transactions under careful scrutiny.

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 2^nd 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 2^nd 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 1^st/2^nd 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 2^nd 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 1^st/2^nd 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:

“73. ...... In relation to BL 35 and BOR 10, it has firmly been established in the jurisprudence of the European Court of Human Rights in relation to the closely analogous right of access under art.6(1) of the European Convention on Human Rights, that such right is by its nature not absolute, but may be subject to limitations. Such limitations are valid if they pursue a legitimate aim, are proportionate to that aim and are not such as to impair the very essence of the right: Ashingdane v United Kingdom (A/93) (1985) 7 EHRR 528 at §57; Tolstoy Miloslavsky v United Kingdom (A/323) (1995) 20 EHRR 442 at §59).”

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:

“D2. Is art.35 of the Basic Law infringed?

41. I have earlier referred to the essence of the right of access to the courts contained in art.35 and the buttress it provides to the integrity of elections. There is no doubt that s.34 of the CEEO can be regarded as placing restrictions on that right. But whether such restrictions amount to an infringement of that constitutional right depends on whether on analysis the essence of the right has been impaired. In the context of the right of access to court, the European Court of Human Rights has said that the right is not an absolute one and any restrictions placed on it must be examined to see whether the essence of the right has been impaired. This analysis has been applied in Hong Kong in relation to the right to marry contained in art.37 of the Basic Law.”

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 1^st/ 2^nd 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:

“57. Certainly, the right of access to the courts is not absolute but may be subject to limitations; these are permitted by implication since the right of access, ‘by its very nature calls for regulation by the State, regulation which may vary in time and place according to the needs and resources of the community and of individuals’. In laying down such regulation, the Contracting States enjoy a certain margin of appreciation. Whilst the final decision as to observance of the Convention’s requirements rests with the Court, it is no part of the Court’s function to substitute for the assessment of the national authorities any other assessment of what might be the best policy in this field.” (my emphasis)

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):

“119. ...... considerations regarding access to justice are of increasing importance in discussions of public policy in this area. Access to a court is recognised internationally as a fundamental right and the many countries which have acceded to relevant international instruments can be expected to pursue measures appropriate to their individual circumstances to give effect to that right. They will strike their own balances between countervailing demands, determining the scope to be accorded to that right in the light of their resources, institutions and traditions. Moreover, as we have noted, public policy in a particular jurisdiction is this respect is apt to change. 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. ......” (my emphasis)

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:

“48. As noted by Morritt LJ in Re Latreefers Inc [2001] BCC 174 at [49]: “There remained a public interest in preventing the development of an unlicensed and unregulated market in litigation for fear of the abuses to which that might lead in the hands of the unscrupulous. It was a legitimate potential ground of concern if the funder’s interest in the litigation was tenuous by comparison with his prospective share of the spoils.” ......”

In Raafat Imam, DHCJ Fee was also of the same view (pages 185-186):

“113. There remains a public interest in preventing the development of an unlicensed and unregulated market in litigation for fear of abuses by the unscrupulous.

114. In the present case, the Funding Agreement is however not subject to any regulatory framework in Hong Kong. [The funder] is also not subject to any regulatory or licensing framework. In fact, no such framework is in place in Hong Kong at the moment.

......

116. As observed 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.”

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:

(a)	the public policy in Hong Kong is to continue to uphold the common law principles against maintenance and champerty;
(b)	although there is an Access to Justice Exception, the fundamental right of access to justice is not absolute;
(c)	there is a public interest in preventing the undesirable development of an unlicensed and unregulated market in litigation for fear of abuses by the unscrupulous and unacceptable commercialisation of litigation which should not be commoditised;
(d)	a cautious or conservative approach should be adopted with third party funding agreements/arrangements in litigation regulated by or at least with oversight by the legislature with sufficient measures and safeguards against abuses;
(e)	these wider public policy concerns may not be adequately addressed by the drafting of the LFA (which currently requires individual oversight – see Part XI of Judgment (2)), the requirement for disclosure (which is currently uncertain – see paragraphs 306-310 above), and the recourse to modern court procedure (which is currently useful in many respects but has its limitations – see paragraphs 271-305 above and paragraphs 399-400 below);
(f)	it may not be in the public interest for the court to invoke its declaratory jurisdiction to sanction third party funding in litigation without such regulatory regime with statutory underpinning in place.

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]

“Given the inevitability of future-contested issues in these cases, the question that must be asked is how the less well off spouse who has little or no assets in advance of the divorce settlement can fund the level of expert advice and representation required in order to secure an award which meets the judicially constructed standard of ‘fairness’. Indeed, in big-money divorces, the division of labour between the spouses tends to follow the paradigm female homemaker/male breadwinner model of family economics and, as such, one of the parties is likely to be impecunious compared to the other. However, given the potential complexities of the case and the uncertain application of the legal principles, expert legal representation and support is essential to enable a divorcing spouse to obtain their full entitlement, especially when the other partner can easily command it. ...... Equality of arms is not likely to be afforded to one who has to rely on a high street firm while his or her wealthy spouse can pay for the services of a firm with a specialist private client department. Wilson J. (as he then was) summarised the problem in Sears Tooth v Payne Hicks Beach:

‘... how can a spouse, usually a wife, who is ineligible for legal aid but who has negligible capital, secure legal advice and representation in order to pursue her rights against her husband, particularly one who is rich, litigious or obstructive or whose financial circumstances are complex or unclear.’” (my emphasis)

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:

“In my judgment, in an appropriate case, maintenance pending suit provides a partial answer and, for the reasons I have now given, I made the order in the present case. I add that, since I made the order, the House of Lords has given its judgment in White v White [2000] 3 WLR 1571. That did not, of course, impact at all on my conclusion which I had reached and announced several days earlier, nor on my reasons for it. However, Lord Nicholls of Birkenhead stressed, in relation to the substantive outcome, that there is no place for discrimination between husband and wife and their respective roles. In my view, that substantive approach may be illusory if 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. The changing climate for the outcome of matrimonial litigation, which the House of Lords has clearly heralded, further fortifies me in my view as to financing its interlocutory stages.” (my emphasis)

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 1^st bill but could not meet the 2^nd 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:

“5(1) Legal aid to which this section applies shall, subject to and in accordance with [the LAO], be available for any person whose financial resources do not exceed $307,130, for the civil proceedings mentioned in Part I of Schedule 2, except proceedings mentioned in Part 2 of that Schedule.”

“5A Legal aid to which this section applies (being legal aid under the Supplementary Legal Aid Scheme) shall, subject to and in accordance with [the LAO], be available for any person –

(a) legal aid is not available under section 5 because his financial resources are in excess of the amount therein prescribed; and

(b) whose financial resources exceed $307,130 but do not exceed $1,535,650,

for the civil proceedings mentioned in Part 1 of Schedule 3, except proceedings mentioned in Part 2 of that Schedule.”

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:

“The starting point in this analysis is an acknowledgment of the difference between the kind of cases we are dealing with and the cases above which have offered support to commercial funding. The first difference to recognise is that in the cases above the funder was directly (in Factortame) or indirectly (in Giles v Thompson) looking to the proceeds of litigation as payment for services other than lending money. We do not think this difference is significant. The acid test should be whether the funder interferes with the litigation and thereby abuses the legal process. This would not happen where the funder simply lends money and allows the maintained party to get on with pursuing the case. Neither should it make any difference that repayment of the loan is to be directly from the settlement proceeds. Provided the funder avoids any intermeddling in the litigation it is reasonable to build in an additional security for repayment of the loan. The maintained party has no other means of repaying and where there is only her personal covenant to repay the reality is that the money will come from the divorce settlement. The second difference is that matrimonial cases, in contrast to the others, cannot be undertaken using a conditional fee agreement. This is a significant indication of prevailing public policy, but should not make for a difference as regards the enforceability of matrimonial funding agreements. The reason why conditional fees are not allowed for matrimonial cases is to try and ensure that lawyers give their clients advice on settlement unaffected by their concerns over payment of fees. Speculation and risk share, normal features of litigation supported by conditional fees, do not fit comfortably into this arena. A litigant in a matrimonial case has nothing like the same sort of choice whether to litigate as someone undertaking most litigation currently serviced by conditional fees. In short, conditional fees are kept out of matrimonial cases for reasons that do not apply to a litigation funder who does not meddle in the litigation.” (my emphasis)

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:

“It is clear that there are limitations to the current funding options and thus a potential imbalance between the ability of the parties to fund the litigation. However, into this breach several banks have moved. As reported in the Financial Times in June 2006, banks have been providing litigation loans to wives (typically) to fund their applications for ancillary relief in divorce proceedings. One bank, Duncan Lawire, was reported to having announced a ‘matrimonial dispute loan’, offering funds at 2 per cent over base rate with a per cent fee. The bank was reported as making no secret of its hope that clients borrowing money for this purpose would utilise the bank’s asset management services once the divorce settlement was obtained, although no legal commitment to do this is entered into. Butterfield Private Bank is prepared to lend anything between £50,000 and £150,000 secured on the borrower’s matrimonial home or share of the divorce settlement. Interest is charged at a margin of 2 to 5 per cent above base rate and the maximum term of the loan is usually 18 months. Lender and borrower could agree that the loan be repayable without the settlement being specified as the source of repayment, although realistically it would be the source in practice.

There may be some risk for banks in providing litigation funding of this kind. The provision of financial support for another person’s litigation potentially amounts to maintenance and if the maintainer is to receive any portion of the recovery from litigation this might be champertous. ...... a direct funder of litigation funding who is providing no other services than the funding of the litigation has no obviously legitimate interest. So litigation funding for ancillary relief where the borrower simply has to repay the loan may be open to the objection that it constitutes maintenance and where the loan is to be repaid from the settlement this may be champertous. ......

In light of this, the next section addresses two questions. First, whether a funding agreement of the kind described above is likely to fall foul of the laws against maintenance and champerty. Secondly if the answer to this question is ‘yes’, would the funding agreement be rendered unenforceable between the parties so that the borrower is absolved from his or her obligations under it? ......”

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:

“30. A characteristic of matrimonial or family proceedings which all those involved in it (parties and those relatives who supported them, lawyers as well as judges) should always be mindful is that the resources (including both time, monies as well as energy) of the parties should not be disproportionately squandered away in litigation. This is particularly so in cases where there are children in the family. For each $10,000 spent on legal fees, the parties would eventually have $10,000 less to be distributed among themselves (in a sharing case) or for maintaining themselves and their children (in a need case). For each hour spent on preparation and attending hearing, the party would have one hour less for rebuilding their lives after divorce or for spending time with their children. Actually, it could probably be worse because in many instances the time and energy spent on litigation would generate ill-feelings and hostilities for which much more time is needed to restore the litigant’s peace of mind.”

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 3^rd 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:

“10. I remind myself of the overriding objective in rule 1.1 of the 2010 Family Procedure Rules that cases must be dealt with justly. This case has fallen foul of just about every part of this rule. So far as practicable, cases must be dealt with expeditiously and fairly yet this case has taken nearly seven years. They must be dealt with proportionally. Even though the Husband's affairs were exceptionally complicated, the case has not been dealt with proportionally at any stage. Parties are to be on an equal footing. The Wife has been able to spend around £6.5 million in funding whilst the Husband has been in person virtually throughout. I entirely accept that, if I find that he has hidden substantial assets, it will follow that his decision to act in person was a deliberate tactical one. The Rule goes on to say that expense has to be saved. There has been absolutely no saving of expense in this case. Finally, the court has to allot to each case an appropriate share of the court’s resources. It is difficult to see how 65 preliminary hearings followed by a final hearing lasting 20 days can possibly be a fair allocation of this court’s limited resources on one case.

11. It follows that I am quite sure that in cases such as this, there should be rigorous control on the amount spent, in particular, on expert evidence. It cannot be right that all the litigation funding is spent long before the final hearing, which is, on any view, the most important part of the entire litigation exercise. Maximum figures need to be placed on the disbursements incurred. If the solicitors and clients are not willing or able to do so, the court will have to impose limits. Without such restraints, litigation funders will be put off supporting these cases for ever.

12. I have deliberately decided not to deal with the terms on which the Wife’s litigation funding is said to have been advanced. I have not heard from the litigation funders. It may be that the Wife will, in due course, challenge the enforceability of the agreements. It would be completely wrong for me to say anything that might influence any such litigation. I will therefore be dealing with the case on the basis that the Wife has total debts of around £6.5 million connected with this litigation. Moreover, her liabilities may increase substantially if the funders can enforce the terms of their contracts with her.” (my emphasis)

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:

“6. The ability of a party to pay a cost award is a factor that can be considered, but as noted by Judge Dyer in M.C.Q. v. P.L.T. 2005 NSFC 27:

‘Courts are also mindful that some litigants may consciously drag out court cases at little or no actual cost to themselves (because of public or third-party funding) but at a large expense to others who must ‘pay their own way’. In such cases, fairness may dictate that the successful party’s recovery of costs not be thwarted by later pleas of inability to pay. [See Muir v. Lipon, 2004 BCSC 65].”

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 1^st/2^nd 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 1^st/2^nd Declarations (see paragraph 144(d) above).

427.  Mr Scott SC argued that if the court declines to grant the 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd Declarations were not granted would not be because of the Husband’s concerns/reluctance but because the Funder insisted on securing of the 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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):

“[18] To the extent the doctrine of champerty and maintenance remains relevant in Canadian common law, even as means of protecting the courts and vulnerable litigants against abuses, its purpose 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.” (my emphasis)

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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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 1^st/2^nd 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 2^nd 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:

(a)	the Husband’s application to amend the Amended OS in the manner set out in paragraph 28(a) above be dismissed;
(b)	the SCG 2nd Aff and the Husband Aff shall be kept on the court file in a sealed envelope and not be searched or copied by any person or entity other than the Husband;
(c)	save as provided for in (b) above, the Husband’s Amended OS and Summons be dismissed.

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.

Schedule

 

Changes in the laws against maintenance and champerty and other related developments in different jurisdictions

 

A.                    ENGLAND AND WALES

B.                    AUSTRALIA

C.                    CANADA

D.                    SOUTH AFRICA

E.                     CAYMAN ISLANDS

F.                     JERSEY

G.                    IRELAND

H.                    BERMUDA

I.                      BRITISH VIRGIN ISLANDS

J.                     TRINIDAD & TOBAGO

K.                    SINGAPORE

L.                     NEW ZEALAND

M.                   HONG KONG