RAAFAT IMAM v. LIFE (CHINA) CO LTD AND OTHERS

HCA 1508/2017

[2018] HKCFI 1852

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1508 OF 2017

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JUDGMENT

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INTRODUCTION

1.  In this action (“Action”), the Plaintiff claims against the 1^st and 2^nd Defendants for, inter alia, damages for breach of a Consultancy Agreement dated 6 January 2004 (“Consultancy Agreement”).  The Plaintiff also claims against the 3^rd Defendant for, inter alia, payment of all sums due under the Consultancy Agreement pursuant to a Guarantee also dated 6 January 2004 (“Guarantee”). 

2.  The Plaintiff claims that he does not have sufficient financial means to pursue the Action without the benefit of a third party litigation funding agreement.[1]  He seeks this Court’s approval of a funding agreement into which he proposes entering with IMF Bentham Limited (“IMF”), subject to such approval being given.  It is not in dispute that IMF is a professional litigation funder listed on the Australian Securities Exchange.   

3.  The Plaintiff now applies, by way of a summons dated 12 January 2018 (“Application”) for the following orders under the inherent jurisdiction of the Court[2]:

(1)  a Declaration[3] that the proposed litigation funding agreement for the Plaintiff to carry on the Action in the terms exhibited in the affidavit of Andrew John Saker dated 20 December 2017 (“Funding Agreement”) does not offend the law prohibiting maintenance and champerty and/or falls within the recognized exception relating to access to justice[4]; and

(2)  the Funding Agreement be approved.

4.  The primary position of the Plaintiff is that the Funding Agreement per se does not fall foul of the prohibitions of maintenance andchamperty. In the event that the Court is not with the Plaintiff on his primaryposition, the Plaintiff’s fallback position is that the Funding Agreement falls within the access to justice exception.  

5.  The Defendants oppose the Application and say that the Court should refuse to exercise its discretion to grant the declaration sought because the Plaintiff is effectively seeking a declaration of non-criminalityfrom a civil court.  The Defendants also say that the Funding Agreement per se is champertous and it does not fall within the access to justice exception.  

6.  It is not in dispute that a declaration is a discretionary relief.  In any event, it is trite that the power to make a declaration is a discretionary power.[5]

7.  It is clear that the claim under paragraph 3(2) above will stand or fall with the claim under paragraph 3(1) above.

8.  Thus, the issues which the Court has to decide are:

(1)  Whether the Court should exercise its discretion to grant the declaration sought (“Issue 1”);

(2)  If the answer to Issue 1 is yes, whether the Funding Agreementper se falls foul of the prohibitions of maintenance and champerty (“Issue 2”); and

(3)  If the answer to Issue 2 is yes, whether the Funding Agreement falls within the access to justice exception (“Issue 3”).

BACKGROUND

9.  As shown in the affidavit evidence[6], it is not in dispute that the Plaintiff is resident in Australia and has been in the fashion business for a considerable period of time.  The 3^rd Defendant is a Hong Kong resident.  The 1^st and 2^nd Defendants were set up by the 3^rd Defendant as his corporate vehicles for running his fashion retail business in Hong Kong and the Mainland.  In around 2000, the Plaintiff met in his fashion shop the 3^rd Defendant when the 3^rd Defendant was studying for a degree in Australia.  The Plaintiff impressed the 3^rd Defendant as a successful and wealthy businessman.  The 3^rd Defendant was interested in business and entrepreneurship, and hence he wished to learn from the Plaintiff’s success. The 3^rd Defendant showed great respect for the Plaintiff and treated him as his mentor.

10.  It is the Plaintiff’s case[7] that by the Consultancy Agreement made on 6 January 2004, the 1^st and 2^nd Defendants agreed to engage him to provide consultancy services to their business in Hong Kong and the Mainland.  As consideration for his consultancy services, the 1^st and 2^nd Defendants agreed to pay him, inter alia, a consultancy fee.  Also on 6 January 2004, the 3^rd Defendant executed the Guarantee whereby the 3^rdDefendant, inter alia, guaranteed to the Plaintiff the performance by the1^st and 2^nd Defendants of their obligations under the Consultancy Agreement. 

11.  It is the 1^st and 2^nd Defendants’ case that they had never entered into the Consultancy Agreement.  It is the 3^rd Defendant’s case that to the best of his recollection, he also did not sign the Guarantee.  The Defendants challenge the authenticity of the Consultancy Agreement and the Guarantee produced by the Plaintiff.[8]

12.  On 27 June 2017, the Plaintiff filed the Action by a Writ of Summons endorsed with an Indorsement of Claim.

13.  On 27 July 2017, the parties attended a mediation session.  On 18 August 2017, the mediator wrote to the parties and terminated the mediation which was unsuccessful.[9]

14.  On 7 December 2017, the Plaintiff’s solicitors wrote to the Defendants’ solicitors and invited the Defendants to agree to the terms of a consent summons seeking an order approving the Funding Agreement on the ground that it falls within the access to justice exception to the prohibition against maintenance and champerty.

15.  On 12 December 2017, the Defendants’ solicitors replied that the Defendants do not agree to the terms of the proposed consent summons, owing to concerns that the Funding Agreement, which in their view is “clearly champertous”, would be highly likely to “allow officious intermeddling of the litigation and pose genuine risks to the integrity of the Court process” (“Refusal Letter”).

16.  On 12 January 2018, the Plaintiff filed the Application.

17.  Although the Plaintiff has not quantified his claims, it would obviously be fairly substantial.  According to the Plaintiff’s case, the consultancy fee alone would consist of an amount equivalent to 10 percent of the gross sales of each store established by the 1^st and 2^nd Defendants within Hong Kong and the Mainland[10].

MAINTENANCE AND CHAMPERTY REMAIN AS CRIMES AND TORTS IN HONG KONG

18.  The common law rules making maintenance and champerty criminal offences, torts, and a ground of public policy for invalidating tainted contracts, were part of Hong Kong law prior to 1997 and remain applicable by virtue of article 8 of the Basic Law.[11]

19.  Maintenance is the giving of assistance or encouragement to one of the parties to an action by a person who has neither an interest in the action nor any other motive recognised by the law as justifying his interference.  Champerty is a particular kind of maintenance, namely maintenance of an action in consideration of a promise to give to the maintainer a share of the subject matter or proceeds thereof, if the action succeeds.[12]

20.  Under the laws of Hong Kong, the offence of maintenance or champerty is punishable by a fine and up to seven years’ imprisonment.[13]

THE ISSUES

(I)   Whether this Court should exercise its discretion to grant the declaration sought (“Issue 1”)

Key submissions from the Defendants

21.  In opposing the Application, the Defendants’ short point is that the declaration sought is in effect a declaration of non-criminality and such declaration should not be granted by a civil court.

22.  In summary, the Defendants submitted that:

(1)  the Plaintiff is seeking a declaration of non-criminality;

(2)  the Plaintiff has failed to show exceptional circumstances to warrant the granting of a declaration of non-criminality;

(3)  even if the Plaintiff is able to show exceptional circumstances, the Plaintiff has failed to join the Director of Public Prosecutions (“DPP”) or the Secretary for Justice (“SJ”)[14] as a proper contradictor in the Application;

(4)  the recent Cayman Islands case of A Company v A Funder[15],in which a funding agreement is approved, would not assist the Application;

(5)  the third party funding cases in insolvency litigation would not assist the Application; and

(6)  the Application is procedurally defective as declaratory reliefhas to be sought by originating process and not by a summons. 

23.  Further elaborations on the Defendants’ submissions are set out in the Discussion section below.

Key submissions from the Plaintiff

24.  In gist, the Plaintiff submitted that he is not seeking a declaration of non-criminality and therefore the Defendants’ submissions are misconceived.

25.  In summary, the Plaintiff submitted that:

(1)  the Plaintiff is not seeking a declaration of non-criminality;

(2)  in any event, given the importance of the public policy of access to justice, this case would fall into the category of exceptional cases;

(3)  there is a real and present dispute as to the lawfulness of the Funding Agreement between the parties and it is not necessary to join the DPP or the SJ in determining the Application;

(4)  the recent Cayman Islands case of A Company v A Funder shows that the court may properly grant a declaration that the Funding Agreement is lawful;

(5)  the court regularly approves third party funding arrangements involving liquidators or trustees in bankruptcy; and

(6)  there is no problem with the procedure of the Application anddeclaratory relief may be granted on interlocutory applications.

26.  Further elaborations on the Plaintiff’s submissions are set out in the Discussion section below.

Discussion

27.  In order to answer Issue 1, the following 6 sub-issues have to be determined by the Court:

(1)  Is the Plaintiff seeking a declaration of non-criminality?

(2)  Has the Plaintiff shown exceptional circumstances to warrant the Court granting a declaration of non-criminality?

(3)  Is it necessary to join a proper contradictor such as the DPP or the SJ in determining the Application?

(4)  Would the recent Cayman Islands case of A Company v A Funder assist the Application?

(5)  Would the third party funding cases in insolvency litigation assist the Application?

(6)  Is the Application procedurally defective?

(i) Is the Plaintiff seeking a declaration of non-criminality? (“sub-issue 1”)

28.  The Defendants submitted that the Plaintiff, in seeking a declaration that the Funding Agreement does not offend against the law prohibiting maintenance and champerty, is effectively seeking a declarationof non-criminality.  The Funding Agreement does not form part of any issue in the Action.  Maintenance or champerty is not a defence or a ground for a stay unless a plaintiff is obliged to found his cause of action on the illegal agreement.

29.  The Defendants relied on, inter alia, the speeches of ViscountDilhorne in Imperial Tobacco Ltd v Attorney-General [1981] AC 718 (HL)at 742C–D, and the speeches of Lord Lane in the same case at 752C,in support of their key submissions that a civil court will refuse to grant a declaration of non-criminality unless exceptional circumstances are shown by an applicant:

“ 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.” (742C–D)

“ … Where, however, criminal proceedings have been properly instituted and are not vexatious or an abuse of the process of the court it is 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 do not in law prove the offence charged.” (752C)

30.  The Defendants also relied on, inter alia, the speeches of Lord Steyn in R (Rusbridger) v Attorney General [2004] 1 AC 357 at paragraphs 16 and 18:

“ 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. This principle was discussed in Imperial Tobacco Ltd v Attorney General [1981] AC 718. …

…

18. … In R (Pretty) v Director of Public Prosecutions [2002] 1 AC 800 the applicant sought a declaration that it was lawful for Mrs Pretty to be assisted by her husband to commit suicide. Lord Hobhouse of Woodborough observed, at p 851, para 116:

   ‘In exceptional circumstances it may be proper 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.  But that is not what occurred here and, even then, the court would have a discretion which it would normally exercise to refuse to rule upon hypothetical facts.  Had the case raised by the appellant been one where it was appropriateto grant a declaration as to legality or compatibility, the court would no doubt have adopted that approach.’”

31.  On the other hand, the Plaintiff submitted that the principles in Imperial Tobacco do not necessarily apply whenever a party seeks a declaration regarding the lawfulness of an action which may constitute an offence.  The Plaintiff relied on the speeches of Lord Hoffmann NPJ in Securities and Futures Commission v Tiger Asia Management LLC (2013)16 HKCFAR 324 at [17]:

“ Some of the orders sought by the SFC include declarations that Tiger has contravened the prohibition on insider dealing. That, said Lord Grabiner QC, is unacceptable on two grounds. … Thesecond 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 Tigerhas committed a criminal offence. It is seeking a declaration that it has done acts which found jurisdiction under s.213 [of the Securities and Futures Ordinance] but which also happens to be criminal offences. The question of whether Tiger has committeda 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 way influencing a criminal trial.”

32.  The Plaintiff also seeks to distinguish Imperial Tobacco and R (Rusbridger) relied upon by the Defendants.  The Plaintiff submitted that in Imperial Tobacco, a declaration was sought from the civil courts with the objective of influencing the criminal prosecution which had been commenced against the applicant for the declaratory relief.  In R (Rusbridger), whilst no criminal prosecution had been initiated, the Attorney General had refused to condone a potentially illegal act (namely publishing articles advocating republicanism and urging the abolition of the monarchy which might contravene the Treason Felony Act 1848) and judicial review was brought against that decision.  In effect, the parties in both cases wanted to force the government to declare expressly that their acts were not criminal and should not be subject to prosecution.  The Plaintiff submitted that plainly this is not what he is seeking in the Application.  The dispute between the Plaintiff and the Defendants is a private law dispute and the relief sought is a private law one.  There is no evidence of any intending prosecution against the Plaintiff, and there is no prospect of any declaration granted by this Court in the Application influencing any potential criminal process.

33.  Further, the Plaintiff submitted that the doctrines of maintenance and champerty have consequences in civil as well as criminal law.  In Hong Kong, maintenance and champerty are torts, and may be used as grounds to stay or strike out civil proceedings as an abuse of the court process, and may also lead to findings that contracts are void and unenforceable.[16] The question of whether the access to justice exception identified by the Court of Final Appeal in Unruh is applicable on the facts of the present case is also clearly a question of civil law.

34.  In further support of his contention that there is a civil law issue to be resolved by the Court, the Plaintiff cited Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386, Einstein J (at first instance) (at [34]) as an illustration that the court may stay the proceedings on the ground of maintenance and champerty.  The Plaintiff submitted that although Einstein J’s order was subsequently reversed by the Court of Appeal (at [37]), the New South Wales Supreme Court affirmed the Court of Appeal’s decision and concluded at [96] that the funding arrangement did not constitute a ground to stay the proceedings, but only given New South Wales had abolished the criminal offence and tort of maintenance and champerty by the Maintenance, Champerty and Barratry Abolition Act 1993 (NSW) (at [66], [86]).

35.  Further to these submissions, I turn now to the authorities cited.

36.  In so far as Campbells Cash is relied upon by the Plaintiff as an illustration that maintenance and champerty may be used as grounds to stay civil proceedings, such illustration is in conflict with Unruh v Seeberger (2007) 10 HKCFAR 31, at paragraph 95, which clearly provides that they have never been grounds for a stay[17].

37.  It is then vital to have a more detailed analysis of Tiger Asia. In Tiger Asia, the Securities and Futures Commission (“SFC”) sought reliefagainst Tiger Asia under section 213(1) of the Securities and Futures Ordinance (“SFO”) on the basis that it has contravened section 291(5) of SFO[18].  Section 291 of SFO is about the criminal offence of insider dealing. Section 291 is in Part XIV of SFO under which market misconduct including insider dealing is made a criminal offence^[19].  On the other hand,Part XIII of SFO concerns market misconduct including insider dealing (section 270 of SFO) as a civil wrong.  Parts XIII and XIV are mutually exclusive and constitute a dual civil and criminal regime to deal with market misconduct.  By naming section 291(5) as the contravening section,plainly SFC was relying on the criminal regime.  At first glance, the relief sought by SFC in TigerAsia has the hallmark of a declaration of criminality.  

38.  However, upon closer examination, it is clear that the context of Tiger Asia is quite different from that of the present case.  The court’s jurisdiction under section 213(1) of SFO in Tiger Asia turns on its proper construction[20], no more no less.

39.  Section 213(1) of SFO reads as follows:

“ (1) Where—

(a) a person has—

(i) contravened—

(A) any of the relevant provisions [which include section 291(5) of SFO];

…

the Court of First Instance, on the application of [SFC], may, subject to subsection (4), make one or more of the orders specified in subsection (2).”

40.  Section 213(1) of SFO confers statutory jurisdiction on the Court of First Instance where certain condition is fulfilled, the condition being a contravention of section 291(5) in the case of Tiger Asia.  Ordinarily, if a power conferred upon a court is expressed to be conditional upon something having happened, the court has jurisdiction to decide whether it has happened or not[21].

41.  Hence, unless section 213(1) of SFO is, say, void for contravention of the Basic Law or the Bill of Rights, Tiger Asia is only about the proper construction of that section 213(1), in particular the provision “where a person has contravened any of the relevant provisions”.  Such construction is of course only for the purposes of section 213(1) of SFO. It has nothing to do with a declaration of criminality or non-criminality.  It does not relate to the criminal consequences of conduct.  It only pertains to criminal proceedings. Hence, the Court of Final Appeal held that[22]:

“ … But the SFC is not seeking a declaration that Tiger has committed a criminal offence. It is seeking a declaration that it has done acts which found jurisdiction under s.213 but which alsohappen to be criminal offences. The question of whether Tiger 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 way influencing a criminal trial.”

42.  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.  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 criminalconsequences of conduct[23].  Tiger Asia, as explained by the Court of Final Appeal in the passage quoted above, is in the former category and so the declaration sought was granted. In Imperial Tobacco, the applicant was however asking for a declaration that promoting a particular scheme would not be a criminal offence, for the purpose of forestalling a prosecution or guiding a judge ormagistrate at a criminal trial[24].  The present case, like Imperial Tobacco, ishowever in the latter category.  In the present case, the Plaintiff is in essence seeking a declaration that a proposed act is lawful.  The dispute between the Plaintiff and the Defendants may be a private law dispute.  However, the effect of the Application is to declare if the Plaintiff’s and/or IMF’s conduct in entering into the Funding Agreement is criminal or not.

43.  In Imperial Tobacco, criminal proceedings have already begun.  The company and its senior officers have already been charged.  The Plaintiff therefore seeks to distinguish Imperial Tobacco on the ground that there is no criminal prosecution against the Plaintiff or IMF, whether on-going or intended, for entering into the Funding Agreement, in the context of the present case.

44.  However, the English Court of Appeal went further in AmstradConsumer Electronics Plc v The British Phonographic Industry Ltd [1986] FSR 159 and held that once there was a possibility of criminal proceedings, a declaration of innocence vis-à-vis conduct which was the subject matter of the potential criminal proceedings should not be made.

45.  The extension made by Amstrad to the principles enunciated in Imperial Tobacco has been analysed by the Court of Appeal of Singapore in Wing Joo Long Ginseng Hong (Singapore) Co Pte Ltd v Qinghai Xinyuan Foreign Trade Co Ltd [2009] FSR 13 at [189]:

“ … The English Court of Appeal went further in Amstrad Consumer Electronics Plc v The British Phonographic Industry Ltd [1986] F.S.R. 159 and held that once there was a possibility of criminal proceedings, a declaration of innocence vis-à-vis conduct which was the subject matter of the potential criminal proceedings should not be made. In Amstrad, the British Phonographic Industry Limited (BPI) sent a letter to Amstrad Consumer Electronics Plc (Amstrad) alleging that the latter had acted unlawfully in the way in which it advertised and marketedits tape recorders. In particular, BPI was of the view that Amstrad had encouraged or had at least enabled purchasers to infringe copyright in pre-recorded cassette tapes by using Amstrad’s two-deck tape recorders to duplicate such tapes. Amstrad then sought a declaration that it had not acted unlawfully. At first instance, Whitford J. refrained from granting the declaration as he was of the view that a criminal offence could have been committed by Armstrad in that the latter ‘could be said to [have been] inciting or procuring or aiding or abetting acts of copyright infringementby those who used their audio systems for that purpose’ (at 160). On appeal, the English Court of Appeal unanimously agreed with Whitford J.’s decision. Lawton L.J. held (at 209):

‘ I do not find it either necessary or proper to adjudge whether,on the evidence before the court, Amstrad [has] incited anyone to commit an offence contrary to section 21(3) of the [Copyright Act 1956 (c.74) (UK)]. In the event of anyone instituting criminal proceedings in respect of Amstrad’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.’

The other two members of the coram, Slade L.J. and Glidewell L.J., concurred with Lawton L.J. on this point (see Amstrad at 217 and 219 respectively).

   As can be seen, Amstrad went further than Imperial Tobaccoin delineating the circumstances in which a civil court should not make a declaration vis-à-vis what might potentially be criminal conduct.  Amstrad would stand for the proposition that as 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. …”

46.  The Plaintiff therefore further submitted that there is no evidence of any realistic possibility of criminal proceedings in the present case.  There can be nothing other than a remote theoretical possibility of such proceedings based only on the fact that maintenance and champerty remain common law criminal offences.  That cannot be enough to trigger the “possibility” proposition based on Amstrad according to the Plaintiff.

47.  The thrust of the Plaintiff’s submissions centred on the archaic aspect of the common law offences of maintenance and champerty.  However, there is no lack of modern jurisprudence on maintenance and champerty in Hong Kong.

48.  In February 2012, the Court of Final Appeal confirmed in the case of Winnie Lo v HKSAR (2012) 15 HKCFAR 16 ([78], [79] and [83]) that the offences of maintenance and champerty were sufficiently certain to be constitutional and that the public concerns on maintenance and champerty continued to exist:

“ 78. Applying the foregoing principles, it is in my view clear thatthe offences of maintenance and champerty possess the required legal certainty to qualify as measures duly ‘prescribed by law’ for art.39 purposes.

79. In Unruh v Seeberger, this Court noted that these offences are traceable in English law back to at least the 13th century. It was pointed out that their core definitions, applicable equally to maintenance and champerty as crimes, as torts and as the basis for rendering contracts unenforceable as against public policy, have remained essentially unchanged throughout this time.

…

83. In Unruh v Seeberger, this Court held that the traditional legal policies underlying maintenance and champerty continue to apply, with the mischief aimed at continuing to be ‘officious intermeddling’ in litigation in the case of maintenance.  It acknowledged the continued relevance of the traditional concerns underlying champerty, namely, the tendency of an agreement to share the spoils of litigation to encourage the perversion of justice; to endanger the integrity of the judicial process or to involve trafficking in the outcome of litigation. …”

49.  As a postscript, Ribeiro PJ raised for consideration the question whether and to what extent criminal liability for maintenance should be retained in Hong Kong.  He pointed out that in England and Wales, criminal and tortious liability for both maintenance and champerty were abolished by the Criminal Law Act 1967.  He acknowledged that the issues are, however, of some complexity and may involve taking a different view in respect of maintenance as opposed to champerty; and of criminal as opposed to tortious liability.  It is in his view a fit topic to be referred to the Law Reform Commission[25].

50.  In November 2013, the Court of Appeal in HKSAR v Mui Kwok Keung [2014] 1 HKLRD 116, [3] stated in no uncertain terms that: 

“ There can no longer be any issue as to whether champerty is a criminal offence per se under the law of Hong Kong, notwithstanding the abolition of the common law offences of maintenance and champerty in England and Wales under s.13(1) of the Criminal Law Act 1967. This matter has been settled by the Court of Final Appeal in Unruh v Seeberger (2007) 10 HKCFAR 31, and re-affirmed in Winnie Lo v HKSAR (2012) 15 HKCFAR 16.”

51.  On the question of whether or not the common law offences of maintenance and champerty should be abolished, the Government has expressed its view in LC Paper No CB(4)486/13–14(04) submitted to the Legislative Council Panel on Administration of Justice and Legal Services in March 2014:

“ 11. In the Administration’s view, abolition of the common law offences of maintenance and champerty would involve broader legal and policy concerns, including those of recovery agents andlitigation funding companies. It should be noted that members of the AJLS Panel had previously urged the Department of Justice to take pre-emptive action against the unlawful activities of recovery agents.

12.   In view of the CA’s judgment in Mui Kwok Keung and the above mentioned in paragraph 11, the Administration considers that the common law offences of maintenance and champerty should be preserved for the time being.  However, we will keep monitoring the development of the offences closely.”

52.  On 14 July 2014, the Secretary for Justice by letter in LC Paper No CB(4)936/13–14(03) submitted to the Legislative Council Panel on Administration of Justice and Legal Services reiterated that the abolition of the common law offence of champerty would not be an appropriate way to “increase the public’s chance of receiving assistance from legal professionals”:

“ 4. Last but not least, it does not appear that the abolition of the common law offence of champerty would be an appropriate way to ‘increase the public’s chance of receiving assistance from legal professionals’ (in the words of the letter under reference). In fact, the activities of recovery agents give rise to the concern,among others, that the interest of the victims may be jeopardized as their legal rights to compensation may not be fully protected. As part of the efforts to enhance access to justice, the Government has put in place the Supplementary Legal Aid Scheme for provision of legal assistance to the ‘sandwich class’(the said scheme is under the policy portfolio of the Home Affairs Bureau). The financial eligibility limit of the Scheme was increased substantially in May 2011 and its scope was signicantly expanded in November 2012. The Government will continue to review the various legal aid schemes and make further improvements as appropriate.”

53.  In October 2016, the Law Reform Commission of Hong Kongin its Report on Third Party Funding for Arbitration dealt with the question expressly left open by the Court of Final Appeal in Unruh in 2007— whether maintenance and champerty applied to agreements concerning arbitration taking place in Hong Kong.  Not unexpectedly, the green light was given to exclude them from their application to arbitration which in thewords of the Court of Final Appeal is often chosen by “mature commercialparties”[26] to resolve their disputes.  In the words of the Law Reform Commission, “there is an extensive body of law, procedure and practice onarbitration … that addresses important issues such as conflicts of interest. Arbitral institutions (including their rules, codes and guidelines) as well as institutions developing ad hoc international arbitration rules also play an important role in this area which is likely to grow.”

54.  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.  Although the Arbitration and Mediation Legislation (Third Party Funding) (Amendment)Ordinance 2017 was enacted more than a year ago on 14 June 2017, at present Division 3 thereof, which contains the operative provisions to provide that the common law offences of maintenance and champerty do not apply to third party funding of arbitration, is still not yet in operation.  Division 5 thereof, which provides for measures and safeguards, is likewisenot yet in operation.  The reason is that it takes time to conduct preparatory work to set up the relevant regulatory framework including public consultation on the issue of a code of conduct.[27]

55.  Such prudent approach may also be seen as reflected in the Law Reform Commission’s proposals on conditional fees.  Shortly after the Court of Final Appeal judgment in Unruh which was handed down on 9 February 2007, the Law Reform Commission published its Report on Conditional Fees on 9 July 2007.  The Report advised that the conditions were not appropriate for the introduction of conditional fees—a form of “no-win, no-fee” arrangement.  It is because a successful conditional fees regime requires the long term availability of affordable insurance (called “after-the-event” insurance) to cover the opponent’s legal costs if the legal action failed.[28]

56.  At present, conditional fees, like other forms of “no‑win, no‑fee” arrangements, are still unlawful in relation to a claim involving the institution of legal proceedings.  The restriction has its origins in the torts and crimes of maintenance and champerty.

57.  Hence, the Court does not accept that there is nothing other than a remote theoretical possibility of criminal proceedings against the Plaintiff and/or IMF for entering into the Funding Agreement.  The Plaintiff is seeking a declaration of non-criminality to fend off potential or possible criminal prosecution.  As explained above, the court usually will not grant such a declaration unless exceptional circumstances are shown.

(ii)  Has the Plaintiff shown exceptional circumstances to warrant the Court granting a declaration of non-criminality? 

58.  The Plaintiff submitted that given the importance of the public policy of access to justice, the Application would fall into the category of exceptional cases.

59.  The Defendants submitted that the Plaintiff’s situation is certainly not of such an exceptional or unusual nature as to warrant the Court granting a declaration as to non-criminality. It is difficult to see whatcogent public or individual interest can be advanced by the granting of the declaration. If the Plaintiff and IMF have any doubt as to the lawfulness of the Funding Agreement in Hong Kong, they should seek their own legaladvice and act on it at their own risk.  If the Court accedes to the Application,it will open up a floodgate 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.

60.  In my view, the relevant principles and examples of exceptional circumstances are succinctly set out by Lord Steyn in R (Rusbridger) v Attorney General [2004] 1 AC 357 at paragraphs 16 to 18 and the cases cited therein:

“ 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. This principle was discussed in Imperial Tobacco Ltd v Attorney General [1981] AC 718. That case, however, involved an attemptto obtain a declaration in the face of pending criminal proceedings which were properly launched and were not vexatious. …

…

17. In Airedale NHS Trust v Bland [1993] AC 789 the House granted a declaration that it would be lawful to discontinue life‑sustaining treatment to Mr Bland who was in a permanent vegetative state. This was, of course, a truly exceptional case and the House held that the general principle does not debar declaratory relief.

18. The principle, and the exception to it, is in line with the ratio of the decision of the House of Lords in R v Director of Public Prosecutions, Ex p Kebilene [2000] 2 AC 326, viz that, absent ‘dishonesty or mala fides or an exceptional circumstance’decisions by the Director of Public Prosecutions to consent to a prosecution are not amenable to judicial review. In R (Pretty) v Director of Public Prosecutions [2002] 1 AC 800 the applicant sought a declaration that it was lawful for Mrs Pretty to be assisted by her husband to commit suicide. Lord Hobhouse of Woodborough observed, at p 851, para 116:

   ‘In exceptional circumstances it may be proper 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.  But that is not what occurred here and, even then, the court would have a discretion which it would normally exercise to refuse to rule upon hypothetical facts.  Had the case raised by the appellant been one where it was appropriateto grant a declaration as to legality or compatibility, the court would no doubt have adopted that approach.’”

61.  From the above passages, it is clear that an applicant has to show that the relevant 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[29].  The other exceptional circumstances identified are truly exceptional in the sense that human life is at stake[30].  Moreover, even if exceptional circumstances are shown, the applicant for a declaration of non-criminality usually has to join the DPP or the SJ as a formal defendant[31].

62.  The Plaintiff submitted that given the importance of the public policy of access to justice, the Application would fall into the category of exceptional cases.  However, no case authority has been cited by the Plaintiffin support of his proposition.  The case authorities identified above only establish two categories of exception.  First, cases where the integrity of the relevant criminal proceedings is questionable.  Second, cases where a matter of life and death is at stake. The Application does not fall within any of the above two categories of exception. Here, the absence of relevant criminal proceedings at the moment for determining if the Application is exceptional does not assist the Application. It is not appropriate for the Court to assume at this stage that in case criminal proceedings are brought, they will necessarily be vexatious or constitute an abuse of process. The Court also takes heed of theDefendants’ submissions that if the Court accedes to the Application, it will open up a floodgate 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.  That is a countervailing policy consideration against opening a new category of exception for the Plaintiff in the Application.  The Plaintiff has failed to show exceptional circumstances to warrant the Court granting the declaration sought.

(iii)  Is it necessary to join a proper contradictor such as the DPP or the SJ in determining the Application?

63.  The DPP or the SJ is not joined in the Application.  The Plaintiff submitted that it is not necessary to join the DPP or the SJ.

64.  The Defendants submitted that the DPP or the SJ has to be joined as otherwise the view of the DPP or the SJ as to the Funding Agreement is not known.  It is unclear whether there is any dispute between the Plaintiff on the one hand and the DPP or the SJ on the other over the subject matter on which the declaration is sought and whether the declaration is necessary.

65.  In my view, the requirement of joining the DPP or the SJ is consistent with the general rule that there must be a “proper contradictor”:see Koo Ming Kown v Rev Mr Mok Kong Ting & Ors [2018] HKCFI 967 (HCA 2337/2016, unreported, 4 May 2018) per DHCJ To at paragraphs 19 – 20. 

66.  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: seeRussian Commercial and Industrial Bank v British Bank for Foreign Trade[1921] 2 AC 438 per Lord Dunedin at 448.

67.  The rationale for the requirement of a “proper contradictor” before declaratory relief is granted is explained in IMF (Australia) Ltd v Sons of Gwalia Ltd (2004) 211 ALR 231 per French J at 244, paragraph 47.  First, this is to ensure that the court will be provided with all relevant materials. Second, and more importantly, absent a “proper contradictor”, there will be no proper person to be bound by the relief sought.

68.  I should add that the Funding Agreement does not form part ofany issue in the Action, which concerns alleged breaches of the ConsultancyAgreement and the Guarantee.  By the present application, the Plaintiff is not seeking to pre-empt any defence which the Defendants may raise by relying on the fact that the Plaintiff is unlawfully maintained in the Action. The case of Unruh has been mentioned above[32]. It is well settled that maintenance or champerty is not a defence nor a ground for a stay unless the plaintiff is obliged to found his cause of action on the illegal agreement,which is not the case here: see Unruh, at paragraph 95 and Giles v Thompson [1993] 3 All ER 321 per Sir Thomas Bingham MR at 340g–h, 349a–b.  I reject the Plaintiff’s submissions that maintenance or champerty is a ground for a stay, and hence the parties are not dealing with a private or civil law dispute in the Application.

69.  The Defendants relied on the dicta of Lord Diplock in Gouriet v Union of Post Office Workers[1978] AC 435 at 501E that the declaration sought must relate to a right claimed against an adverse party to the litigation:

“ So for the court to have jurisdiction to declare any legal right it must be one which is claimed by one of the parties as enforceable against an adverse party to the litigation, either as a subsisting right or as one which may come into existence in the future conditionally on the happening of an event.”

70.  I accept the Plaintiff’s submissions that Lord Diplock’s above dicta can no longer be taken to be an exhaustive description of the circumstances in which declaratory relief can be granted in view of Lord Millett’s dicta in In re S (Hospital Patient: Court’s Jurisdiction) [1996] Fam 1 at 22A–C[33].  I also accept that the Court should approach the questions as to whether there is a real and present dispute between the parties with some degree of pragmatism[34].

71.  However, there are principles affecting the exercise of the discretion in granting declaratory relief that have become so firmly established that they can perhaps be looked upon as restrictions on jurisdiction[35]. First, the relief claimed must be something not contrary to the accepted principles upon which the court exercises its jurisdiction.  One such accepted principle, as discussed above, is that exceptional circumstances have to be shown by an applicant before the court may grant a declaration of non-criminality.  Second, the applicant must be able to secure a proper contradictor, that is to say, someone presently existing who has a true interest to oppose the declaration sought.  No matter how pragmatic the court is, the above requirements have to be satisfied by the Plaintiff.  Pragmatism has indeed been shown by the court in cases like Tiger Asia when the court finds it appropriate to grant a declaration pertaining to criminal proceedings in the absence of the DPP or the SJ.  However, a declaration relating to the criminal consequences of conduct, like the present one, is fundamentally different.

72.  The Plaintiff relied on the Refusal Letter to support his case that there is an issue between the Plaintiff and the Defendants. The Plaintiff says that the Funding Agreement is lawful.  The Defendants say no.  However, the real fight in the Application is not between the Plaintiff and the Defendants.  The real fight is between the Plaintiff on the one hand and the DPP or the SJ on the other since the answer to the dispute has criminal consequences.  It is not a private or civil law issue between the Plaintiff and the Defendants.

73.  To complete the picture, the Plaintiff also relied on two striking-out cases to contend that the Court has jurisdiction to grant the declaration sought even without joining the DPP or the SJ in the Application.

74.  First, the Plaintiff relied on Remedy Asia Ltd v Yick Shing Contractors Ltd (HCCT 4/2012, unreported, 26 June 2014).  In Remedy Asia, the defendant applied to strike out the plaintiff’s claims on, inter alia, the ground that the plaintiff’s claims are tainted with maintenance and champerty.  The learned Judge concluded that the arrangement falls within the access to justice exception and therefore the arrangement is not prohibited by the law of maintenance and champerty.

75.  Second, the Plaintiff relied on Beijing Tong Gang Da Sheng Trading Co Ltd v Allen & Overy [2015] 3 HKLRD 247.  In Beijing Tong Gang, the defendants applied to strike out the plaintiff’s claim on the ground that the transactions on which the claim was based were champertous.  The learned Justice concluded that the litigation funding agreement and the deed of assignment by which the cause of action was assigned to the plaintiff were indeed champertous.  She ordered the writ and statement of claim to be struck out and dismissed the action with costs to the defendants. 

76.  The Plaintiff submitted that there is no difference in substance between the Application and the striking-out applications taken out by the defendants in Remedy Asia and Beijing Tong Gang.  The Plaintiff now takesthe proactive step of applying for the declaration in the light of the Refusal Letter.  Assuming that this Court concludes that it has no jurisdiction to grant the declaration, and that the Plaintiff goes ahead with the Funding Agreement, and further that two days later the Defendants apply to strike out the action, the court would have to decide on the application and the very same question would arise.

77.  The Plaintiff’s submissions indeed look appealing. However,there are two fine but material distinctions between the present application seeking a declaration and a striking-out application.  First, in terms of jurisdiction, a striking-out application is based on Order 18, rule 19 of the Rules of the High Court on the ground of an abuse of process.  It has clear statutory jurisdictional basis.  Second, and more importantly, in such a striking-out application, it is based on the fact that the relevant action is tainted with maintenance and champerty.  There is clearly a live issue between the parties to be resolved by the court.  Put simply, the real fight isbetween the parties.  Hence, in a striking-out application, it is not necessaryfor the parties to join the DPP or the SJ even if it entails a determination of the lawfulness of a funding agreement.  The decision of the court is solely for the purpose of determining between the parties if the action is tainted with maintenance and champerty in such situation.

78.  In the present case, while the Plaintiff has failed to show exceptional circumstances to warrant the Court granting a declaration of non-criminality, he has also failed to join the DPP or the SJ as a formal defendant to fulfil the proper contradictor requirement.  Though the Court is willing to approach the question with some degree of pragmatism, it is still not an appropriate case to grant the declaration sought.

(iv)  Would the recent Cayman Islands case of A Company v A Funder assist the Application?

79.  The Plaintiff submitted that, like Hong Kong, maintenance andchamperty are both crimes and torts in the Cayman Islands.  In A Company v A Funder FSD No 68 of 2017 (NSJ) (23 November 2017), a similar application for a declaration that a funding agreement is not unlawful has nevertheless been made and acceded to by the Grand Court of the Cayman Islands where Segal J remarked at [52]:

“ I have already explained that the form and nature of the Plaintiff’s application in this case gave rise to some concerns and has caused me to make my analysis subject to certain important caveats. I did consider whether it was appropriate to grant any relief to the Plaintiff in circumstances where it might be said that the Plaintiff was in effect seeking an advisory opinion from the Court on a point of great commercial importance to the Defendant and the commercial funding industry. However, I was satisfied that I should allow the application to proceed and grant the relief sought since the evidence demonstrated that the Plaintiff had genuine claims which it intended to prosecute, the Plaintiff intended to proceed immediately with litigation in this jurisdiction and that since maintenance and champerty remain criminal offences in this jurisdiction the Plaintiff had a legitimate interest to protect and there was real issue to be decided (in connection with the prospective proceedings against the Award Debtors).”

80.  The Plaintiff further submitted that A Company v A Funder shows that there is a universal erosion of the ancient prohibition against maintenance and champerty.  Third party funding has become commonplace worldwide including the Cayman Islands.

81.  The Defendants however submitted that no assistance may be derived from A Company v A Funder.  They submitted that Segal J expressed reluctance in granting the application and made it plain that his decision was subject to important caveats. His views were preliminary as the application was made ex parte and the Attorney General,being a necessary party, was not given notice of the application.  The learned Judge said at paragraph 47:

“ The caveats I have mentioned are these. First, I am conscious that this is an ex parte application and that I have not had the benefit of full argument—accordingly my views are necessarilypreliminary. Second, while I had considered directing the Plaintiff to give notice of the application to the Attorney General,this was impracticable where there was real urgency because the Plaintiff wished to proceed with an application for injunctive relief. As a result my views are preliminary for another reason. On any subsequent application it is likely to be appropriate to notify the Attorney General so that he has the opportunity to intervene if he considers that to be appropriate.”

82.  The Defendants further submitted that the observations of the learned Judge as quoted above were made in the following context:

(1)  the plaintiff had already obtained an arbitral award which had been converted into two judgments in New York against the Award Debtors[36];

(2)  the Award Debtors had assets in the Cayman Islands against which the plaintiff wished to obtain urgent ex parte relief by way of a Mareva injunction[37]; and

(3)  because of the urgency the court was prepared to deal with the application ex parte and in the absence of the Attorney General.[38]

83.  I accept the submissions from the Defendants which submissions are self-evident from the judgment of A Company v A Funder.  The facts of the present case are different.  Liability has not been established and there is no urgency to grant the declaration sought.

84.  That the first instance decision of A Company v A Funder is an exceptional case is further supported by the fact that a completely different conclusion was also recently reached by the Irish Supreme Court in Persona Digital Telephony Ltd & Anor v The Minister for Public Enterprise, Ireland & Ors [2017] IESC 27.  The Irish Supreme Court refused to grant a declaration that a third party litigation funding agreement would not contravene the laws of maintenance and champerty.  Like the Plaintiff in the present case, the plaintiffs in Persona also relied on the inherent jurisdiction of the court in seeking the declaration.

85.  Persona also shows that, contrary to the Plaintiff’s submissions, the erosion of the ancient prohibition against maintenance and champerty may not have a universal application. 

86.  The Plaintiff sought to distinguish Persona on two grounds.  First, the Plaintiff submitted that the torts and crimes of maintenance and champerty have been retained in Ireland by legislation and hence there is legislative intervention in the law[39].  In Hong Kong, there is no legislative intervention and the position is purely governed by common law.  Second,the Plaintiff submitted that, unlike Hong Kong, the public policy in Ireland has not moved in recent decades.

87.  I am not convinced.  First, it is clear that the relevant statutes in Ireland by which the torts and crimes of maintenance and champerty have been retained are merely declaratory of the common law[40].  Second, the modern jurisprudence on maintenance and champerty in Hong Kong outlined above shows that the public policy in Hong Kong has not substantially moved in recent years.

88.  On the contrary, the cautious and prudent approach demonstrated above shows that it is a delicate area that should be left to the legislature.  This is exactly the majority sentiment expressed by the Irish Supreme Court in Persona:

“ 54(v) It was argued that this Court could develop the common law on champerty in light of modern policy and constitutional issues. As to policy issues, this would involve complex situations more suited to legislation, after the benefit of an LRC Report. As to constitutionalissues, this was not brought as a constitutional challenge.…

…

54(viii)   The issues raised by the plaintiffs are issues for the Oireachtas [Parliament in Ireland], where parameters may be established, and the law developed, but not in an ad hoc, piecemeal, method.”

89.  The Court of Final Appeal in Unruh expressed a similar sentiment, albeit not in so many words:

“ 119. … Moreover, as we have noted, public policy in a particular jurisdiction in 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.”

90.  In short, A Company v A Funder is an exceptional case.  It may be distinguished as the facts are materially differently from the present case.

(v)   Would the third party funding cases in insolvency litigation assist the Application?

91.  The Plaintiff referred the Court to certain insolvency litigation cases and submitted that approval of funding agreements by the court is commonplace.

92.  In Re Cyberworks Audio Video Technology Ltd [2010] 2 HKLRD 1137, Harris J, after referring to section 199(2)(a) of thethen Companies Ordinance, approved an application by the liquidators of a company for leave to enter into a litigation funding agreement with a third party.  He held, at paragraphs 10 and 11, that the assignment of a cause of action by a liquidator or a trustee in bankruptcy as part of a funding agreement is an exception to the prohibition on maintenance and champerty.

93.  In Re Po Yuen (To’s) Machine Factory Ltd [2012] 2 HKLRD752, Harris J approved an application filed by the liquidators of a companyto sanction a funding arrangement by which the company’s Mainland lawyer would only be paid out of any actual recovery by the company in a litigation handled by that lawyer for the company.

94.  I accept the Defendants’ submissions that in the bankruptcy or winding up context, the trustee in bankruptcy or liquidator usually relies on express statutory powers which enable them to apply to the court for approval of any transactions which might involve funding arrangements or assignment of causes of action that would result in the proceeds of litigation being shared with a funder.  In the case of bankruptcy, the trustee in bankruptcy may sell the property of the bankrupt, which may include a cause of action: see sections 2, 58 and 60 of the Bankruptcy Ordinance (Cap 6).  Express provision is made for the trustee in bankruptcy to apply to the court for directions: section 82(3) of Cap 6 and Order 85, rule 2(3)(d) of the Rules of the High Court.  Liquidators of insolvent companies are in a similar position: see section 199 and section 1, Part 3 of Schedule 25 to the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (formerly section 199(2)(a) and (3) of Cap 32).  The trustees in bankruptcy and liquidators are officers of the court with a paramount duty to the creditors.  They act on behalf of the creditors.  The court has a long history of construing their statutory powers as placing them in a privileged position.

95.  In fact, insolvency proceedings where third party funding is regularly allowed by the Hong Kong courts are expressly treated by the Court of Final Appeal as a special category of proceedings that do not fall foul of the prohibition against maintenance and champerty: See Unruh at paragraph 98:

“ Thirdly, there exists a miscellaneous category of practices accepted as lawful even though, as pointed out by Gummow, Hayne and Crennan JJ in the recent decision of the Australian High Court in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd,such practices do not differ in substance from practices which have traditionally been roundly condemned. 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.”

96.  Understandably, the Plaintiff referred the Court to Berman v SPF CDO I Ltd [2011] 2 HKLRD 815 in which Harris J approved a funding arrangement not on the basis of statutory powers but rather on general policy considerations.  Hence, Berman appears to support the Plaintiff’s submissions that insolvency litigation cases is not a class of its own.  However, Berman is a unique case.  In Berman, a trustee appointed by the United States Bankruptcy Court for Delaware applied to the Hong Kong court for sanction of a litigation funding arrangement. It is true that this case does not concern a bankruptcy in Hong Kong.  Hence, the court’s sanction of the funding arrangement is not based on statutory powers. Indeed, Harris J held that section 199(3) of the then Companies Ordinance did not apply[41]. However, Harris J considered it decisively important that the United States Bankruptcy Court had already sanctioned the funding arrangement[42]. He also considered that the trustee had a role under the United States Bankruptcy Code, which was similar to that of a liquidator[43].  Hence, he granted leave to the trustee to enter into the fundingarrangement which had already been sanctioned by the United States Bankruptcy Court, subject to approval by the Hong Kong court.  The facts of Berman are distinct.  It does not assist the Plaintiff in the Application.

97.  In short, the third party funding cases in insolvency litigation also do not assist the Application.

The answer to Issue 1

98.  Given that the declaration sought is a declaration of non-criminality but the Plaintiff has failed to show exceptional circumstances towarrant this Court’s granting of such declaration, and in any event no proper contradictor such as the DPP or the SJ has been joined in the Application,this is not an appropriate case for this Court to grant the declaratory relief sought.  Neither the recent Cayman Islands case of A Company v A Funder nor the insolvency litigation cases relied on by the Plaintiff assist his case. The answer to Issue 1 is that this Court should, on the basis of established principles, refuse to exercise its discretion to grant the declaration sought.

99.  In view of such conclusion which is based on substantive matters, it is not necessary to determine sub-issue 6 on whether the Application is procedurally defective.

(II)   Whether the funding agreement per se falls foul of the prohibitions of maintenance and champerty (“Issue 2”)

100.  In view of the answer to Issue 1 above, it is not necessary and may not be appropriate[44] for the Court to answer Issue 2.  Issue 2 is not engaged since the Court refuses to exercise its discretion to grant the declaration sought.  However, as both parties have made substantive submissions on this issue, it may be appropriate for the Court to make some observations on those submissions without making a determination on Issue 2.

101.  Since the Court is not making a determination on Issue 2 and the unredacted Funding Agreement may not be disclosed in view of the disclosure restrictions imposed thereon in the Order of Lok J dated 20 April2018 (“Lok J’s Order”), the Court will only make brief and general observations in respect of Issue 2.  References to the terms of the Funding Agreement herein are all references to the redacted Funding Agreement.

102.  The Plaintiff relied on a number of overseas authorities in support of his case that the Funding Agreement per se does not fall foul of the prohibitions of maintenance and champerty.

103.  First, the Plaintiff submitted that third party assistance (including funding) in litigation often facilitates (rather than undermines)the administration of justice.  He relied on the remarks of Hale LJ (as Lady Hale then was) in Hamilton v Al Fayed (No 2) [2003] QB 1175 at [81] – [83] on how litigation conducted in person puts the courts in a disadvantage.

104.  Second, the Plaintiff submitted that litigation funding also ensures access to justice for some meritorious claims which would otherwise be abandoned. The Plaintiff relied on the Discussion Paper published by the New South Wales Standing Committee of Attorneys General in May 2006 titled “Litigation funding in Australia” at page 7.

105.  Third, according to the Plaintiff, that the third party funder is a “stranger” to the litigation and seeks to gain a profit in providing funding is neither here nor there.  There is no public policy basis to characterize a third party litigation funding arrangement by itself as an abuse of process: See Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 at [88] – [93].

106.  Fourth, according to the Plaintiff, similarly a fair agreement to supply funds to carry on a suit in consideration of having a share of the property, if recovered, ought not to be regarded as being per se opposed to public policy: See Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 App Cas 186 at 210.

107.  Fifth, the Plaintiff submitted that one needs to look at 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 Transport Secretary (No 8) [2003] QB 381 at [36].

108.  The Plaintiff also relied on the Court of Final Appeal decision in Unruh at paragraphs 86 and 89to submit that the early policy imperatives have long gone and the scope of maintenance and champerty is shrinking.

109.  In my view, in Hong Kong, the considerations of modern public policy which result in conduct being characterised as maintenance or champerty, in particular the public policy considerations which result in a contract being vitiated on grounds of maintenance or champerty, have been succinctly set out by Ribeiro PJ in four points in Unruh at paragraphs 100 and 102 to 104:

“ 100. In the first place, the traditional legal policies underlying maintenance and champerty continue to apply although they must substantially be qualified by other considerations. Thus, the mischief to be discouraged by the law of maintenance is still ‘officious intermeddling’ in litigation, in particular wherethis results in oppression of the person against whom the action is brought and possibly if it may result in the general encouragementof litigiousness. Thus, the Privy Council in Ram Coomar Coondoo v Chunder Canto Mookerjee, 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 ‘abetting and encouraging unrighteous suits, so as to be contrary to public policy’.

…

102. Secondly, the fact that an arrangement may be caught by the broad definitionsof maintenance or champerty is not in itself sufficient to found liability. Thetotality of the facts must be examined asking whether they pose a genuine risk to the integrity of the court’s processes. …

103. Thirdly, countervailing public policies must be taken into account, especially policies in favour of ensuring access to justice and of recognizing, where appropriate, legitimate commoninterests of a social or commercial character in a piece of litigation. The traditional public policies against intermeddling in litigation must be weighed against such 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.

104. Fourthly, it is important not to confuse related but separate policies with those which properly underlie the operation of maintenance and champerty.  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. …”

110.  Plainly, access to justice is an important consideration.  It is not the goal of the prohibition against champerty to stifle good claims by an impecunious plaintiff[45].  For this reason, Issue 2 and Issue 3 are somehow inter-related.

111.  What is important is that all aspects of the transaction should betaken 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 the other party is without justification or excuse[46].

112.  Abuse of the court’s process can take many forms.  It would bea rare situation where there is direct evidence of the kinds of possible abuse mentioned in R (Factortame) Ltd v Transport Secretary (No 8) [2003] QB 381 at paragraph 36, namely 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.”[47]

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[48].

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

115.  There is no evidence of a pre-existing commercial relationship between the Plaintiff and IMF at the date of the Funding Agreement.

116.  As observed above[49], 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.

117.  Moreover, as elaborated in the analysis of Issue 3 below, it appears to the Court that none of the Plaintiff’s grounds appear to bring the Funding Agreement within the access to justice exception.

118.  It may now be a convenient juncture to consider the terms of the Funding Agreement.

119.  According to the recitals to the Funding Agreement (“Recitals”), IMF is prepared to fund the Action and in return the Plaintiff has agreed to assign to IMF a share of his recovery in the Action.

120.  Under the Funding Agreement, “Co-Funders” is defined to include any person considering entering into (or who enters into) a co-funding, participation or similar arrangement with IMF, whether before orafter the Funding Agreement.  In view of such a wide definition, there may probably be co-funders either now or in future.

121.  The Plaintiff must fully co-operate with IMF and the “Lawyers”,being a named law firm with a presence in Hong Kong (“Lawyers”)[50]. It is specifically disclosed in the Recitals that IMF has previously provided, and is currently providing, funding for other clients for proceedings conducted by the Lawyers, and the Lawyers have previously advised IMF in relation to its business.

122.  Again, under the Funding Agreement, the Plaintiff irrevocablyinstructs the Lawyers to provide IMF with a copy of all documents obtained from, or provided to, any of the Defendants[51]. The Project Information, which covers all information and documents provided to or acquired or generated by the Plaintiff or the Lawyers in relation to the Action, may be disclosed by IMF to any IMF Permitted Person, which is widely defined to include a Co-Funder (or proposed Co-Funder), a securityholder of IMF and a debt capital provider (or proposed provider) to IMF[52]. (Collectively “Provision Obligations”.)

123.  It is trite that there is an implied undertaking (“Implied Undertaking”) by the party on whom a list or affidavit of documents is served or to whom the documents are produced that he will not, without the leave of the court, use them or any information obtained from them for a collateral or ulterior purpose[53].

124.  The Implied Undertaking is also binding on anyone into whose hands the documents may come if he knows that they have been obtained by way of discovery. Indeed, an improper use of the documents may amount to a contempt of court[54].

125.  It is unclear whether, and if so, how the Provision Obligations may sit well with the Implied Undertaking.

126.  Under the Funding Agreement, in the event that IMF reasonably believes that the Action is no longer commercially viable for IMF to fund, IMF may decide to cease the funding by giving 14 days’ written notice to the Plaintiff[55], and IMF may also terminate the Funding Agreement by giving the Plaintiff not less than 14 days’ notice[56].

127.  Any disagreement on settlement between the Plaintiff and IMF will be decided by the most senior counsel retained by the Lawyers whose opinion will be final and binding on the Plaintiff and IMF[57].

128.  Though the Plaintiff remains responsible for the conduct of the Action, that is subject to the terms of the Funding Agreement[58].

129.  To be fair to the Plaintiff, it should be pointed out that under the Funding Agreement, subject to IMF’s consent (which will not be unreasonably withheld), the Plaintiff is at liberty to terminate his retainer with the Lawyers[59].

130.  Moreover, the Plaintiff submitted that he must act with the “Overarching Purpose”^[60] which is defined as follows:

“ To facilitate the just resolution of the Claims and the Proceedings according to law and as quickly, inexpensively and efficiently as possible with the aim of maximizing Settlement or Judgment proceeds net of Project Costs and minimizing all risks, including in particular the risk of the Proceedings being unsuccessful.”[61]

131.  The Plaintiff has also filed evidence to show that IMF applies a stringent case selection process in deciding whether to fund a claim by reference to a detailed assessment of the merits of the claim and the recovery, costs and other risks identified in the process.  IMF only funds about 5% of the cases for which it receives applications[62].

132.  The Plaintiff has further filed evidence to show that the Funding Agreement has been drafted to comply with the Code of Conductpublished by the Association of Funders (published by the UK Civil Justice Council for the self-regulation of the litigation funding industry) and the Draft Third Party Funding of Arbitration Code of Practice in Hong Kong[63]. 

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 numberof 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 at paragraph 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.  Despite this limitation (but again without making a determination on Issue 2), it still appears to the Court that the Funding Agreement has the following troubling features:

(1)  there is a real risk that the Plaintiff may easily become a figurehead in the conduct of the litigation;

(2)  there is a real risk that the Provision Obligations may conflict with the Implied Undertaking; and

(3)  there is a real risk that the litigation may be controlled by some unknown third party as co-funders.

(III)   Whether the funding agreement falls within the access to justice exception (“Issue 3”)

135.  Similarly, in view of the answer to Issue 1 above, it is not necessary and may not be appropriate for the Court to answer Issue 3[64]. Again, as both parties have made substantive submissions on this issue, it may be appropriate for the Court to make some observations on those submissions without making a determination on Issue 3.

136.  Again, as the Court is not making a determination on Issue 3 and details of the Plaintiff’s financial position as contained in the Second Affirmation of the Plaintiff may not be disclosed in view of the disclosure restrictions imposed thereon in Lok J’s Order, the Court will only make brief and general observations in respect of Issue 3.  References to the evidence herein do not include the confidential evidence covered by Lok J’s Order.

137.  The Defendants submitted that while there is no single definition of what “access to justice” means, it appears that the exception is to avoid a situation whereby without third party funding the litigant would be unable to pursue his claim (in other words, his access to justice would be denied) by reason of his impecuniosity.  This interpretation appears to be supported by authorities.

138.  In Unruh at paragraphs 95 – 97, Ribeiro PJ explained the “access to justice” exception as follows:

“ 95. A second excluded category involves what might today be referred to as cases involving ‘access to justice’ considerations. In Hong Kong, art.35 of the Basic Law recognizes access to the courts as a fundamental right. … 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. This was recognized by the Privy Council in Ram Coomar Coondoo v Chunder Canto Mookerjee where their Lordships stated:

… a fair agreement to supply funds to carry on a suit in consideration of having a share of the property, if recovered,ought not to be regarded as being, per se, opposed to public policy. Indeed, cases may be easily supposed in which it would be in furtherance of right and justice, and necessary to resist oppression, that a suitor who had a just title to property, and no means except the property itself, should be assisted in this manner.

96. Lord Phillips of Worth Matravers MR in R (Factortame Ltd) v Transport Secretary (No 8) recently placed conditional fees in the same context, stating:

Conditional fees are now permitted in order to give effectto 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 tofund advocacy or litigation services should none the less be able to obtain these in support of claims which appear to have merit.”

    (emphasis added)

139.  In Lam Hei Shing Joseph v 郭達標 & Ors HCA 697/2007 (unreported, 11 June 2008)Sakhrani J held at paragraph 31 that:

“ I would observe that if, as D1 said, the plaintiff told him that without the financial assistance from D1 he would not be able topursue his two claims, that is a powerful argument for excluding the 4 Deeds from the ambit of maintenance and champerty …” (emphasis added)

140.  InBerman, Harris J said at paragraph 25 that:

“ The second proposition that I draw from Unruh v Seeberger is the importance of access to justice considerations. It is not the goal of the prohibition against champerty to stifle good claims by an impecunious plaintiff.” (emphasis added)

141.  The Plaintiff submitted that the concepts of an inability to pay,and impecuniosity are context specific.  Each case depends upon its facts. The Plaintiff should not be required to put every asset of his entire family onthe line in order to fund the Action.  In such a scenario, the Plaintiff would be worse off than a plaintiff on legal aid, which would be absurd.  Access to justice requires that a plaintiff should be able to pursue litigation in a “just” manner.  A “just” manner does not require him to take extraordinaryrisks with his family’s illiquid assets.  A balancing exercise has to be carriedout by the court to determine whether, in the circumstances, it would be just to allow the plaintiff to fall within the exception.

142.  The Plaintiff relied on the recent UK Supreme Court decision of R (UNISON) v Lord Chancellor [2017] UKSC 51 in support of his submissions.  The case concerned the question whether fees charged for the Employment Tribunal cases were at such level as would deny access to justice.  Following a detailed analysis of the concept of access to justice, the Supreme Court decided that the appropriate test was as follows:

“ The question whether fees effectively prevent access to justice must be decided according to the likely impact of the fees on behaviour in the real world. Fees must therefore be affordable not in a theoretical sense, but in the sense that they can reasonably be afforded.” (emphasis in original)

143.  The Plaintiff submitted that there can be no dispute that he is unable to pursue his claims against the Defendants without assistance from IMF.  In particular, the Plaintiff is not eligible for legal aid, as his wife’s assets would be included in the assessment of his financial resources underRegulation 7(1) of Legal Aid (Assessment of Resources and Contributions)Regulations (Cap 91B).

144.  The Plaintiff further submitted that given the Plaintiff’s wife’s express indication that she will not support his claim beyond the present application[65], the Funding Agreement is the only means by which the Plaintiff would be able to continue his claim.

145.  However, on the facts of this case available so far, even if the Court is to approach the question of inability with some degree of reasonableness, it appears that the Plaintiff is still far from being unable to pursue this action without the Funding Agreement.

146.  The Plaintiff is a solvent individual. His and his wife’s assetsamount to over HK$8.2 million, well exceeding the financial eligibility limitfor legal aid in Hong Kong.  The liquid assets of his wife are approximately AU$140,370 (approximately HK$848,000) and her illiquid assets are worth approximately AU$1,224,380 (approximately HK$7.4 million)[66].

147.  It is true that the matrimonial home which is worth approximately AU$800,000 forms an important part of the illiquid assets.  At first glance, there is some force in the Plaintiff’s submissions that it is unreasonable to expect the Plaintiff’s wife to liquidate the matrimonial home, the family’s only or major asset, to pay for this litigation.

148.  However, on closer examination of the evidence[67], it is not difficult to find that the Plaintiff was also the beneficiary of a trust known as the Imam Investment Trust (“Investment Trust”).  According to the FirstReport to Creditors dated 9 April 2014 from the Trustee in Bankruptcy for the then bankrupt Plaintiff[68] (“Report to the Creditors”), the Investment Trust was at the date of that report holding a valuable property at 181 Elizabeth Street, Brisbane (“Brisbane Property”), which had a net value of around AU$2.85 million as at 30 June 2012.  In addition to the Brisbane Property, the Investment Trust had loans receivable from, inter alia, the Plaintiff’s wife for AU$255,598.  By a deed of variation executed in April 2013, the Plaintiff’s powers of appointment and his beneficial interest in the Investment Trust were removed (“Removal”).  However, the Plaintiff’sthen Trustee in Bankruptcy (“Mr Karageozis”) remarked in the Report to the Creditors that the deed of variation “cannot legally purport to remove [the Plaintiff’s] beneficial interest in the trust (Section 302B of the Bankruptcy Act 1966)”.

149.  There is no evidence to suggest that the Plaintiff’s family is no longer a beneficiary of the Investment Trust, or that the Investment Trust is no longer the owner of the Brisbane Property.

150.  In view of the remark of Mr Karageozis that the deed of variation “cannot legally purport to remove [the Plaintiff’s] beneficial interest in the trust (Section 302B of the Bankruptcy Act 1966)”, the validity of the Removal is highly questionable.  In fact, Mr Karageozis continued to treat the Plaintiff as a beneficiary of the Investment Trust[69].  Aside from the validity of the Removal, it is clear that the Investment Trust was established for the benefit of the Plaintiff’s family[70].  The Plaintiff is still a member of the family.  If the Removal renders the Plaintiff impecunious (in the sense that he cannot reasonably afford to pay the legal costs of this Action as a result of the Removal), his impecuniosity appears artificial.  It would appear disingenuous for him to rely on the Removal to seek relief based on a lack of means.  On the Plaintiff’s own case, the estimate of the legal costs of the Action are between HK$5.5 and 7.4 million (approximately AU$900,000 to AU$1.2 million)[71].  The Brisbane Property is worth approximately double of such estimate.

151.  The Plaintiff’s motives of entering into the Funding Agreementwere made clear in paragraph 113 of his Affirmation:

“ … I do not wish to be a litigant in person or to have to pursue my case in a financially constrained manner. Should the Funding Agreement be approved, IMF’s financial support would give megreat comfort, would enable me to instruct my first choice counsel,and would allow me to litigate without being at a financial disadvantage compared to the well resourced Defendants.”

152.  However, it appears to the Court that the purpose of the access to justice exception is to ensure that a litigant can gain access to justice, not to facilitate access to his ideal or preferred legal representation.

153.  The Plaintiff further submitted that he has a good claim to pursue against the Defendants, which will be stifled without the Funding Agreement.  According to the Plaintiff, the evidence shows that the 3^rdDefendant’s signature is found on both the Consultancy Agreement and the Guarantee.  He also submitted that the undisputed evidence as found in the email correspondence between the 3^rdDefendant and the Plaintiff contains references of the 3^rdDefendant describing his obligation to pay the Plaintiff in definitive terms.

154.  However, it appears to the Court premature to conclude at thisstage whether the Plaintiff has a good claim for the purposes of Issue 3.  The parties have not filed any pleadings to set out their case yet.  On the basis of the affidavit evidence filed by the parties, the Defendants have apparently shown at least an arguable defence against the Plaintiff’s claims.

155.  Again, at this juncture, the Defendants’ Fact-sensitive Submissions are relevant, and accepted by the Court.  Despite this limitation (but again without making a determination on Issue 3), it still appears to the Court that none of the Plaintiff’s grounds appear to bring the Funding Agreement within the access to justice exception. It should also be noted that, without determining if there is any financial imbalance between the Plaintiff and the Defendants, it is probably not the court’s function to balance litigation power between parties to an action. 

(IV)   Whether the Court should approve the Funding Agreement

156.  In view of the answer to Issue 1, the Court refuses to approve the Funding Agreement.

DISPOSITION

157.  For the foregoing reasons, the Plaintiff’s summons dated 12 January 2018 is dismissed. I also make an order nisi that the Plaintiff shall pay the Defendants the costs of the summons, to be taxed if not agreed, with certificate for two Counsel.

158.  Lastly, it remains for me to thank Counsel for their able and helpful assistance rendered to the Court.