Is Hong Kong the Next Frontier For Legal Funding?

January 30, 2011
4min read

Legal funding has been embraced in the common law countries of the United Kingdom, Australia and, to an increasing extent, the United States. There isn't much of a tradition of legal funding in Hong Kong, another common law outpost. But, a couple of recent court cases suggest commercial legal funding, in particular, may be gaining a foothold there.

In the 2010 watershed case of Cyberworks Audio Video Technology Limited, the Court of First Instance (a lower Hong Kong court) ruled that the liquidators of a company in bankruptcy may grant a stake in the potential, future profits from the debt collection proceedings to a legal funder who would help finance the process. This ruling marks the first time a Hong Kong court explicitly held legal funding transactions of this type as free from violating the city's champerty and maintenance doctrines, which are still on the books, thus opening the way to acceptance of some types of legal funding.  Another, later ruling of the same court in the case of Berman v. SPF CDO I Ltd, which also involved the legal funding of a liquidating company,appears to back up Cyberworks.

Despite these steps forward for legal funding in Hong Kong, it is to be noted that the same judge oversaw both decisions, and there are other Hong Kong judges who have not been entirely on board the litigation finance bandwagon.

Notably, Honorable Mr. Justice Stone was critical of the control legal funders held over the legal process in the 2009 case of Akai Holdings Ltd v Ho Wing On Christopher.  

Further, it is still uncertain how litigation finance transactions will fare if tested in Hong Kong's higher courts.  Nevertheless, litigation finance companies from England, Australia and the United States are already starting to see Hong Kong as a market potentially ripe for investment.

Ian Mann, co-author of the legal textbook, British Virgin Islands Commercial Law, provides a good summary of the benefits legal funding could bring to Hong Kong if it is allowed to take off.  He explains that foremost, legal funding has the ability to open up access to the courts for those who wouldn't normally have the resources to gain entry.

(To see how it works, check out this video)

With an attractive prospect such as this, one can only hope that Hong Kong escapes the heavy-handed over-regulation that often plagues the legal funding industries of other locales, right?

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