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Discoverability of Third Party Litigation Funding Agreements

Discoverability of Third Party Litigation Funding Agreements

Discoverability of Third Party Litigation Funding Agreements

Friday, 04 November 2016 20:43

By Stephen Chan, Partner

 

Since the case of Cyberworks1 in 2010, the Courts in Hong Kong have viewed third party litigation funding arrangements to be lawful in the context of certain insolvency matters. 

Usually, after granting leave for a liquidator or trustee to enter into a third party litigation funding arrangement, the Court will also make a further order for the affidavit exhibiting the terms of the funding agreement to be sealed and not to be disclosed without leave of the Court.  This has been done on the basis that the terms of funding are generally private and confidential between the funder and the funded party, and should be of no concern to any third party including a party in litigation with the funded party.  As long as the Court did not make any further orders, the funding agreement would remain safe from disclosure to any third parties.

It would therefore be of significant concern if at a later date, despite the contents of the funding agreement being sealed, the Court made a discovery order for a party to disclose their funding agreement to the other party in proceedings.  This is precisely what happened in Enrich Future2.  The facts of the case can be briefly summarized as follows:

  1. The liquidators of Sunlink International Holdings Limited (“Sunlink”) issued proceedings against Deloitte Touche Tohmatsu, the Defendant for alleged negligence.
  2. The writ was extended on 4 occasions (the “Extensions”).  The Court found the number of Extensions to be quite exceptional.
  3. Each of the writ extensions were supported by affidavits (the “Affidavits”) with an accompanying order that the same be kept confidential.  Some of the Affidavits exhibited a litigation funding agreement with a third party.
  4. The writ eventually came to be served on the Defendant some 4 years after the initial issue of the writ.
  5. The Defendant applied to set aside the orders for the Extensions and sought production of the Affidavits, which the Plaintiff produced but with redactions relating to the funding arrangements.

 

In considering whether to order disclosure of the redactions (i.e. the terms of the funding arrangement), the Court considered:

  1. That the funding arrangement was already a matter in the public domain by way of documents accessible in a different set of proceedings which were not sealed.
  2. While normally non-adversarial, the funding arrangement in the present case became an adversarial issue as it formed the basis of the Extensions.

In light of these circumstances, the Court considered the Defendant was entitled to see all of the evidence and ordered that the Affidavits be fully disclosed, including the litigation funding agreements exhibited. 

While we do not consider Enrich Future to stand for the proposition that litigation funding arrangements are generally discoverable in proceedings, we do consider that litigants should take care to (1) keep the litigation funding arrangements away from the public domain and (2) avoid situations where funding arrangements could be made to be a relevant issue in the material proceedings.

[1]           Re Cyberworks Audio Video Technology Ltd[2010] 2 HKLRD 1137

[2]        Enrich Future Limited & Ors v Deloitte Touche Tohmatsu (HCCL 10/2011) 22 June 2016

 

Stephen Chan regularly acts for parties in matters involving third party litigation funding and has successfully applied for Court sanction of a number of third party litigation funding agreements with insolvency practitioners.

 

This article is for information purposes only.  Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual matters.