28 July 2014
The District Court of Hong Kong recently convicted a solicitor and a recovery agent for champerty, sending a clear message to recovery agents and solicitors that litigation funding in return for a fee is illegal.
Champerty occurs when a disinterested party funds the litigation of another with a view to gaining part or a percentage of any award of the litigation. The involvement of recovery agents in personal injury cases has brought about a revival of champerty as an offence as such agents share a portion of the compensation obtained by victims of personal injury. Such arrangements are unfavourable as they result in victims being deprived of all their compensation.
In April this year, District Court Judge A J Woodcock found recovery agent, Ip Hon Ming (“D1”), guilty of 26 counts and solicitor, Yeong Yun Hong, Gary (“D2”), guilty of 25 counts of champerty. The wife of D2, Lo Yuen Ching, Juliana (“D3”), was acquitted.
Background to the Case
D1 was a recovery agent. He regularly provided services to injured persons to pursue a legal claim for their injuries. He had introduced many claimants to Yeong & Co., a firm of solicitors operated by D2 and D3. All these cases were settled by Yeong & Co. out of court and some before any legal proceedings were filed.
D1 had an agreement with the claimants to receive a “service fee” of 20 percent of any successful claim (the “Agreement”), meaning that when a defendant paid compensation to Yeong & Co., 20 percent of the settlement would be paid to D1. The Agreement also contained penalty clauses making the claimants liable to pay charges and a penalty if they changed solicitors or applied to Legal Aid.
The Offence of Champerty
Following the approach set out in Winnie Lo v. HKSAR  1 HKC, Judge Woodcock held that she had to evaluate the following:
- whether the defendant officiously intermeddled with someone’s litigation which no way concerns or belongs to him;
- whether the defendant’s conduct posed a genuine risk to the integrity of the court’s process (which applies to a solicitor’s conduct even before any claim is actually filed in a court); and
- whether there was a share of the proceeds of litigation maintained.
Conviction against the Recovery Agent
D1 did not dispute his “service fee” of 20 percent of any successful claim in return for assisting injured persons to sue for personal injuries. He also agreed that it was “no win, no fee”. D1 argued that if the Agreement were champertous, it should fall under the “access to justice” exception – meaning it was necessary so the claimants could exercise their fundamental right to have access to the courts.
His arguments were dismissed. The Judge found D1 officiously intermeddled with each claimant’s litigation which in no way concerned or belonged to him and that his motive was purely financial. D1’s services were a complete package. They were not limited to 20 percent for an introduction to a lawyer. Rather, they included bringing any matter to its conclusion – that being an award or damages or no award or damages. Moreover, D1’s conduct did not come within the “access to justice” exception as the Agreement was not the only means by which the claimants could access justice and pursue their claim. The penalty clauses in the Agreement meant that the claimants were penalised should they choose a different legal representative and this could not be condoned.
Conviction against the Solicitor
D2 and D3 in their defence claimed they did not have any knowledge of the Agreement and they did not share the service fee of 20 percent with D1. D2 was the solicitor responsible for handling the claims.
The Judge found that the engagement letter signed by the claimants retaining the services of Yeong & Co. was an attempt to distance the firm from D1. The split cheques of 20 percent and 80 percent indicated very strongly that D2 collaborated with D1 to implement this champertous agreement for the mutual benefit of D1 and D2. The arrangement was purely a commercial enterprise.
The Court said that the arrangement meant D2’s clients’ interests were not D2’s primary interests. This created a substantial risk of abuse. Lawyers who are looking after their own commercial interest in the outcome of a claim pose a real risk to both their client and the integrity of the judicial system.
On the other hand, D3 was acquitted as there were no documents connecting her to the claimants.
The common law condemns champerty because of the abuses to which it may give rise. Arrangements entered into by victims with recovery agents deprive them of their full entitlement to compensation. Further, it brings to question whether the victims’ best interests are looked after. As such, this is a welcomed judgment which sends a clear message that champerty is not tolerated.