Class actions are a notable feature of many other jurisdictions in the common law world, including the United States, the UK, Canada, Australia and New Zealand. However, such group lawsuits are noticeably absent from Hong Kong.
In theory, a representative proceeding under O.15 r.12 of the Rules of the High Court (Cap. 4A) allows a single representative plaintiff to commence an action against a defendant not merely on his own behalf, but also for “numerous persons” who “have the same interest”. One might have expected that this mechanism would be used by by consumers, investors, and social rights activists in a similar manner to the class action lawsuit. In practice, however, its use was reported in only two Hong Kong judgments in the entire year of 2024.1
This article will examine two important practical limitations on representative proceedings in Hong Kong, and explain why representative actions are often unsuitable for class action disputes.
The difficulty of showing the “same interest” of “numerous persons”
To bring a representative proceeding in Hong Kong, the representative party must represent “numerous persons who have the same interest”.
The requirement for “numerous” persons means a representative plaintiff cannot represent a small and select class of individuals. While there is no clear judicial guidance on the minimum number of plaintiffs required to be meet the standard of “numerous”, the Court has previously considered that five persons would not be “numerous”.2
However, that does not mean a larger and more inclusive class of plaintiffs would always be more successful. To bring a representative proceeding, the represented parties also need to have the “same interest” in the proceeding. The leading case in this regard is CBS/Sony Hong Kong Ltd v Television Broadcasts Ltd [1987] HKLR 306 at 310G. It was held that the parties must have (1) a common interest, (2) a common grievance, and (3) the relief sought must be beneficial to all whom the plaintiff proposes to represent.
A larger class of plaintiffs therefore faces greater difficulties in meeting this common interest test, as any potential conflict of interest between the parties will likely cause the Court to decide it is inappropriate to grant relief by way of representative proceedings (Calm Ocean Shipping SA v Wing Goal Trading [2020] HKCFI 801 at [34]).
In the recent case of Tsai Lee Ting v Best Leader Precious Metals Ltd [2023] HKCFI 2124, over 1,300 victims of an alleged Ponzi scheme sought to bring a case on a representative basis against the defendant. The defendant alleged that there was a conflict of interest between the plaintiffs, namely that later entrants to the Ponzi scheme might have legal claims against earlier entrants (who may have made representations that the Ponzi scheme was a legitimate investment and benefitted from early withdrawals).3
At [41]-[42] of Tsai Lee Ting, the Court held that while there may potentially be a conflict, the evidence presented by the defendant was “speculative”, and that there was no actual evidence of a conflict. Accordingly, the defendant’s challenge was brushed aside and it was held that the representative proceedings were properly constituted. Whilst the Defendant’s argument ultimately failed on this set of facts, Tsai Lee Ting does demonstrate a key limitation of representative proceedings. The larger the class of common victims, the more likely it is that one or more of them may have a conflict of interest with other victims, and the less likely it is that a representative proceeding will be found to be appropriate.
A group of plaintiffs bringing representative proceedings must therefore walk a very fine line; if it includes too many plaintiffs, a defendant could challenge whether the proceedings were properly brought on the grounds of a conflict of interest; but on the other hand, if it includes too few, the challenge would be whether they truly represent “numerous persons”. The balancing exercise that a representative plaintiff must undertake effectively limits the availability of representative proceedings.
The difficulty of obtaining Third Party Funding
A further practical limitation to representative actions is the non-availability of third-party funding. It is often the case in class actions that each plaintiff only stands to recover a modest amount from the defendant, and the costs of litigation far exceed what each individual plaintiff could hope to recover. The representative plaintiff must also bear the risk of any costs orders that may be made if the litigation is not successful. In other jurisdictions, where no single plaintiff is willing to fund the action as the representative of all other plaintiffs, this difficulty is addressed by engaging third-party litigation funders to finance the claims.
However, Hong Kong still maintains the common law rules against maintenance and champerty, both of which inhibit the widespread use of third-party litigation funding. The offence of maintenance prohibits third party funders from “officious intermeddling” in a lawsuit and assisting either party with money or otherwise;4 whereas the offence of champerty is a form of maintenance in which the person maintaining the other’s case takes as his reward a portion of the property in dispute.5 These offences were initially introduced in mediaeval England order to guard against “the danger of the oppression of poor men by rich men, through the means of legal proceedings”6. Moreover, the rules are vigorously enforced. As recently as 2021, people have been prosecuted in Hong Kong for the offence of champerty.7
As established in the case of Unruh v Seeberger (2007) 10 HKCFAR 31 , Hong Kong recognises three categories of cases which do not constitute maintenance or champerty, namely cases involving “common interest”, “access to justice” and the miscellaneous practices accepted as lawful, such as the sale and assignment by a trustee in bankruptcy, and the development of the doctrine of subrogation as applied to contracts of insurance.8 Since the judgment in Unruh v Seeberger, a statutory regime has also been implemented via the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017, which has allowed third-party funding in arbitration.
One might assume that a class action could fall within either the “common interest” and “access to justice” exceptions but, in fact, neither of those exceptions apply.
The common interest exception does not apply vis-à-vis a third-party funder; it only applies where there is “a legitimate common interest in the outcome of litigation sufficient to justify one of them in supporting the litigation conducted by another”.9 Unless said third-party funder was itself a plaintiff (and therefore not a third-party at all), it would not be able to claim a legitimate common interest with all the plaintiffs in a class action.
The second exception of “access to justice” remains narrowly construed in Hong Kong. Two test cases are illustrative of the Court’s reluctance to allow widespread litigation funding in the name of expanding “access to justice”:
In the case of Raafat Imam v Life (China) Company Limited [2018] HKCFI 1852, a Plaintiff sought the Court’s declaration that his entrance into a third-party funding agreement was non-champertous. Although he still had some assets to fund the claim, including a matrimonial home and an investment trust, he argued that he should not be required to put his entire family on the line in order to fund the action.10 The Court did not agree, holding that the plaintiff’s primary motivation for entering the funding agreement was not to gain access to justice, but so he could instruct his “ideal or preferred legal representation” without “being at a financial disadvantage compared to the well resourced Defendants”.
Similarly, in the subsequent case of Re A [2020] HKCFI 493, an allegedly impecunious husband applied for a declaration that his litigation funding agreement in an application against his wife fell within the “access to justice” exception. The Court considered a range of international authorities, but refused to grant such an order, concluding at [436] that “liberalisation of the laws of maintenance and champerty […] should be left to the legislative deliberation/decision.”
While neither of these cases involved representative proceedings, they illustrate why an attempt to obtain third-party funding for commercial purposes is unlikely to fall within the “access to justice” exception. In a hypothetical class action, unless it can be shown that the representative plaintiff is completely impecunious and unable to pursue his claim by reason of his impecuniosity, it is unlikely that the Court would make a declaration that this arrangement was lawful.11
Conclusion
The limitations of representative proceedings are of course well-known; in May 2012, Hong Kong’s Law Reform Commission issued a 321-page report acknowledging limitations in the representative proceedings mechanism, and recommended the introduction of a dedicated class action regime. The proposals included the establishment of a “class actions fund” due to the recognition that “if a suitable funding model could not be found which allows plaintiffs with limited funds to take proceedings, little could be achieved by a class action regime”.12 But almost 13 years on, its recommended reforms have yet to materialise, and there do not seem to be any immediate attempts to bring them to fruition. Though only time will tell, reform may be more likely to occur via incremental changes to the representative proceedings regime and, potentially, to the availability of litigation funding.