Third-party Litigation Funding gets formal green light in the Cayman Islands
Woodsford’s Fred Bowman and Ioan Mortimer look at recent developments in the Cayman Islands and how they provide welcome clarity around the permissibility of litigation funding.
The Private Funding of Legal Services Act 2020 (“the Act”) was gazetted on 7 January 2021 and is set to revolutionise the litigation funding environment in the Cayman Islands.
The Act is the result of a long process that began in February 2012 when the Attorney General of the Cayman Islands asked the Law Reform Commission to review the law relating to conditional or contingency fee agreements. The Law Reform Commission produced a discussion paper in December 2015 and published a final report setting out its recommendations in September 2019.
The Act codifies the Cayman Islands law on third party funding and conditional/contingency fee arrangements. As the name suggests, third party funding typically involves a third party providing financial resources to help pursue a claim, usually on a non-recourse basis, in exchange for a share of the proceeds if the claim is successful. A conditional/contingency fee arrangement is where the attorney’s fee is tied to the outcome of the case, as defined in the Act, a situation in “which it is agreed that the remuneration paid to the attorney-at-law for the legal services provided to or on behalf of the client is contingent, in whole or in part, on the successful or completion of the matter in respect of which the legal services are provided”.
Prior to the Act, the use of litigation funding in the Cayman Islands was largely restricted to liquidators acting with the approval of the Court. The ancient doctrines of maintenance and champerty, which effectively precluded third party involvement in disputes, provided a strong deterrent to any litigation funders entering the jurisdiction.
Both maintenance and champerty were previously crimes and torts but in a watershed moment, the Act abolishes the civil and criminal liabilities and expressly permits the use of litigation funding agreements and conditional fee agreements. This much anticipated legislation significantly widens the options for litigants in the Cayman Island by permitting attorneys to act on a contingent/conditional fee basis and allowing litigation funders likes Woodsford to finance a far wider variety of cases than had previously been permissible.
The Act allows arrangements between attorney and client to be structured either so that the attorney is paid a success fee (capped at 100% of normal fees) or a percentage of the recovery (subject to a cap that will be set by accompanying regulations). The parties can apply to Court to increase these limits subject to a maximum of 40% of the recovery.
The Act sets out a number of formal requirements for contingency fee agreements between attorney and client including that they must be in writing and signed by the client. In addition, the client has a fourteen-day cooling off period during which they can withdraw from the agreement. The Law Reform Commission’s final report dated 30 September 2019 includes a set of draft regulations concerning contingency fee arrangements that sit alongside the Act but these remain in draft form.
Part three of the Act deals with the requirements for litigation funding agreements and pursuant to s.16(2), such agreements must be in writing and comply with prescribed requirements, if any. It is not yet clear what additional prescribed requirements might be put in place in due course but the Act indicates by way of example that prescribed requirements might include requirements for the funder to have provided certain information to the client prior to entering into the funding agreement.
The Act also stipulates the ways by which the funder’s return can be calculated which must be tied to the underlying litigation. In accordance with 16(2)(c), the payment to the funder shall consist of either:
(i) any costs payable to the client in respect of the proceedings to which the agreement relates, together with an amount calculated by reference to the funder’s anticipated expenditure in funding the provision of the services; or
(ii) a percentage of the amount or the value of the property recovered in the action or proceedings to which the agreement relates.
While litigation funding is not entirely new to the Cayman Islands, the Act is an important development which brings the Cayman Islands into line with other jurisdictions that have embraced litigation funding more widely and enjoyed the benefits of an active litigation funding market. The additional funding options now available to Claimants will help ensure that litigants in the Cayman Islands can seek justice in circumstances where financial constraints or an aversion to litigation risk might previously have prevented them from doing so.
The green light given to litigation funding in the Cayman Islands follows a similar move by the BVI last year.
Woodsford has significant experience of funding claims in offshore jurisdictions and claims by insolvent estates. If you have any questions or would like to discuss a claim (or claims) you’d like us to fund, contact Mitesh Modha at firstname.lastname@example.org