The common law rules of champerty and maintenance are still in effect in the Cayman Islands. This means that, unless special precautions are taken, funding arrangements can have adverse consequences for the funder and the party, such as the making of costs orders directly against the funder rather than the party, and enhanced requirements for security for costs.
Following the English model, parties have attempted to introduce types of funding arrangements privately, often in the form of ‘conditional fee agreements’ (if the claimant does not win the case, the attorneys take no payment, but if they do, the attorney takes his or her fees with a percentage uplift to compensate for the risk). Any such arrangement must be approved in advance by the Court. In ordinary civil claims, the matter was brought to a head by the decision of the Court of Appeal in Barrett v AG of the Cayman Islands  1 CILR 127, where the Court held that a winning plaintiff could not recover the uplift from a paying defendant, or possibly even the amount of his or her basic fees. The Court of Appeal indicated that legislative reform was required to clarify the position. This has not yet occurred but, in December 2015, the Law Reform Commission published a discussion document and a draft Private Funding of Legal Services Bill. If enacted, it would (among other things) repeal the common law offences of maintenance and champerty and permit the use of contingency and conditional fee agreements in most types of case. However, (as yet unspecified) limits on the percentages recoverable in contingency fee agreements and the uplifts on fees recoverable in conditional fee agreements would be imposed, as would limits on the amounts payable to third-party funding providers, subject always to the Court’s discretion to permit agreements falling outside the statutory limits in appropriate cases.
In the decision of Hon Justice Andrew Jones QC in In the matter of ICP Strategic Credit Income Fund Limited  1 CILR 314, the question of litigation funding in a corporate insolvency context was considered in some detail. The judge held that there was nothing to prevent the liquidators from assigning the ‘fruits of the action’ to a third party. The liquidators were not entitled under the Companies Law to assign a cause of action that was personal to the company or to assign the proceeds of an action that had been vested in them in their capacity as liquidators (eg, a statutory preference claim). Such a claim did not form part of the company’s property, which was limited to the property owned by the company at the time it entered liquidation, and any assignment of the liquidator’s fiduciary power would necessarily be contrary to public policy. Further, any funding agreement that gave the third party the ability to control the litigation, including by indirectly exerting undue influence or control, would be void on the grounds of maintenance and champerty. Such an agreement risked the integrity of the litigation process and, accordingly, corrupted public justice. The party that provided the funding must not, therefore, be entitled to terminate the contract, cease paying the legal fees or cease providing legal services. Further, it must not be able to insist upon the continuation of the legal claim if the liquidators no longer wish to pursue it, or demand payment for services already rendered should the liquidator decide to discontinue the action.
Aside from the above, all manner of different funding arrangements are now being utilised. Common arrangements in the insolvency context (with the approval of the Court) include those where the funder will advance funding at very attractive (to the funder) rates of interest and will also obtain a percentage of any damages or judgment sum recovered.
Pure contingency fee arrangements, by which attorneys obtain a percentage of the recoveries in litigation, remain illegal and contrary to public policy in the Cayman Islands, although the Court will authorise liquidators to enter into such arrangements with foreign attorneys for the purpose of foreign proceedings, provided that they are permissible in the applicable foreign jurisdiction.
Outside the context of insolvency proceedings, the Grand Court has very recently reviewed the lawfulness of litigation funding agreements in A Company v A Funder, Hon Justice Segal, unrep, 23 November 2017. In that matter, a company had obtained an arbitration award against a third party, and wished to seek to enforce it and obtain a freezing order from the Grand Court. The company had third-party funding provided by the defendant to the proceedings, and wished to obtain a predetermination as to whether reliance on that funding agreement, which was governed by English law, might constitute criminal or other unlawful conduct in the Cayman Islands because of the continued existence of the crimes of maintenance and champerty. Accordingly, it issued proceedings against the funder for a declaration, and the funder did not contest the proceedings. The judge and the company each recognised that this was a somewhat artificial exercise. The funding agreement in issue was in two stages: investigation of the award debtor’s assets and funding of the enforcement processes. The company had broadly agreed to pay the funder on the basis of an ‘uplift’ on the fees incurred, together with a contingency fee of a percentage of the recoveries. The company retained sole conduct of the proceedings and ability to settle. Justice Segal conducted a thorough review of the Cayman Islands and other Commonwealth authorities, and held that in considering whether a funding agreement is unlawful on grounds of maintenance or champerty, the question is whether the agreement has a tendency to corrupt public justice. He found that this question requires the closest attention to the nature and surrounding circumstance of a particular agreement, and that the rules against champerty are primarily concerned with the protection of the integrity of the litigation process in the Cayman Islands. The underlying concern is a risk of abuse, because the funder’s prospect of and need to protect and maximise its profits might tempt the funder to interfere with the litigation process in a way that might inflate claims, suppress evidence or suborn witnesses. A number of features of significance were identified:
- the extent to which the funder controls the litigation;
- the ability of the funder to terminate the funding agreement at will or without reasonable cause;
- the level of communication between the funder and the funded party’s attorneys;
- the prejudice likely to be suffered by the defendant if the claim fails;
- the extent to which the funded party is provided with information about, and is able to make informed decisions concerning, the litigation;
- the amount of profit that the funder stands to make; and
- whether or not the funder is a professional funder or is regulated.
Correct application of the considerations outlined should ensure that any such funding ought not to have a tendency to corrupt public justice and should protect the integrity of the litigation process. Provided that these principles are respected and these important policy goals are achieved, commercial funding of litigation, which can promote access to justice, should not be objectionable or subject to enhanced requirements or constraints. In the event, the judge held that the funding agreement should be appropriately amended so as to comply with the Code of Conduct for Litigation Funders, following which he would make the declaration sought, even though it would not be binding as against the defendant to the enforcement proceedings.
More recently, in The Trustee v The Funder, unrep, Segal J, 26 July 2018, a funding agreement was approved by the Grand Court outside the liquidation context, applying the principles discussed above, but without considering the incremental development that it involved. The background to the case was that a professional trustee had been precluded from utilising the assets of the trust under management to pay its legal expenses to defend itself against a claim brought against it by certain beneficiaries of the trust (and among the beneficiaries themselves.) The learned judge considered whether, in the round, the funding agreement under consideration gave rise to a tendency to corrupt public justice, undermine the integrity of the litigation process or give rise to a risk of abuse and concluded that, in the circumstances of this particular case, the funding agreement did not constitute or involve unlawful maintenance or champerty. He approved it, subject to a number of amendments necessary to make it consistent with the wording approved in A Company v A Funder.
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