Cayman Islands: The Changing Landscape Of Litigation Funding In Cayman

Businesses that litigate in the Cayman Islands courts have historically had few alternatives to the traditional funding model, i.e., paying a law firm a fixed hourly rate. Ancient laws, fashioned for a different era, still clank their chains, inhibiting the development of alternative funding. This may, however, be about to change. The Law Reform Commission has recently made a proposal that, if implemented, would radically improve the options available to litigants and in doing so, improve access to justice.

Common law rules dating from medieval England outlawing what are known as champerty and maintenance are still in effect in the Cayman Islands. They criminalize and render unenforceable arrangements whereby third parties provide funding for litigation without sufficient justification in the eyes of the law. In their undiluted form, these rules do not allow plaintiffs' lawyers to act on a "no win no fee" basis, preventing plaintiffs from protecting themselves against losing by agreeing to pay their lawyers only if damages are recovered and only out of what is recovered. They also create uncertainty over the enforceability of agreements between plaintiffs and third parties who agree to advance funding for litigation in return for a reward if the litigation succeeds.

The Cayman Islands court has gradually diluted these rules, such that two types of litigation funding arrangement are now available to fund litigation in the Cayman Islands.

Conditional fee arrangements (CFAs)

Under a CFA, lawyers agree to undertake litigation but only to recover their fees (or a deferred portion in a partial CFA) if successful. The courts have allowed that a success fee "uplift" may be charged on any deferred fees, but this is capped by reference to the prospects of success and capped at 100 percent of normal rates (i.e. if successful the lawyer gets paid the deferred fees and a success fee up to 100 percent of those fees as well). The caps have in practice meant that CFAs have not become more regularly used. In addition it is not clear whether any of the cost of the CFA to the plaintiff can be recovered from a defendant that loses (in the normal case a plaintiff will recover a substantial portion of its legal fees from an unsuccessful defendant). CFAs in their currently permitted form do not appear to be considered commercially attractive and have not become prevalent in the Cayman Islands.

Litigation funding by third parties

This involves a related or third party funder advancing funding to the plaintiff in return for an assignment of the proceeds of the litigation. These arrangements are generally commercially expensive (one to three times funding and a percentage of net returns are fairly standard) but often represent the only option for an impecunious litigant in the Cayman Islands.

So called "contingency fees" are not permitted for litigation in the Cayman Islands. A contingency fee arrangement is where a lawyer agrees that their fee will be a percentage (often 25 to 35 percent) of damages, rather than chargeable on an hourly rate. These are forbidden for litigation in the Cayman Islands.

Under current arrangements, third party litigation funding is probably the least unattractive form of alternative fee arrangement available in the Cayman Islands. It is often perceived as expensive and it is still prima facie unlawful. Litigation funding agreements can only be enforced if the court deems that the terms on which they are offered are acceptable and do not offend against the laws of maintenance and champerty. Funders want certainty that their returns are enforceable before providing substantial funding.

This situation resulted in the artificial procedural construct used in A Company v a Funder: the plaintiff company commenced proceedings against its funder (a third party litigation funder) to obtain a declaration that the funding arrangement was valid. In setting out guidelines for agreements by which pecunious plaintiffs may access litigation funding, the court has taken an important decision about a complex issue of public policy in Cayman, without consultation of the legislative.

A further disadvantage of litigation funding agreements is that the substantial cost of the agreement may prove difficult or impossible for the plaintiff to recover from the defendant.

There is, however, nothing to prevent a Cayman Islands-based plaintiff from making a contingency fee agreement with a foreign attorney to pursue litigation outside of Cayman. A number of commercial disputes involving Cayman Islands entities are capable of being brought either in Cayman or the U.S. and it can be a real advantage to a business to be able to litigate on a contingency fee arrangement. Where they have this choice, Cayman Islands-based commercial litigants have often decided to pursue elsewhere claims that would otherwise be litigated here – particularly in the U.S., in order to take advantage of the contingency fee option. This results in jurisprudence, work and associated revenues being lost to the jurisdiction.

In 2010, the Cayman Islands Court of Appeal called for the legislature to address alternative fee arrangements, a call repeated by the chief justice in 2013. Progress has not been swift: the Law Reform Commission first produced a report on the topic in 2015, with a further interim report in 2018 proposing a draft bill (Bill) and regulations (Regulations, together the Proposal) for the private funding of legal services in Cayman.

The proposal is still a work in progress and subject to a consultation process, but it represents a potentially significant change to litigation funding in the Cayman Islands. The bill proposes the abolishment of the torts and offenses of maintenance and champerty and paves the way for attorneys in the Cayman Islands to enter into contingency fee agreements with commercial clients, expressly recognising that litigation funding by third parties be permitted.

The proposal focuses on contingency agreements, giving detailed guidance on what must be included in such agreements. It proposes permitted fee based on a percentage fee of damages initially capped at 33 percent but capable of being even higher if approved by the court.

Importantly, the proposal provides that parties are not excluded from recovering costs from the opponent simply by virtue of a contingency fee arrangement. The proposal does not descend into the detail of how this would work. However, preservation of an element of the "loser pays" principle in funded cases is to be welcomed as lowering the effective cost of funding for the plaintiff and preserving the incentives against unmeritorious arguments that costs consequences can give rise to.

The proposal recommends legislation that would permit third party litigation funding and regulations that clarify the requirements for funding arrangement terms. Although this must be developed further, the bill appears to propose restricting the sum payable to either:

  • costs payable to the client in respect of the proceedings (i.e., any awards) together with an amount calculated in accordance with the funder's anticipated expenditure in funding the provision of the services; or
  • a percentage of the value of the property recovered in the proceedings.

Without further elaboration on these principles, it is unclear whether the proposal intends to cap the cost of funding, but these costs will face commercial pressure from the availability of contingency fee agreements, particularly if they remain irrecoverable.

Commentary

The proposal is a long awaited step toward progress and offers a real shift in the litigation funding landscape – the prospect for contingency fee agreements in the Cayman Islands offers a truly commercially attractive funding opportunity for lawyers and clients, without the added cost of a third party funder's profit element on top of the lawyer's fees.

In practice, we have seen clients select the option of contingency fee arrangements in other jurisdictions against expensive litigation funding in the Cayman Islands. Adding the opportunity to retain those cases in the Cayman Islands will be of benefit to the Cayman Islands both in developing the jurisprudence here, and in preventing the flight to the U.S. of jurisprudence, work and revenues derived from Cayman Islands litigation.

However, it remains to be seen how quickly changes may be implemented and in the meantime access to justice remains satisfied on a case by case basis in reliance upon the developing case law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Jeremy Snead
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions