20 January 2021

Private Funding Of Legal Services Act 2020 – Expansion Of Litigation Funding In The Cayman Islands



Walkers is a leading international law firm which advises on the laws of Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Ireland and Jersey. From our 10 offices, we provide legal, corporate and fiduciary services to global corporations, financial institutions, capital markets participants and investment fund managers.
The Private Funding of Legal Services Act, 2020 (the "Act"), which was gazetted on 7 January 2021 but is not yet in force, seeks to bring the Cayman Islands position on litigation funding in line
Cayman Islands Litigation, Mediation & Arbitration
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The Private Funding of Legal Services Act, 2020 (the "Act"), which was gazetted on 7 January 2021 but is not yet in force, seeks to bring the Cayman Islands position on litigation funding in line with the well-established regimes in other common law jurisdictions. The Act will open up the world of litigation funding to litigants in the Cayman Islands by abolishing criminal and civil liability for maintenance and champerty and making statutory provision for entering into litigation funding agreements without the sanction of the Court.

Litigation funding can be loosely divided into three categories:

  1. Conditional Fee Agreements – where the client agrees to pay a success fee in the form of an uplift on the lawyers standard fees if the litigation is successful; and no fee if the case is unsuccessful;
  2. Contingency Fee Agreements - where the lawyer stands to gain a percentage of the proceeds of the litigation if successful; and no fee if the case is unsuccessful;
  3. Third Party Litigation Funding – where a third party agrees to fund the litigation in return for payment of a percentage of the proceeds of the litigation (pursuant to agreed commercial terms).

Under the current regime, maintenance and champerty still give rise to criminal and tortious liability. However, the Cayman Islands judiciary has recognised that the availability of litigation funding is an important feature of access to justice in any sophisticated court system and the Court has held that, provided that the terms of the proposed funding agreement are not contrary to public justice, litigation funding is permissible in the jurisdiction but only with permission of the Court.

Key Provisions of the Act

Under the Act, litigants can enter Conditional Fee Agreements and Contingency Fee Agreements (as described above) without Court sanction, provided that certain conditions are met. 'Contingency Fee Agreement' ("CFA") is used to describe any agreement pursuant to which the remuneration for legal services is contingent on the successful disposition of the matter for which legal services are provided. Court sanction is not required for CFAs where:

  1. the matter to which the CFA relates is neither (i) a criminal or quasi-criminal proceeding; nor in respect of services relating to the care of a child or any order under the Children Act (2012 Revision);
  2. the success fee payable to attorneys pursuant to a Conditional Fee Agreement does not exceed the attorney's normal fees by more than 100 per cent, or the 'prescribed percentage' of the total amount awarded, such percentage to be confirmed by supplementary regulations to the Act (the "Regulations") which have not yet been published;
  3. with respect to Contingency Fee Agreements (as described above), the success fee does not exceed the maximum percentage (which may be prescribed by the Regulations) of the value of the property recovered in the litigation; and
  4. the calculation of the success fee excludes any amount payable to the litigant because of a costs award or settlement as to costs.

If the attorney and client would like to enter into a CFA that does not comply with these conditions, they must make a joint application to the Court for sanction. Key considerations for the Court will include the nature and complexity of the proceedings and the expense or risk involved. Without Court sanction, any CFA that does not comply with the statutory conditions will be unenforceable. Importantly, the Act prohibits the Court from approving a CFA in which the success fee exceeds 40% of the amount awarded.

The Act also makes provision for third party funding but leaves significant scope for this form of funding to develop in line with the needs of the market.

Both clients and the legal industry will no doubt benefit from the expansion of funding options, which will enable parties to pursue meritorious litigation in circumstances where lack of funding may, under the existing regime, have presented an insurmountable roadblock.

We intend to provide a further update once the Act and regulations have both come into force. Please do not hesitate to reach out to your usual contact at Walkers should you wish to discuss any queries you may have.

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.

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