The law in relation to litigation funding agreements with respect to civil and commercial litigation in the Cayman Islands is set to change dramatically, with the introduction of the Private Funding of Legal Services Act, 2020 (Act).
Previously, litigation funding was seen to be a breach of champerty and maintenance, which were deemed offences under the common law in the Cayman Islands. Champerty and maintenance are common law doctrines which are aimed at precluding frivolous litigation occurring. The Act now specifically repeals any distinct offences under the common law of maintenance and champerty.
Contingency fee agreements
For this reason, and prior to the Act, attorneys in the Cayman Islands were not permitted to enter into contingency fee agreements with clients, although conditional fee agreements were permitted, if approved by the Court.
Contingency fee agreements are those agreements which resulted in attorney's fees for a specific case being deferred until the conclusion of that case, and then only payable upon the attorney being successful in the litigation. Contingency fee agreements also often provide for the payment of a success fee to the attorney.
The Act now allows Cayman Islands' attorneys to enter into contingency and conditional fee agreements, without the Court's approval, and subject to a few conditions, including:
- Attorneys are not able to charge a success fee of more than 100% of the attorney's normal fees;
- Attorneys are not able to claim a success fee which exceeds 40% of the total amount awarded (where the claim is sounded in money);
- Every contingency fee agreement shall be in writing and signed by the attorney, the client (or their authorised representative); and
- Every contingency fee agreement must be delivered to the client by the attorney on the date upon which it is executed.
The Act provides that any contingency fee agreement will not affect costs as between parties.
Notwithstanding the changes mentioned above, the Act requires that contingency fee agreements made by clients acting in a fiduciary position (in other words an attorney, guardian, or trustee under a deed or will) will require Court examination before approval.
The provisions related to contingency fee agreements do not apply to care or criminal proceedings.
Litigation funding agreements
The Act now also expressly allows the entry into litigation funding agreements by clients. While such arrangements had previously been permitted by the Cayman court on a case by case basis, the terms of the agreements had to be carefully drafted, to avoid running into risks related to champerty and maintenance.
The Act defines a litigation funding agreement as one where a funder funds in whole, or in part, the provision of legal services to a client by an attorney, and the client then agrees to pay a sum to the funder in certain circumstances. A litigation funding agreement must comply with certain conditions, including:
- That certain requirements under the
Act must be complied with, those may include:
- That the funder provide prescribed information to the client before the agreement is made, and
- May differ as between different descriptions of litigation funding agreements;
- The agreement must be writing;
- The sum to be paid by the client to
the funder will consist of:
- Costs payable to the client in respect of the relevant proceedings, together with an amount calculated by reference to the funder's anticipated expenditure in funding the provision of legal services; or
- A percentage of the amount of value of property recovered in the relevant action/proceedings.
The Act also provides for the provision of regulations relating to contingency fees and litigation funding agreements, which it is hoped will provide further guidance on the requirements of the different agreements under the Act.
Ultimately, the introduction of the Act is a positive development for Cayman Islands litigants as it aligns Cayman litigation funding options with those that exist in a number of the key jurisdictions with which Cayman intersects. This change in Cayman's legislative environment is welcomed as it finally gives the versatility in funding options to which our clients in major markets are accustomed.
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.