Harneys is pleased to announce that it has forged a new path in Cayman Islands law, acting for the applicant in obtaining the Grand Court’s approval of a third party litigation funding agreement.
The Grand Court’s ruling in A Company v A Funder is significant for the Cayman Islands as a jurisdiction because it has opened the door to appropriate third party funding of litigation.
The plaintiff is a well-resourced Korean company that operates internationally. It was the victim of a complex fraud and obtained a New York arbitration award in its favour against the fraudsters. The fraudsters, unsurprisingly, did not comply with the terms of the award but instead dispersed the proceeds of the fraud into bank accounts across the world.
The plaintiff entered into a funding agreement with a U.K based litigation funder, by which the funder provided financing and also its specialist expertise in asset tracing. While the plaintiff was capable of funding litigation itself, it sought funding from a third party with a view to managing risk and costs.
With the benefit of the funding, the plaintiff commenced proceedings in jurisdictions across the world. Discovery in those proceedings led the plaintiff to bank accounts in the Cayman Islands.
Before commencing recognition and enforcement proceedings in the Cayman Islands, the plaintiff sought a declaration from the Grand Court to the effect that the funding agreement it had entered into was lawful, and that the commencement of legal proceedings in the Cayman Islands using the funds provided under the funding agreement would not be unlawful by reason of the torts of champerty and maintenance.
The law in the Cayman Islands regarding litigation funding
Like many other common law jurisdictions, the Cayman Islands received into its laws the English law torts of champerty and maintenance (the effect of which is to prevent any form of funding of litigation – whether by attorneys or third party funders). These torts were not tempered or abolished by legislative intervention, although minor in-roads had been made by a series of Grand Court decisions that permitted impecunious claimants to enter into conditional fee agreements with Cayman Islands attorneys. The torts otherwise prevented third party litigation funding agreements between funders and claimants.
The significance of the Court’s decision in A Company v A Funder
The Grand Court’s decision opens the door to third party litigation funding in the Cayman Islands, bringing it into line with other international financial centres and also recognising the global trend that third party funding is sought not only by impecunious claimants but also by well-resourced ones who are looking to manage the costs and risks associated with litigation.
The Grand Court has provided useful guidance on the form of funding agreement that will be acceptable in the Cayman Islands. The Court has broad discretion to require amendments to the funding agreement before approving it. The key consideration is to ensure that the funding agreement does not risk corrupting public justice and that the integrity of the litigation process is protected. This will include considerations of whether the funder exerts improper control over the litigation (for example, by the funder’s termination rights or the right to instruct the attorney acting to the exclusion of the claimant), the identity of the funder and the profit that will accrue to the funder.
Harneys is proud to have acted for the applicant in this matter.