By Nick Hoffman & Lachlan Greig, Harneys From Lexology

Cayman Islands August 14 2018

Late last year, we reported on the watershed decision of the Grand Court of the Cayman Islands in A Company v A Funder (unreported, 23 November 2017), which opened the door to third party funding of litigation in the Cayman Islands. You can read more about A Company v A Funder here.

That door remains firmly open in light of recent guidance handed down by the Court in the case of The Trustee v The Funder (unreported, 26 July 2018).

In The Trustee, the applicant sought a declaration from the Court to the effect that the applicant be permitted to utilise third party funding to conduct litigation. In the absence of approval by the Court, the use of external funding by a litigant risks breach of the common law torts of champerty and maintenance that exist in the Cayman Islands.

The Court adopted the approach previously trodden in A Company, iterating that, on an analysis of a funding agreement, there are seven key characteristics that should be considered:

Control: How much control does the funder have over the conduct of the litigation? Can the funded litigant make key decisions, such as whether to discontinue or settle the claim, or appeal the outcome? What fetters exist on the litigant’s ability to make those decisions (such as consulting with the funder, or the obligation to adhere to legal advice)?

Termination rights: On what grounds can the funder terminate the funding agreement? Can the funder exert de facto control over the funded litigant and the litigation by threatening to resort to a termination right exercisable at will, or without reasonable cause?

The attorneys: To what degree do each of the funder and the litigant correspond with the attorneys acting in the litigation? Who chooses the attorneys, and who can replace them?

Prejudice to the defendant: If the funded claim fails, what prejudice does the defendant suffer? Will the defendant be left with a costs order than cannot be satisfied by the funded claimant? Is the funder liable to the defendant for such costs, and has provision been made or appropriate ATE insurance put in place?

The decision making power of the litigant: Does the litigant hold the decision making power, which it can exercise on a properly informed basis in consultation with its attorneys?

The profit to the funder: Is the return to the funder (and the corresponding cost of the funding to the funded litigant) appropriate and proportionate in all the circumstances?

The identity of the funder: Is the funder a professional funder, subject to appropriate regulation, and with sufficient substance to make good on its obligations?

These considerations are, of course, not novel to the Cayman Islands and will be familiar to those with experience in litigation funding in other common law jurisdictions. The Court’s overarching objective is to preserve the integrity of the legal system in circumstances where there is a growing acceptance in many jurisdictions of the benefits of litigation finance and the need to ensure that the Cayman Islands does not fall behind them. We expect applications of the kind made in A Company and The Trustee to become more frequent as third party funders consider the opportunities available in the Cayman Islands as result of the Court’s decision in A Company, and in the absence of any imminent legislative intervention to abolish the torts.

Harneys – Nick Hoffman and Lachlan Greig

SOURCE: https://www.lexology.com/library/detail.aspx?g=d9f0157a-b20f-4d25-9c84-bd7a1412fa94