Litigation Funding in the Offshore World

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Offshore litigation of claims against professionals may have entered a new era.  Numerous recent decisions have blessed the use of commercial litigation funding and confirm that it should not offend rules against champerty (the assignment of a bare cause of action to an outsider with no prior interest) and maintenance (litigation funded and controlled by a third party).

 

The Need for Clarification

 

Under principles originally devised to protect the “purity of justice” against the interference in land disputes by overweening barons, agreements savouring of champerty or maintenance are unenforceable, and proceedings pursuant to them liable to be stayed.

 

Modern authority requires some impropriety, such as disproportionate control or profit, "wanton or officious" meddling, or the temptation to inflame damages, before an agreement will amount to champerty or maintenance.  Commercial litigation funding, carefully structured, can avoid such impropriety.  But the fact-specific nature of the rules meant the risk of abuse could never be altogether dismissed. 

 

Recent English reforms explicitly show how to fund litigation without falling foul of the mediaeval doctrines.  Codes of Conduct for funders have been promulgated (most recently in January this year), including provisions forbidding unconscionable returns and excessive powers of intervention.

 

A prior lack of offshore authority meant funders’ forays into that area were likely to be cautious at best.  Recent applications to stay funded offshore litigation have not only failed but provoked judicial blessing of funding.

 

Three Recent Offshore Decisions

 

In Jersey, Barclays Wealth Trustees (Jersey) Limited as trustee of the R2R Bulgaria Property Fund & Others v Equity Trust (Jersey) Limited & Others [2013] JRC094 concerned a claim by an incumbent trustee against a former trustee for breach of trust, breach of contract and breach of fiduciary duty.  The defendant sought to stay proceedings after the plaintiff concluded a funding agreement.

 

The court found that Jersey law prohibited only the assignment of causes of action, not mere funding.  Even if that were wrong, the court should not exercise its jurisdiction to stay unless the arrangement threatened the purity of justice.  Far from posing such a threat, funding of the type exemplified furthered “the important objective of access to justice”. 

 

In Bermuda, Stiftung Salle Modulable and another v Butterfield Trust (Bermuda) Limited [2014] SC (Bda) 14 Com (21 February 2014) concerned a trustee’s failure to fund the construction of an opera house in Lucerne.  The plaintiff failed to make a monetary recovery, but secured relief akin to specific performance. 


The plaintiff procured funding in return for approximately 40% of any damages recovered. The Court declined to follow “antiquarian” authorities, and observed furthermore that fair trial rights guaranteed by the Bermuda Constitution suggested that funding arrangements should be encouraged rather than condemned.

 

It is not apparent that the agreement in Stiftung was champertous in the strict sense, assigning, as it seemed to, litigation proceeds rather than the bare cause of action.  Nor is it apparent that the funder had improper control (which, in any event, is doubtful, given the Code, referred to above).  Yet, as with the Jersey decision, this endorsement is a significant clarification and encouragement to the funding industry.

 

In In the Matter of DD Growth Premium 2X Fund (In Official Liquidation) CAUSE NO. FSD 0050 OF 2009 (ASCJ), the Grand Court of the Cayman Islands considered whether a “conditional fee agreement” (CFA), under which a litigant’s legal representative part-funds litigation in return for an uplift of in fees if successful, was enforceable.

 

The Court found that, where a CFA is in the interests of the client, relates to meritorious litigation and is subject to some judicial supervision, it should be upheld.  (By contrast, incidentally, the court in Barclays Wealth observed that CFAs could tend to corrupt justice and thus (unlike commercial funding) should not be encouraged.)

 

Recoverability of Costs

 

In Stiftung, the Court rejected the innovative argument of the plaintiff (which had failed in its damages claim but secured specific performance) that its funding costs were recoverable under a separate head of damages.  While discouraging attribution of full precedential value, given the limited argument before him, the Learned Judge found such costs to be not of a type for which a contract-breaker ought fairly to be taken to have accepted responsibility. 

 

In Attorney General v. Barrett [2012] (1) CILR 127, the Grand Court of the Cayman Islands held an uplift in fees under a CFA irrecoverable from the losing party under the court’s costs jurisdiction.

 

Other Questions

 

Stiftung illustrates interesting conundrums that funding can present. The plaintiff made no monetary recovery, but was entitled to specific performance of the trustee’s promise to fund the project if the plaintiff could show the project to be “feasible”.  Assuming it could, would performance of the trustee’s promise be subject to apportionment with the funder (as damages would be)?  The answer will depend upon the terms of the agreement, the details of which the judgment does not relate. But this illustrates the challenges in anticipating all contingencies in the drafting of funding agreements.  

 

 

Topics:  Litigation Funding, Professional Liability

Published In: Business Torts Updates, General Business Updates, Finance & Banking Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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