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“A Company and a funder”: Cayman Islands ruling advances litigation finance

  • Michael Redman

As 2017 came to close, the Cayman Islands joined the vast majority of the common law world in explicitly approving the use of litigation finance. The prominence of the Caymans in international business litigation makes the decision of the Grand Court of the Cayman Islands especially significant.

The matter—"A Company and A Funder”—represented a considerable expansion of the Cayman jurisprudence related to litigation finance. A large Korean company had a significant claim and wished to use Burford’s third-party funding for the enforcement of an award. The Korean company was not forced to turn to litigation finance due to its financial constraints—far from it. Rather, it sought to finance its claim just as it would seek to finance any other aspect of its operations. However, because Cayman decisions on litigation finance have heretofore been limited to its use by liquidation estates, the Korean company sought assurance from the Grand Court that its use of outside finance would not be unlawful and would not constitute maintenance or champerty, archaic doctrines that have not yet been formally abolished in the Caymans.

The Court responded with a landmark decision broadening the use of litigation finance in the Caymans beyond insolvency—a decision that will most certainly influence other jurisdictions. Indeed Segal J made clear that “Cayman has an important, world-class court system and litigation culture and there is no reason why responsible, properly regulated commercial litigation funding undertaken in accordance with the principles I have set out should not have a place in this jurisdiction.”

More importantly, as set forth by Segal J, “It does not seem to me that… there is any reason why this jurisdiction should treat with greater circumspection or impose additional constraints on commercial funding of litigation in this jurisdiction.” Further:

“I take into account that this is not a case involving an impecunious plaintiff who would be unable to bring the proceedings without the benefit of third party funding. That is a relevant factor but should not in my view be determinative. There are clearly benefits that may flow from allowing plaintiffs [with] genuine claims the opportunity to litigate them on terms which they consider to be commercially attractive and provide them with a better risk-reward ratio than if they were to fund the costs of the litigation themselves.”

The principles set out by Segal J hew closely to the most important considerations that clients and law firms already bring to their own diligence of commercial litigation funders. Among other factors, Segal J cited the need for the funder to be a member of a professional body such as the Association of Litigation Funders (of which Burford is a founding member) and the issue of control, strongly arguing that the funder should not seek to control the litigation (as Burford never does).

Those who read the judgment carefully will note that the “Funder” in “A Company and A Funder” is identified by Segal J. as “a member of the ALF (and a long established professional finance provider of repute in the legal profession and listed on the London Stock Exchange).” Although not identified by name in the judgment, Burford is obviously the only firm meeting that description.