New Cayman Islands bill makes approval of legal finance official

On December 14, the Cayman Islands Parliament passed the much-anticipated Private Funding of Legal Services Bill 2020. The bill codifies the way in which conditional fee arrangements and legal finance agreements have been operating in practice in the Cayman Islands for over a decade. This welcome decision by Cayman Islands lawmakers makes complete commercial sense for claimants and judgment creditors and brings the Cayman Islands in line with most other modern business jurisdictions.

Prior to the new bill, legal finance agreements outside the insolvency context were uncommon and judicial endorsement from the Grand Court had to be sought on a case-by-case basis. Generally, the view was that legal finance should only be permissible if the claimant was unable to bring proceedings without third-party capital. Further, before the bill, the archaic doctrines of maintenance and champerty had not yet been formally abolished—although they were widely accepted as outmoded. The new legislation confirms that neither of these rules serve their original purpose and reflects a wider trend of forward-looking jurisdictions continuing to move away from these doctrines. 

There were early indications that the attitudes towards legal finance were changing and that use outside the insolvency context were occurring. In A Company v. A Funder, a large Korean company with a significant arbitration award it wished to enforce in the Cayman Islands sought a dual solution of legal finance capital and the engagement of Burford’s asset recovery expertise. This choice was not due to any inherent financial constraints; rather, the company sought to finance its award recovery in the same way that it would seek to finance any other aspect of its business operations.

The judge presiding over the case stated: “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.” He further reasoned that there was no requirement for the claimant to be impecunious or unable to bring the litigation themselves to use legal finance, but that all commercial parties should have the opportunity to litigate on terms 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. This view was backed up in a subsequent decision in A Company v. A Trustee.

The new Bill is a natural progression from the positive recent caselaw towards legal finance in the Caymans. The law permits attorneys to enter into contingency fees arrangements with commercial clients and expressly recognizes that funding by third parties be permitted in a far wider range of proceedings.

Legal finance agreements entered into post-enactment will have the additional layer of legislative protection, and commercial parties will be free to exercise their own commercial judgment and enter in agreements with legal finance providers without court approval.  

The prominence of the Caymans in international business makes the new law especially significant, marking a substantial improvement to the options available to litigants.