The Cayman Islands Refines Litigation Funding Regulation

Last month, the Private Funding of Legal Service Act 2020 (AKA the Act) became law. The Act brings codification to the rules governing the practice of third-party litigation funding—which had been addressed on a case-by-case basis previously. Like many jurisdictions, champerty and maintenance laws had to be abolished before litigation funding could be supported by the law. This was a key element of the Act.

Mourant details that the Cayman Islands recognizes three types of litigation funding agreements:

• Conditional Fee Agreements—where clients pay slightly more than standard legal fees if the case wins, and nothing if the case doesn’t.
• Contingency Fee Agreements—where lawyers receive a set percentage of any award given, but clients pay nothing if the case is lost.
• Third-Party Funding Agreements—where funders and clients agree on terms by which funders will cover case costs in exchange for payment after the case wins. Funding agreements are generally non-recourse, so clients pay nothing if the case is not successful.

Other vital aspects of the Act include allowing contingency fee agreements except in the case of criminal proceedings, or any case under the purview of the Children Act. Conditional fee arrangements are also permitted, with set limits imposed on how much attorneys can add to normal legal fees. Total amounts paid to lawyers may not exceed 33% of the total judgment or award. If lawyers want to enter a fee agreement with different terms, that may be possible with court approval.

With regard to third-party funding agreements, the Act requires that funding agreements must be in writing, and comply with existing law. The Act leaves room for further regulation to be imposed later, as needed. Such rules could include disclosure requirements or the acceptance and regulation of new types of funding agreements.

Overall, the Cayman Islands has created a welcome environment for funders and investors.