Contingency Charges Codified In The Cayman Islands – Litigation, Mediation & Arbitration – Cayman Islands

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Cayman Islands:

Contingency Fees Codified In The Cayman Islands


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In a groundbreaking move last month, the Cayman Islands gazetted
the Private Funding of Legal Services Act 2020 (“the
Act”). Although the Act has not yet come into force, when it
does, it will put the legality of Litigation Funding Agreements in
the Cayman Islands on a statutory footing. In addition, and more
significantly, the Act introduces the availability of Contingency
Fee Agreements. This legislative development is a welcome departure
from the traditional prohibitions against champerty and maintenance
and will provide greater opportunities for potential litigants to
bring their claims in the Cayman Islands courts.

Prior to the Act, third party funding was sanctioned by the
Court on a case-by-case basis where a plaintiff could demonstrate
that its claim fell within the access to justice/not contrary to
public policy exception to the torts of champerty and maintenance.
Historically, that required them to be impecunious1 however the
Court subsequently widened the scope of that exception in A
Company v A Funder
2 where it sanctioned third party
funding agreements in relation to non-impecunious litigants, such
as large and very solvent international entities.

The key provisions of the Act are discussed below.

Repeal of champerty and maintenance

Sections 17 and 18 of the Act officially repeal these offences
thereby doing away with the need for parties to seek special
permission from the Court. The Act does, however, retain the
provision that agreements must not be contrary to public policy or
be otherwise illegal.

Contingency Fee Agreements

The Act aims to provide for greater flexibility in fee
structures and to balance the interests of both the lawyer and the
client as described below.

  • A contingency fee agreement is defined as one between a lawyer
    and his/her client in which it is agreed that the remuneration paid
    to the lawyer for the legal services provided to or on behalf of
    the client is contingent, on whole or in part, on the successful
    disposition or completion of the matter3.

  • The amount of the success fee which a lawyer is entitled to
    impose under a contingency fee agreement is capped at no more than
    100% of the lawyer’s normal fees4.
    Notwithstanding that position, both parties may apply to seek
    permission from the Court to increase this cap, within 90 days of
    the execution of the contingency fee agreement. In exercising its
    discretion, the court will take into account (i) the nature and
    complexity of the action or proceedings, (ii) the expense or risk
    involved in the action or proceedings and (iii) any other factors
    the Court finds relevant. In the event that parties wish to apply
    to the Court to increase the success fee cap, the contingency fee
    agreement will not be enforceable until it is approved by the
    Court.

  • In calculating the amount of costs for the purposes of making
    any adverse costs orders, a court shall not reduce the amount of
    costs only because the lawyer is being compensated in accordance
    with a contingency fee agreement5 .

  • A provision in a contingency fee agreement that a lawyer is not
    liable for negligence or is relieved of any responsibility to which
    that lawyer would otherwise be subject, is void6. This does
    not prohibit a lawyer who is employed by a third party from being
    indemnified by his employer for liabilities incurred as a
    consequence of professional negligence in the course of the
    employment.

Litigation Funding Agreements

  • The Act defines a litigation funding agreement, which shall be
    in writing7, as an agreement that relates to the
    provision of legal services under which a funder agrees to fund in
    whole or in part the provision of legal services to a client by
    his/her lawyer and under which the client agrees to pay a sum to
    that funder in specified circumstances8.

  • The sum to be paid by a client shall consist of any costs
    payable to the client in respect of the proceedings to which the
    agreement relates, together with an amount calculated by reference
    to the funder’s anticipated expenditure in funding the
    provision of the services. Alternatively, the sum to be paid by a
    client shall consist of a percentage of the amount or the value of
    the property recovered in the action or proceedings to which the
    agreement relates9.

Concluding Remarks

The Act awaits the publication of regulations which will provide
guidance on various issues such as the form and content of the
funding agreements, the maximum percentages recoverable under such
arrangements and the duties owed by lawyers when acting in these
circumstances10.

Irrespective of the details of that guidance, the Act provides
more options for parties to pursue external funding in respect of
litigation in the Cayman Islands courts. This will be particularly
appealing for Asia based clients where the use of third party
funding in jurisdictions like Hong Kong and Singapore is currently
restricted to arbitration and insolvency proceedings only, and
contingency fees are not allowed at all. This makes the Cayman
Islands an excellent destination for parties and funders alike in
promoting access to justice.

Footnotes

1. Re ICP Strategic Credit Income Fund Ltd 2014. 1
CILR 314

2. A Company v A Funder FSD 68 of 2017

3. Section 3(1) of the Act

4. Section 4(1) of the Act

5. Section 6(3) of the Act

6. Section 8(1 ) of the Act

7. Section 16(2)(a) of the Act

8. Section 16(1) of the Act

9. Section 16(2)(c) of the Act

10. Section 19 of the Act

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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