The dawn of a new age for contingency fee agreements and litigation funding agreements in the Cayman Islands
04 May 2021
On 8 April 2021, the Private Funding of Legal Services Act, 2020 (Commencement) Order, 2021 (the "Order"), was gazetted, following its approval in Cabinet. Under the provisions of the Order, the Private Funding of Legal Services Act, 2020 (the "Act") came into force on 1 May 2021.
The Act introduces a framework for contingency fee agreements ("CFAs") and litigation funding agreements ("LFAs") in the Cayman Islands, setting out the statutory criteria for agreements as well as the applicable fee structures, restrictions, dispute mechanisms and circumstances requiring court approval.
For a more in depth analysis of the Act and our commentary on its contents, please see our earlier briefing, issued when the Cayman Islands legislature passed the Act in January 2021 - Cayman Islands approves law for contingency fees and litigation funding.
Supporting Regulations to the Act
On 2 May 2021, the Private Funding of Legal Services Regulations, 2021 (SL 34 of 2021) (the "Regulations") were gazetted, which address the specific requirements of the Act as it relates to CFAs. The Regulations set out (i) mandatory and excluded provisions for a CFA, (ii) special requirements when dealing with persons under disability, (iii) maximum fees and (iv) disbursements.
Content of CFAs
Section 4 of the Regulations is particularly relevant, under which attorneys are required to ensure all CFAs include certain specified general statements, including, but not limited to, the following:
- the client may be liable to pay the taxed or agreed costs of the client's opponent if unsuccessful;
- the client understood the meaning and purpose of the CFA;
- the type and nature of the matter in which the attorney is providing services to the client;
- the client and attorney discussed options for engagement other than by way of a CFA;
- that explains the contingency upon which the fee is to be paid to the attorney;
- that explains what is to be regarded by the parties as constituting success or partial success;
- that explains that for the purpose of calculating the contingency fee, the amount to be recovered excludes any amount awarded or agreed in respect of costs and disbursements; and
- an example that shows how the contingency fee is calculated.
These requirements are not surprising and are in line with other leading jurisdictions in terms of the criteria for valid and enforceable CFAs.
Maximum fees under CFAs
The other pertinent area of the Regulations is section 8, which prescribes the maximum fees an attorney can agree in a CFA under section 4(2) and 4(3) of the Act, being cases where the fee is calculated by way of a success fee and a percentage respectively. These varying models of calculating the attorney's fees are addressed in our previous advisory - Cayman Islands approves law for contingency fees and litigation funding.
The Act states that the fee paid to an attorney, whether agreed as a success fee or a percentage of the award, must not exceed the "prescribed percentage" of the total amount awarded or obtained by the client, excluding costs. As was expected based on the draft Regulations, the prescribed percentage has been set by section 8 of the Regulations as being 33.3%.
The attorney and client can apply to the Grand Court of the Cayman Islands (the "Court") to exempt the CFA from these prescribed limits (33.3%) under section 4(4) of the Act, if merited based on the facts of the case, but the Court's discretion is capped at 40% of the total amount awarded or obtained (section 4(6) of the Act).
Do the Regulations effect LFAs?
No, the Regulations focus exclusively on CFAs. However, section 2(b) of the Act does give Cabinet the power to issue prescribed requirements for LFAs, in the form of further Regulations, should it feel that the need arises.
It appears that LFAs are intended to be largely self-regulated, which is apparent from the very light touch approach taken by the Act, dedicating just one section to how LFAs are to be governed in the Cayman Islands (compared to the 13 sections governing CFAs). This is a similar model to that already in effect in the United Kingdom, which has demonstrated that the litigation funding industry is well placed to create its own rules governing the relationship between a funder and its client. This has largely been achieved through the establishment of the Association of Litigation Funders of England and Wales and its applicable Code of Conduct for members.
The introduction of the Act, with its supporting Regulations, represents a significant milestone in the conditional fee and funding landscape within the Cayman Islands by formally removing the outdated civil and criminal offences of champerty and maintenance, and providing the jurisdiction with a clear framework which promotes access to justice. It brings much needed clarity to clients, funders, attorneys and the courts as to what is permissible and how those various agreements must be documented. The reform also establishes the Cayman Islands as a modern and sophisticated legal jurisdiction that allows litigants, whether individuals or corporate entities, to explore greater options for pursuing legal recourse in a manner that better suits their resources, operations and risk appetite.
Bedell Cristin’s Dispute Resolution team has many years’ experience in dealing with the issues that should be assessed when considering CFAs and LFAs and can advise you on whether one is appropriate in your circumstances. If you require more information on LFAs or CFAs, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.