The decision of the UK Supreme Court in PACCAR has led funders of litigation in all jurisdictions to consider the implications for their existing funding agreements and how to deal with funded cases in the future. In this article, we consider the use of litigation funding in the offshore markets, and what the impact of the decision in PACCAR will be for those who are involved in the funding of litigation in those jurisdictions.
The Decision in PACCAR
In summary, the Supreme Court has held that litigation funding agreements which provide for a return to the funder of a percentage of any damages recovered are damages-based agreements (“DBAs”) and must therefore comply with the Damages-Based Agreements Regulations 2013 (the “DBA Regulations”). The effect is that, as a matter of English law, any litigation funding agreements which do not comply with the DBA Regulations are unenforceable.
In her dissenting judgment in PACCAR, Lady Rose cited evidence from the Chair of the Association of Litigation Funders and also from the Chairman of Calunius (a professional litigation funder), which explained that the consequences of the decision will be that most, if not all, litigation funding agreements that have been agreed since litigation funding began would be unenforceable. This is therefore a seismic shift in the litigation funding landscape, and will require litigation funders to consider carefully the implications for their agreements (both existing agreements and also agreements to be entered into moving forwards).
The British Virgin Islands
Litigation funding in the BVI is not expressly regulated or dealt with by statute. Indeed, until September 2020 the BVI courts had not expressly dealt with the enforceability of third-party litigation funding arrangements. However, in Crumpler v Exential Investments Inc, the BVI Commercial Court expressly approved a third-party litigation funding agreement between BVI liquidators and a third-party litigation funder. In doing so, Mr Justice Jack noted that without funding in that case, the liquidators would have been unable to recover assets for the benefit of creditors of the insolvent company, and that therefore it was in the interests of justice for such funding to be permitted. This reflects comments in an earlier BVI decision of Mr Justice Wallbank, in which it was noted that funding is a “laudable practice of encouraging access to justice for those with good claims who would otherwise be shut-out from the court system”.
An insolvency committee in the BVI has recently considered developments in the law in this area, and recommended that the BVI should expressly approve and sanction third party litigation funding by legislation (in much the same way as has recently happened in the Cayman Islands – see further below). However, no further steps have yet been taken.
At present, given the absence of any legislation, and the fact that the BVI is a common law jurisdiction, it appears unlikely that the decision in PACCAR will have a significant impact on litigation funding in the BVI. The BVI does not have the equivalent of the DBA Regulations, and therefore there is little risk of any existing litigation funding agreements contravening the requirements. However, given the lack of appellate authority on the point, and the fact that the courts have only recently started to grapple with the enforceability of litigation funding agreements in the BVI, there is a risk of challenges being made to such agreements in the future.
The Cayman Islands
There is a growing market for litigation funding in the Cayman Islands. This market is facilitated by a statutory framework and case law confirming the jurisdiction’s openness to litigation funding.
The statute governing litigation funding is the Private Funding of Legal Services Act 2020 (the Act), which came into force in May 2021. The recent introduction of the Act might suggest a jurisdiction coming to funding anew. However, the Act largely codified an openness to funding which had been established by case law but the approach to which was previously determined on a case-by-case basis.
The Act provides for three types of funding agreements: (i) Conditional Fee Agreements, in which the client pays a percentage uplift on the attorney’s standard fees if the claim is successful but nothing if the case is lost; (ii) Contingency Fee Agreements, in which the attorney receives a percentage of the sum(s) recovered by the client if the claim succeeds, and nothing if the case is lost; and (iii) Third Party Funding Agreements, where a third party agrees to fund all or part of the costs of a client’s case in exchange for payment on agreed terms.
The Act therefore provides for the possibility of damages-based agreements. However, there is no equivalent to the highly prescriptive DBA Regulations in England and Wales. Indeed, the conditions prescribed by the Act regarding Third Party Funding Agreements are deliberately sparse. They presently state that: the agreement shall be in writing; that the agreement shall comply with prescribed requirements, ‘if any’; and that the sum to be paid shall consist of either any costs payable, together with an amount calculated by reference to the funder’s anticipated expenditure in funding the provision of the services, or a percentage of the amount or the value of the property recovered in the action or proceedings to which the agreement relates. This approach was a conscious decision by the legislature to allow the funding market to develop. There is therefore no reason why the Cayman Islands should be impacted by the PACCAR decision directly.
Against the background of the Act, litigation funding has carved an important role for itself in the Cayman Islands, buoyed by a burgeoning market that recognises the value such funding brings. In an environment like the Cayman Islands, where complex, high-value disputes are very much part of the landscape, third-party funders financing legal disputes in return for a share of the recovery is an important tool for ensuring access to justice.
The only reported authority in Bermuda dealing with the permissibility of litigation funding is Stiftung Salle Modulable and Rütli Stiftung v Butterfield Trust (Bda) Ltd. In that case, the Bermuda Supreme Court was asked to consider whether the Plaintiff’s funding arrangement was valid under Bermuda law. The decision of Kawaley CJ is not particularly detailed in its reasoning, but the Judge did find that the agreement was valid. The Court rejected the Defendant’s argument that the agreement offended “traditional common law principles prohibiting maintenance and champerty” and found that, in line with Bermuda’s constitutional guarantee of fair trial rights and the principles underlying article 6 of the European Convention of Human Rights, funding agreements were to be encouraged to allow access to justice.
The decision in Stiftung Salle leaves open a number of questions in relation to litigation funding agreements, including (i) whether the principles prohibiting maintenance and champerty still apply in Bermuda at all, (ii), if they do, what test a funding agreement must meet to avoid them, (iii) whether the litigation funding costs are claimable as heads of damage in a contractual claim (Kawaley CJ found they were not claimable in Stiftung Salle, but made it clear that the issue was not directly engaged in that case and was a novel point more suited to a decision on appeal), (iv), if they cannot be claimed as damages, whether the funding costs could be claimed with the general legal costs via the existing taxation of costs regime and (v) whether a litigation funder could be liable to a costs order in the event the Party they were funding was unsuccessful in the litigation.
Despite these areas of latent uncertainty, following Stiftung Salle, we are aware that litigation funding has been utilised in both Bermuda litigation and arbitration, most commonly in insolvency and restructuring proceedings in order to allow liquidators to pursue actions for the recovery of assets and against former directors.
Bermuda has considered legislating the position on litigation funding in Bermuda and draft legislation has been produced. However, at the time of writing there is no indication of whether or when the draft Act might become law.
With regards to contingency fee arrangements, there is a prohibition against barristers and attorneys acting on a contingency basis in Bermuda. The Professional Code of Conduct provides that a barrister cannot enter into an arrangement whereby his or her fees depend on the results of the case, or consist of a prearranged share of the money the client expects to recover if successful.
Given the lack of legislative framework in relation to litigation funding and the relatively undeveloped jurisprudence on the issue, we do not expect PACCAR to have any particular impact on the litigation funding regime in Bermuda.
It is well established that litigation funding is permitted in Jersey, and litigation funding agreements are permitted provided that they do not offend against the doctrines of champerty, which have not been abolished in Jersey. Contingency fees (including damages-based agreements) are not permitted. Litigation funding arrangements are routinely used in Jersey by insolvency practitioners to fund claims in respect of insolvent estates, typically alongside ATE insurance, but are otherwise not commonly seen here.
In Re The Valetta Trust, Sir Michael Birt (at the time, the Bailiff of Jersey), held that as a matter of Jersey law, litigation funding agreements were not champertous or otherwise contrary to public policy and that they should therefore be enforceable. It follows from the above that litigation funding is not a matter of statute in Jersey; nor are decisions of the Supreme Court binding in Jersey. That said, the majority of litigation funding firms active in the Jersey market are based in the UK. It therefore remains something of an open question as to how the decision in PACCAR will impact upon the litigation funding landscape, although at present it does not appear that the impact is likely to be significant.
Litigation funding is permitted in Guernsey and litigation funding agreements are enforceable provided they do not offend the doctrines of champerty or unlawful maintenance, which have not been abolished in Guernsey. However, contingency fees are not permitted (including damages-based agreements). Litigation funding agreements are routinely used by insolvency practitioners in Guernsey to fund litigation particularly in the case of an insolvent estate, typically alongside ATE Insurance. There has also been a recent push to deploy such agreements in conjunction with trust litigation.
In the case of Providence Investment Funds PCC Limited & Providence Investment Management International Limited, Lieutenant Bailiff Marshall KC considered inter alia whether the litigation funding agreement in that case was champertous, which would involve looking at the extent of control that the litigation funder has over the proceedings, including but not limited to the funded party’s ability to freely choose their own Advocates, the ability of the Funder to terminate the agreement without any liability for amounts incurred to date, and the level of control that the Funder has with respect to approving steps in the litigation. In that case the Court determined that the agreement did not offend the principles of champerty and maintenance.
Isle of Man
The Isle of Man Courts have, to date, rarely been asked to consider the issue of third-party litigation funding. In circumstances where there are no express statutory provisions or regulation of litigation funding in the Isle of Man, and in which the Isle of Man Courts are not bound by the decisions of the English Courts (albeit the decisions of Court of Appeal and, in particular, the Supreme Court are highly persuasive), it is difficult to know what (if any) impact the decision in PACCAR will have upon third party litigation funding in the Isle of Man.
In a recent decision (In the Matter of Broadsheet LLC (in liquidation)), the Isle of Man Court considered how litigation funding should rank in an Isle of Man liquidation. In that case, the Isle of Man Court agreed with Appleby’s submissions and determined that in circumstances where the funding was advanced to the liquidator for the express purpose of litigation funding, both the principal sums and the interest (including default interest) and fees due and owing under the loans would be treated as “a fee or expense properly incurred in preserving realising or getting in the assets” and would thus be given “super priority”. Notably, however, the Court was not asked to consider whether any of the agreements under scrutiny (all of which were English law governed) were invalid as a matter of Manx law.
Therefore, whilst litigation funding undoubtedly exists in the market, its enforceability has not yet been properly tested.
Litigation funding is neither regulated nor catered for by any legislation in Mauritius. Similarly, the Courts of Mauritius have not given any ruling regarding this type of funding, and current public records do not provide any information with regard to the cases where third party litigation funding has been used. However, in the absence of any prohibition or guidance from the Courts of Mauritius, the current position is that litigation funding is most likely permitted. As of now, recourse to litigation funding is not common, although it is becoming popular amongst matters before the Supreme Court of Mauritius for which the amount of the award is consequential.
Since Mauritius is a common law jurisdiction, it appears unlikely that the decision in PACCAR will have a significant impact on litigation funding in Mauritius. It is worth noting that Mauritius does not have any legislation or regulation which is equivalent to the DBA Regulations. As such, there is little risk of any existing litigation funding agreement being unenforceable for non-compliance as the UK Supreme Court held in PACCAR.
Whilst at this stage the decision in PACCAR is limited to England and Wales, in practice established professional litigation funders are likely to be considering amendments to all of their funding agreements regardless of the jurisdiction in which the litigation is taking place. This would be a sensible approach: the decision of the Supreme Court is going to be persuasive authority in all of the offshore jurisdictions noted above, and will be binding authority in the event that a case is appealed to the Judicial Committee of the Privy Council. It will be important for funders to consider carefully the jurisdiction in which the claim being funded is pursued, the law governing the litigation funding agreement, and the precise terms of the funding agreement itself.
For further information, please contact:
Simon Jerrum, Partner, Appleby
 R (on the application of PACCAR Inc and ors) v Competition Appeal Tribunal and ors  UKSC 28
 Claim No. BVIHC (COM) 81 of 2020.
 Tetiana Ieremeieva v Estera Corporate Services (BVI) Limited, Claim No. BVIHCM 2017/0118.
  Bda LR 13
  JRC 227
 Guernsey Judgment 44/2017
 23 January 2023
 Subject to very limited exceptions as set out in Willers v Joyce & Anor  UKSC 44.