New law paves way for contingency fees, litigation funding
Originally posted on the Cayman Compass
In an effort to provide Cayman Islands residents with limited financial means with better access to the courts and compensation in civil litigation, Parliament passed the Private Funding of Legal Services Bill 2020 on Monday.
The new law allows for both US-style contingency fees, in which successful lawyers are paid a percentage of their client’s monetary award in a civil suit, and UK-style conditional fees, which pay lawyers a ‘success fee’ in addition to their regular fee, if the cases are successful.
However, both types of fees are capped.
Under the law, a success fee cannot exceed an attorney’s normal fee by more than 100%, unless the client and lawyer make a joint application to the Grand Court.
The Grand Court will then, among other things, consider the complexity of the case and expenses involved. But it cannot approve a contingency fee that exceeds 40% of the total amount awarded or recovered in the action or proceeding.
The new law also allows litigation funding agreements, whereby a third party can fund litigation in return for a share of the proceeds.
Presenting the bill in Parliament, Attorney General Samuel Bulgin said that government believes the legislation is timely, considering recent reforms to the legal aid system. Litigation funding agreements, he said, have been considered by many an effective way of ensuring that the legal system is not overburdened, while ensuring legal representation for those who would normally not be able to afford it.
The attorney general said both contingency fee and litigation funding agreements will “level the playing field for underfunded litigants”, because until now “all too often the most well-financed party wins the case” or obtains a favourable settlement.
The arrangements are not applicable to criminal or quasi-criminal matters.
The law repeals the common law offences of maintenance and champerty, which were still in effect in Cayman. These terms broadly describe the support of litigation by unrelated parties, which in the case of champerty also involves the sharing of monetary awards or proceeds.
Other developed countries, like the UK, Canada and Australia, have abolished these common law offences.
For a long time, these arrangements were seen as contrary to public policy, because of the risk that they might encourage frivolous litigation, lead to unnecessary lawsuits and promote a compensation culture.
“But times have changed and there is a need to provide greater flexibility,” the attorney general said.
With proper safeguards, it should be permitted to have some form of agreement to provide greater access to justice. The Private Funding of Legal Services Bill 2020 therefore seeks to balance those competing benefits and concerns, Bulgin said.
And because the arrangements have to be approved by the courts, there are safeguards in place, he added.
The bill was supported by Opposition Members of Parliament, who said it creates a legal framework to offer better access to justice for people in Cayman.