While many off-shore jurisdictions are slowly opening the door to third party litigation funding arrangements, the litigation funding market has been active in Australia for over 20 years. Lachlan Greig, litigation associate in Harneys Cayman Islands office, caught up with Vannin Capital’s Tom McDonald to talk about the Australian experience with third party funding and the lessons that could be learnt from it by the off-shore world.
Tom is an Investment Director in the Sydney office of Vannin Capital prior to which he was a Senior Associate in the Restructuring and Insolvency team of a major global law firm. Vannin Capital is one of the world’s largest third party dispute resolution funding firms. Founded in 2010 and headquartered in London, Vannin has additional offices in New York, Washington, Paris, Sydney and Melbourne. Vannin funds a broad variety of major global disputes, including international arbitration proceedings and contentious insolvency disputes.
The third party funding market has been active in Australia for over 20 years. How has the market changed over time and what does it look like now?
Australia was the birthplace of the professional third party funding industry. There are a number of factors which facilitated this, including the continuing ban on lawyers charging contingency fees and (comparatively) early judicial decisions which clarified the position of third party funding in the context of the historical doctrines of champerty and maintenance.
Funding is a well-accepted feature of the Australian legal landscape. One of the biggest developments we have seen in recent times, is a changing perception of funding. Perhaps due to its genesis in the insolvency space, funding has traditionally been viewed as the domain of the impecunious. However, we are now finding that large companies have been able to use third party funding to more effectively “de-risk” their litigation exposures and to preserve precious capital for growing recurring earnings and in turn, a more valuable business.
The Cayman Islands is considering legislative changes to facilitate the introduction of third party funding. What could the Cayman Islands learn from the Australian experience?
We sometimes hear foreign commentators suggest that third party funding promotes un-meritorious litigation. This is a surprising comment, given that third party funders who provide capital for un-meritorious litigation would likely find themselves out of business in short order. In our experience, the inverse dynamic is true. A third party funder brings their experience as a professional litigant and will only provide financial support for well-run, meritorious cases. The interests of the funder and the litigant are effectively aligned – to achieve the best possible result from the claim. As a result, there has not been a strong push to introduce regulation around third party funding. Currently, the only regulatory impost on third party funders in the Australian market is that they must maintain and regularly update, a conflicts policy, in order to avoid having to hold an Australian Financial Services License.
From time to time, some commentators have called on regulations to be introduced requiring third party funders to maintain certain levels of capital adequacy (for example, to demonstrate that they can meet adverse costs indemnities etc). Whilst recommendations were made by Australia’s Productivity Commission in December 2014, to introduce a capital adequacy and licensing regime for third party funders, this has not become law. Thankfully, there have been few examples in the Australian market of third party funders failing to meet their commitments to claimants. In a well-developed funding market place like Australia, large, well-capitalised third party funding firms who can demonstrate a track record of success, will continue to be the funding partner of choice for claimants.
Do you foresee a future for litigation funding in the Cayman Islands?
The Cayman Islands is definitely an attractive jurisdiction to third party funders. There are a number of reasons for this. Firstly, the Cayman Islands has a stable and well established legal system. Importantly, it has a thriving legal community with high quality legal practitioners. Secondly, it is an investment and finance hub, so naturally attracts large scale disputes, suitable for third party funding. Thirdly, the Cayman Islands continue to grow in popularity as an offshore jurisdiction. It is now common for large corporates around the world to have some interaction with the Cayman Islands as part of their business dealings. As a result, the general availability of third party funding in the Cayman Islands will provide these companies with greater options for more effectively managing their risk in litigation conducted in the Cayman Islands.