On the shoulders of recent decisions of the Grand Court (you can read more about those here and here), the Cayman Islands has emerged as an offshore jurisdiction of choice for third party litigation funding. The Cayman Islands will look to the decisions of the courts of common law countries with more developed funding markets for guidance in resolving some of the issues that arise when litigation is funded, including funder liability for costs. The recent English High Court decision of Davey v Money confirms the Court’s broad discretion when holding a funder liable for costs as a non-party when the funded claim fails.
In Davey, the defendants successfully defended the claims brought against them and were awarded their costs. When the claimant failed to pay those costs, the defendants sought non-party cost orders against the third party who had funded the claimant’s conduct of the litigation. The funder responded that its liability should be limited to the amount it had contributed in funding the claim following the decision in Arkin v Bouchard Lines Ltd (known as the Arkin cap).
The Court declined to apply the Arkin cap to the funder’s liability: the Arkin cap does not automatically apply and the imposition of non-party cost orders is a matter of discretion to be exercised on the basis of what is just in all the circumstances of the particular case. The Court considered that application of the Arkin cap would not be appropriate in the following circumstances:
- It should have been obvious to the funder that the claimant would be unable to satisfy any cost order made against her and that the defendants’ costs would exceed the quantum of the funder’s funding obligation;
- The funder had waived the claimant’s obligation to obtain ATE insurance in consideration for reducing the funder’s own funding obligation (but without any commensurate reduction to its potential profit);
- The funder had the opportunity to investigate and form a view as to the nature of the claim and the support of the allegations before choosing to fund it; and
- The funder had negotiated to receive a substantial commercial profit (to be paid in priority to the claimant) and so was the party with the primary interest in the claim.
The decision underlines the importance of funders giving thought to the possibility of the funded claim failing when performing due diligence, negotiating the terms of the funding agreement and then monitoring the conduct of the claim thereafter.