Introduction
There have been significant developments in the United Kingdom during the past two decades in the funding of commercial litigation. Some, although not all, of these developments have also impacted on the Jersey commercial litigation market.
In England and Wales, the principal developments of recent years are in the introduction of both lawyer funded litigation and third party funded litigation and the expansion of the insurance funded market. So, whilst clients can still fund their litigation via the traditional method (being fully responsible for their lawyer's costs whatever the result), there is now greater choice for plaintiffs.
Lawyer funded litigation in England and Wales
So far as lawyer funded litigation is concerned, conditional fee agreements are now very well established. Broadly these are agreements between a lawyer and a client which entitle the lawyer to apply an uplift (capped at 100%) to standard fees as charged in the case of a successful outcome. Damages based agreements (which were introduced into England and Wales in April 2013) allows the lawyer to charge a percentage of the damages in the case of a successful outcome. This is capped at 50% of the damages for commercial litigation. In either case, these agreements in their simplest form are on a "no win no fee'' basis. Accordingly, whilst the plaintiff's lawyer has funded the matter for free in the case is lost, he has the opportunity to earn a success fee where the case is successful. To cover off the potential risk of adverse costs if the plaintiff loses, the latter might purchase After the Event (''ATE'') insurance cover.
Until April 2013 the successful plaintiff in England was able to seek to recover the "uplift" (as well as the basic costs) from the unsuccessful defendant and the ATE premium. The balance was restored back in favour of defendants in April 2013 such that, save for in limited cases, both the uplift and the ATE premium (if any) is now paid for by the successful plaintiff from its damages. The most significant exception to this change relates to actions brought by liquidators and in relation to such actions, the pre April 2013 position still remains (although whether this is a permanent exception is in doubt). This is designed to encourage liquidators to pursue claims against third parties including directors for the benefit of the insolvent estates, such action being deemed to be in the public interest.
Third party funded litigation
Third party litigation funding involves (principally) an agreement between the plaintiff and the third party funder to share of the spoils of successful litigation. The plaintiff's lawyer is generally a party to that agreement in order to bind the lawyer into certain obligations towards the funder. There is no set format for third party funding agreements, save that the success fee is likely to be calculated as a multiple of the funders' investment or as a percentage of the damages or whichever is the higher of the two. The funder will carry out a detailed assessment of the merits of the case and will generally investigate the solvency of the proposed defendant and there are strict limits on the extent to which the funder can "control" the litigation. This includes in relation to any settlement, the decision for which lies with the plaintiff and not the funder, although it is usual for the funding agreement to contain a clause that the plaintiff must take and rely on legal advice when settling. If third party funded claims are unsuccessful then in normal circumstances the funder has no recourse to the plaintiff for the funding expended; both the plaintiff and the funder are at risk as to the defendant's costs and there are established rules relating to the limit of the funder's liability in this regard. Funders will often purchase ATE insurance cover, or write their own adverse costs insurance.
Insurer funded litigation
There is also an established market in England for ''Before the Event (''BTE'') insurance. Unlike ATE insurance, which is purchased by reference to specific litigation which has been or is about to be commenced, BTE cover is purchased like traditional insurance policies and is often (in the case of individuals) an adjunct to an annual motor or household policy. The UK Government and the Review of Civil Litigation Costs authored by Lord Justice Jackson both urge a greater take-up of BTE cover particularly for individuals and SMEs.
The funding of litigation in Jersey
So far as the position in Jersey is concerned, lawyer funded litigation of the sort described above is not available in Jersey. As for third party litigation funding, this is a relatively new (and important) arrival to the Island.
In 2011, Bedell Cristin issued proceedings on behalf of individual beneficiaries and a new trustee of a Trust alleging fraudulent breach of trust by the former trustee and dishonest assistance by a number of parties. The only material asset of the Trust had been a minority shareholding in a company which in turn owned certain rights to a pharmaceutical product. The former trustee had sold the shares to itself as trustee of another trust which also held shares in the same underlying company. The other trust was for the benefit of the family of one of the co-investors involved in developing the product. The sale proceeds received by the Trust were subsequently distributed to the beneficiaries and the trust had been dormant for some years before Bedell Cristin was approached by the aggrieved principal beneficiary, who claimed that the sale had been at a gross undervalue.
The proceedings were ultimately funded by Harbour Litigation Investment Fund LP ("Harbour") based in England. However, prior to the issue of proceedings, the proposed plaintiffs (being the aggrieved beneficiary and his daughter plus the replacement trustee) applied to the Royal Court to seek guidance as to whether the agreement with Harbour was permissible and enforceable under Jersey law (surprisingly, a novel point in Jersey in 2011). In its judgment (see Re the Valetta Trust [2012] (1) JLR 1) the Royal Court stated that there was no material difference between the law of Jersey and the law of England in this area and decided that public policy considerations strongly pointed towards the agreement being held as valid and enforceable. However, the Court made it clear that whether a particular agreement is valid and enforceable, as opposed to an abuse of process, depends on the circumstances of each case and the terms of the agreement. The Court noted that, whilst the funding agreement undoubtedly provided Harbour with a share of the proceeds, it was calculated to ensure compliance with the principles derived from the English and Australian cases and could not be said in any way to corrupt the purity of justice. The control of the proceedings remained with the plaintiffs who would still retain a substantial proportion of the damages if successful and the defendants for their part were protected in respect of their costs, if the claim failed. Furthermore, the agreement facilitated access to justice by plaintiffs who would not otherwise have been able to afford to bring the litigation in question. For these reasons, the Court authorised the trustee to become party to the funding agreement.
In concluding, the Royal Court emphasised that its judgment was only applicable to third party funding agreements. The public policy requirement that officers of the Royal Court should be inhibited from putting themselves in a position where their own interests could conflict with their duties to the court remains otherwise in force, which means that contingent fee agreements and damages based agreements remain prohibited in this jurisdiction. In Jersey, no statutory relaxation of this principle has been introduced and in the Royal Court's judgment, the principle remains in full vigour.
This case was followed in the case of Barclays Wealth Trustees (Jersey) Limited and another -v- Equity Trust (Jersey) Limited [2013] JRC 094 in which a funding agreement was endorsed by the Court notwithstanding that it was entered after the commencement of the litigation in question.
Another interesting development relates to the funding of claims by beneficiaries against their trustee. In the Matter of X Trust [ 2012] JRC 171 involved principal beneficiaries of a Jersey law discretionary trust seeking a direction to allow them to fund a breach of trust claim against the trustee and others (for the ultimate benefit of the trust fund, if successful) by using the assets of the trust fund. The trustee had previously made distributions from the trust fund to enable the beneficiaries to fund the hostile proceedings without reference to the Royal Court, but considered that this was no longer appropriate, as the trust could be prejudiced by the continuance of the proceedings. The beneficiaries claimed that they had no alternative source of funding, and made the point that their action was akin to a derivative action, in that if they were successful, the defendants would be required to replenish the trust fund rather than to pay the beneficiaries. The trustee was convened to the application but remained neutral. The Royal Court concluded that it was right to make the order sought. Relevant factors in arriving at this decision were as follows:
- The beneficiaries produced counsel's opinions which indicated that their claims were well-founded in principle.
- The hostile proceedings were very much akin to a derivative action.
- The indications were that, unless the court made the order sought, there was a reasonable possibility that the litigation would have to be discontinued. As counsel had confirmed that the claim was a proper one, the Deputy Bailiff did not consider that discontinuing the litigation would be in the interests of the beneficiaries as a whole.
- As the beneficiaries bringing the hostile proceedings would be the main beneficiaries of the trust, the risk of litigation would be borne by the right parties if the trust carried the expense of the proceedings.
Conclusion
Third party litigation funding is an important recent development in Jersey, all the more so since lawyer funded agreements, allowing lawyers some form of success fee if litigation is successful, are not currently enforceable. As can be seen from the In the Matter of X Trust [2012] JRC 171 judgment, there may well be an alternative to third party funding in certain cases involving beneficiaries bringing proceedings against their trustee for breach of trust.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
