This weekend, I am going to embark on a splendid adventure, to chase the morning, and fly up, up and through the airs of the earth to the Cayman Islands. The Cayman Islands are a British Overseas Territory situated in the western Caribbean Sea, consisting of three islands: Grand Cayman, Cayman Brac, and Little Cayman.
The islands are well known for their tourism industry and financial services sector. Due to their tax neutrality, strong legal protections, and confidentiality laws, the Cayman Islands have become one of the most significant offshore financial centres in the world.
Many multinational corporations, hedge funds, and private equity firms establish structures there to take advantage of the favourable regulatory environment. Years ago someone told me there were an estimated $3 trillion under management in the islands. He may well have been right.
The legal system of the Cayman Islands is based on English common law, with adaptations to fit local needs. As a British Overseas Territory, it retains a judicial structure influenced by English jurisprudence, with final appeals directed to the Judicial Committee of the Privy Council in London.
The Grand Court of the Cayman Islands is the superior court responsible for handling major civil and commercial cases, while a system of lower courts addresses less complex legal matters. Like all courts, it has to deal with issues of costs and litigation funding.
In recent years, the Cayman Islands introduced legislation to regulate the private funding of legal services in particular the use of contingency fee arrangements and litigation funding. The Private Funding of Legal Services Act 2020 was enacted to provide a structured framework for contingency fee agreements and litigation funding agreements.
Before this legislation, maintenance and champerty were considered offences under the common law, preventing third parties from financing litigation in return for a share of the proceeds. The Act abolished these common law offences and established clear rules governing private funding arrangements.
The Act is particularly significant because it provides a lightly regulated environment for third-party litigation funding, which can enhance access to justice by enabling claimants to pursue legal action without bearing the full financial burden. This is particularly important in commercial litigation, where costs can be substantial. By legitimising litigation funding, the Cayman Islands align themselves with other leading commercial jurisdictions that have embraced third-party funding as a way to level the playing field between well-resourced defendants and claimants with meritorious claims but limited financial means.
The Private Funding of Legal Services Act 2020, contains several key provisions that structure contingency fee arrangements and litigation funding landscape in the Cayman Islands. Most of it provisions are to do with the regulation of contingency fee agreements, which allow attorneys to charge fees based on the outcome of a case. Under the Act, contingency fees are permitted, but with important limitations to protect clients.
For instance, the Act stipulates that a success fee charged under a contingency fee agreement cannot exceed the lawyer’s normal fees by more than 100%. Moreover, in cases where the claim is monetary, the contingency fee cannot exceed 33.3% of the awarded amount. However, there is an exception where, upon application to the Grand Court, a higher fee of up to 40% may be approved in complex cases. This mechanism ensures that clients are not subject to excessive legal fees while allowing flexibility in cases that require significant legal expertise and investment of time.
Another critical feature of the Act is its provisions concerning litigation funding agreements. The Act formally defines litigation funding agreements as contracts in which a third-party funder agrees to finance a case in return for a financial benefit if the case is successful. This benefit can either be a percentage of the awarded damages or a sum calculated based on the funder’s expenditure in supporting the case.
The Act requires that such agreements be made in writing and comply with prescribed requirements to ensure transparency and fairness. By establishing a legal foundation for litigation funding, the Act provides certainty to funders and litigants alike, making the Cayman Islands a more attractive jurisdiction for commercial litigation.
To support the implementation of the Act, the Cayman Islands government introduced the Private Funding of Legal Services Regulations 2021. These regulations set out detailed rules on how the provisions of the Act should be applied in practice. One of the key requirements introduced by the regulations is that contingency fee agreements must be clearly titled as a “Contingency Fee Retainer Agreement.” This ensures that clients are fully aware of the nature of the contract they are entering into.
The regulations also mandate that attorneys disclose critical information to clients before entering into contingency fee agreements. Lawyers must inform clients about alternative fee structures, including hourly billing, and ensure they understand the risks associated with contingency agreements. This transparency requirement protects clients from being pressured into agreements they do not fully comprehend. Additionally, the regulations specify that contingency fee agreements must define what constitutes success or partial success in a case, providing clarity for both attorneys and clients.
One of the most crucial provisions in the regulations is the limitation on contingency fees. The regulations reaffirm that an attorney’s success fee cannot exceed 33.3% of the amount awarded, ensuring that legal representation remains affordable. Furthermore, they prohibit certain clauses that could be unfair to clients. For example, lawyers cannot include terms that prevent a client from settling a case or switching attorneys. Clients must have the right to make fundamental decisions about their cases without being bound by restrictive contractual terms.
Special rules apply when contingency fee agreements involve persons under a legal disability. If the client is a minor or otherwise lacks legal capacity, the agreement must be approved by the court to ensure that their interests are adequately protected. This provision aligns with broader legal principles aimed at safeguarding vulnerable individuals in legal proceedings.
The regulations also address how disbursements—such as court fees and expert witness costs—should be handled. Attorneys can recover disbursements from awarded damages, but they cannot charge excessive fees beyond what is stipulated in the agreement. This prevents hidden costs from being imposed on clients and maintains fairness in legal billing practices.
The introduction of these laws marks a significant shift in the Cayman Islands’ approach to legal funding. Previously, third-party litigation funding was viewed with scepticism due to concerns about excessive influence by funders and potential ethical conflicts. However, the new framework ensures that funding arrangements operate transparently and fairly, balancing the interests of clients, lawyers, and funders.
A closer look at the Cayman Islands’ approach to litigation funding reveals several key themes. One of the most prominent is consumer protection. The requirement for clear disclosures and transparent agreements ensures that clients make informed decisions.
Another theme is court oversight, with the Grand Court playing a central role in reviewing and approving agreements that exceed standard fee limits. This judicial supervision prevents exploitative practices while allowing flexibility for complex cases. The regulations also emphasize fee limitations, ensuring that legal costs remain proportionate to the amounts recovered in litigation.
There are valuable lessons that England and Wales could take from the Cayman Islands’ approach to contingency fee agreements litigation funding. One of the most significant is the clear capping of contingency fees. Another useful feature is the requirement for court approval of higher fees in complex cases. This balances the need for flexibility with safeguards against excessive legal costs.
Overall, the Cayman Islands have developed system for regulating contingency fee agreements and litigation funding which has clear roots in the Courts and Legal Services Act 1990 and secondary legislation redolent of the former Conditional Fee Agreements Regulations 2000. Despite the fact that I am travelling thousands of miles from home, I will not be a stranger in a strange legal land after all.