Introduction
Facts
Decision
Comment
In a litigation first in Cyprus, the District Court of Larnaca has issued a judgment concluding that third-party litigation funding is not contrary to public policy.
As a matter of practice, litigation in Cyprus is typically funded by the parties themselves. In the absence of precedent in this respect, and in view of the rules on champerty and maintenance under common law, this fundamental question of whether third-party litigation funding is contrary to public policy remained unanswered for many years. Hence, parties have been hesitant to seek third-party funding when litigating before the Cyprus courts, fearing that this would tarnish their efforts completely.
In the recent judgment in Kazakhstan Kagazy PLC and others ν Arip and others(1) the president of the District Court of Larnaca considered whether third-party litigation funding contradicts Cyprus public policy and, by extension, whether a foreign-jurisdiction judgment was capable of recognition and enforcement in Cyprus, when the applicant in the original proceedings had obtained third-party funding.
On 29 January 2020, the Court issued an order authorising the recognition and enforcement of two judgments issued by the High Court of Justice of England and Wales, dated 8 October 2019 and 17 October 2019, on the basis of the then-applicable European framework.
The respondents then sought to have this order set aside, arguing that the recognition and enforcement of the two foreign judgments was not justified as they were, among others things, contrary to public policy. The claimants in the foreign proceedings had entered into an agreement with a third party, pursuant to which the third party had funded the relevant proceedings. The respondents alleged that this agreement breached the common law rules prohibiting maintenance and champerty.
Following a historical overview of the principles concerning the rules prohibiting maintenance and champerty under common law, the District Court of Larnaca noted that there were no previous Cyprus judgments dealing with the issues of maintenance and champerty where third-party litigation funding is concerned.
Therefore, to determine whether the issues were contrary to public policy in this respect, the Court considered judgments of other common law jurisdictions, including England, Canada, New Zealand and Jersey, noting in particular that these analyse the matter with reference to the contemporary approach to the concept of public policy, rather than taking a narrow approach based on medieval principles.
The District Court of Larnaca concluded that the applicants' agreement for third-party litigation funding did not breach the public policy of Cyprus and refused the requested set aside order.
While the costs of litigating in Cyprus are not as significant as the costs of litigating in other common law jurisdictions, the issue of litigation funding has attracted attention over the years, even more so in cases much like the above, where the role of the Cyprus court is to support and assist in the enforcement of foreign judgments.
A blanket approach to this issue based on archaic principles, which were developed at a time when cross-border and multi-million disputes were practically non-existent, cannot be expected to apply today, particularly when this, by extension, affects parties' access to justice.
The Cyprus courts have been known to quickly adapt to changing circumstances that call for modernising the courts' approach. While the above judgment does not create precedent and is, therefore, not binding, it is expected to generate interest, not only because it constitutes the Cyprus courts' first notable step towards recognising the legality of third-party litigation funding, but also as it may expand the realm of justice in Cyprus.
For further information on this topic please contact Antreas Koualis, Elina Nikolaidou or Christianna Tzalavreta at AG Erotocritou LLC by telephone (+357 25 370 101) or email ([email protected], [email protected] or [email protected]). The AG Erotocritou LLC​ website can be accessed at www.erotocritou.com.
Endnotes