At a glance: regulation of litigation funding in British Virgin Islands

Regulation

Is third-party litigation funding permitted? Is it commonly used?

Historically, there has been a certain degree of uncertainty about whether third-party litigation or arbitration funding is compatible with local public policy, and whether litigation funding agreements are enforceable.

The British Virgin Islands (BVI) has a common law system. It is arguably unclear whether the doctrines of champerty and maintenance continue to apply in the jurisdiction, to potentially render third-party funding contracts unenforceable.

While criminal liability for champerty and maintenance was abolished in the BVI in 1997 by section 328 of the BVI Criminal Code, to the extent that the doctrines still lurk in the backdrop of the BVI’s legal system, they have not been fully abolished by local statute as a civil wrong or a tort, as is the case in England and Wales.

Until 29 September 2020, BVI courts had not fully assessed the enforceability of third-party funding arrangements. In the important (but uncontested) decision of Crumpler v Exential Investments Inc, Claim No. BVIHC (COM) 81 of 2020, the BVI Eastern Caribbean Supreme Court (Commercial Division) gave its approval of a third-party funding agreement between two BVI liquidators and a third-party litigation funder.

Litigation funding had previously been sanctioned by the court on previous occasions, but this was the first time that the position had been confirmed in a written decision. In his judgment, the Honourable Justice Jack noted that the modern English approach permitting third-party litigation funding at common law has been adopted in judgments by courts in Bermuda, Jersey, Australia and Cayman (citing a whole series of cases in that regard). The Learned Judge concluded that the funding arrangement was not contrary to BVI public policy – in fact, that the contrary was the case. In Justice Jack’s view, the liquidators would not have been able to recover assets for the benefit of the creditors without such funding in place, and the funding arrangement was essential to ensure access to justice. This acceptance of third-party funding has not yet been considered at the appellate level. It may take considerable time before the courts come to a final landing on the acceptability of third-party funding.

Prior to the court’s decision in Crumpler, in Hugh Brown & Associates (Pty) Ltd v Kermas Limited, Claim No. BVIHCV (COM) 2011/13 and 14, Mr Justice Bannister was prepared (without deciding the point) to proceed on the assumption that third-party funding was permissible. Subsequently, in Leremeieva v Estera Corporate Services (BVI) Ltd, Claim No. BVIHCM2017/0118, Justice Gerhard Wallbank observed that litigation funding might provide access to justice, which he described as ‘laudable’. In the judge’s view, the tell-tale signs of a champertous agreement included excessive control over the litigation by the funder, significant returns conditional upon the outcome of the claim and that the funder does not appear to be a professional funder or a regulated financial institution.

Given the scarcity of BVI precedent on the topic, whether third-party financing of litigation is common in the BVI is difficult to judge. An argument can certainly be made that BVI courts will continue to adopt the modern English common law model, by permitting responsible third-party funding to flourish under judge-made rules. As a result, it would not be surprising to see an upsurge in cases that are funded by professional funders or regulated financial institutions.

By the adjective ‘responsible’ in modifying the noun ‘funding’ we mean to say funding agreements that:

• do not permit a funder to exercise control over the prosecution of a bare cause of action for an unliquidated sum; and
• require a funder to fund adverse costs up to the level of its funded costs.

Also, by ‘responsible’ we are referring to adequately capitalised and professional third-party funders. If these guiding principles are not followed, in our opinion, there exists a real risk under BVI law that an offending funding agreement will be found to be unenforceable.

It is relevant to note that on 26 July 2023, the Supreme Court of England and Wales gave judgment in R (PACCAR) Inc) v Competition Appeal Tribunal [2023] UKSC. In summary, the majority concluded that litigation funding agreements that give a funder a percentage interest in any damages recovered must comply with the Damages-Based Agreements Regulations 2013; and if an agreement does not, it will be unenforceable. There are no equivalent regulations or legislation in the BVI and therefore the decision in PACCAR is unlikely to have a material impact in this jurisdiction.

Are there limits on the fees and interest funders can charge?

There are no established limits on the fees and interest that funders can charge. However, if an application is made for the court’s approval of a funding agreement, the amount of fees and interest charged by the funder will likely be a relevant consideration for the court.

Are there any specific legislative or regulatory provisions applicable to third-party litigation funding?

There is currently no regulation of third-party litigation funding in the BVI.

Do specific professional or ethical rules apply to lawyers advising clients in relation to third-party litigation funding?

Several of the rules contained in the Code of Ethics appended to the Legal Professions Act 2015 (the Code) will be relevant to those legal practitioners in the BVI who advise on funding. For example, a legal practitioner must maintain his or her integrity and independence and act in the best interests of the client. A breach of the Code may constitute professional misconduct. As in other common law jurisdictions, a legal practitioner in the BVI owes his or her client a duty of care, and the failure to meet the requisite standard of care when advising on funding may result in a claim for professional negligence.

Do any public bodies have any particular interest in or oversight over third-party litigation funding?

There are no such public bodies in the BVI, although the BVI court will of course scrutinise any agreement that it is called upon to approve.