Regulation

Overview

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

Litigation funding is fairly common in Bermuda and there is judicial authority to support the now commonly held view that such funding agreements are valid as a matter of Bermuda law.

In Stiftung Salle Modulable and Rütli Stiftung v Butterfield Trust (Bda) Ltd [2014] Bda LR 13 (Salle Modulable), Bermuda Chief Justice Ian Kawaley (as he then was) held that a litigation funding agreement with Harbour Litigation Funding (which was governed by English law) was not only valid but suggested that use of such funding arrangements in civil litigation should be encouraged.

In that 2014 decision, it was held that the constitutionally protected rights of access to the court implicit in the Bermuda Constitution as read with the relevant section of the European Convention on Human Rights suggest that ‘such funding arrangements should be encouraged rather than condemned’.

‘I see no reason why Bermuda’s common law should adopt the antiquarian approach contended for by the [defendant],’ he added, rejecting the argument advanced by the defendant that common law prohibitions against such arrangements were still good law in Bermuda.

While Salle Modulable scrutinised the legality of funding from a professional funder, there have been a number of cases tried by the Bermuda courts where funding for the litigation was provided more generally by third parties, including by related entities.

Although there are no known Bermuda judicial decisions dealing directly with this point in the context of an arbitration, it is likely that the position would be the same.

Restrictions on funding fees

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

There are, at present, no statutory limitations on the fees or interest that funders may charge; however, draft legislation has been submitted to the Bermuda government for consideration and review, which, if adopted, could put a percentage cap on the amount that funders may claim (see question 5).

It should also be noted that, while the Bermuda court has expressly validated third-party litigation funding for civil matters, the question of whether the costs of litigation funding can be recovered from the losing party as damages remains open.

In Salle Modulable, Chief Justice Kawaley (as he then was) said: ‘The present case is not one where the issue of recoverability of litigation is truly engaged head on and so the weight to be attached to my findings on this issue in future cases is clearly limited.’

That case related to a contractual dispute and the proper law of the contract was deemed to be Swiss law, under which litigation funding expenses are regarded as legal costs. It was held, however, that the procedural law of the forum (Bermuda) would govern recovery of legal costs. ‘Litigation expenses, absent new statutory rules, properly fall to be dealt with under the taxation of costs regime under Bermuda law as the procedural law governing the present proceedings.’

All indications are that how this may be dealt with by Bermuda’s taxation regime is still to be tested.

Specific rules for litigation funding

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

No. At present there are no specific Bermuda legislative or regulatory provisions applicable to third-party litigation funding. See questions 2 and 5.

Legal advice

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

No. Lawyers are not, at present, able to participate alongside third-party litigation funders by entering into separate conditional fee arrangements with the client. This is because contingent and conditional fee arrangements are prohibited in Bermuda, subject to a very few exceptions. Lawyers who deal in undefended debt collections, for example, may enter into contingent fee arrangements, as set out in the Bermuda Barristers Code of Professional Conduct 1981.

Regulators

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

A subcommittee of the Bermuda Bar Council - the regulatory council governing the legal profession - has submitted draft legislation to the Bermuda government that would not only legislate the use of third-party litigation funding but also allow lawyers in Bermuda to enter into conditional fee arrangements in respect of most civil litigation matters.

The push to introduce some form of conditional fee agreement was presented to the Ministry of Justice in late 2014 and there has been little in the way of development since. The prospect did, however, garner praise from Bermuda’s then Chief Justice who stated, in the 2016 Bermuda Judiciary Annual Report, that the efforts by the Bar Council to introduce such arrangements was ‘close to his heart’ as a way to promote enhanced and affordable access to justice.