A recent judgment of the Bermuda Supreme Court has held a third-party litigation funding agreement to be valid and suggested that use of such financing should be encouraged by Bermuda's courts.

Chief Justice Ian Kawaley in Stiftung Salle Modulable and Rutli Stiftung v Butterfield Trust (Bermuda) Limited rejected the Defendant trust company's argument that old common law prohibitions against third-party litigation funding were still good law in Bermuda and, accordingly, that the funding agreement entered into by the Plaintiffs -- in this case, two Swiss charities – with Harbour Litigation Funding was contrary to Bermuda policy and void. “No cogent reasons for swimming against the modern tide were advanced,” the Chief Justice said.

The decision in Stiftung Salle Modulable clarifies the Bermudian position as similar to the approach now taken in England – where the ancient torts of maintenance and champerty were abolished by statute in 1968, save for a public policy exception – and other mature common law jurisdictions.

This aspect of the judgment is likely to draw considerable interest as it has the potential to open up a new avenue of funding for litigants. This appears to be the first time a Bermuda court has decided a case where litigation funding was provided by a professional litigation funder.

In his judgment, Chief Justice Kawaley said 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 Trustee,” he added.

The decision comes at an interesting time as other developments in the Bermuda legal market are afoot that could see laws amended to allow new ways of funding legal actions, including conditional fee agreements.

Whilst the judgment provides clarity as to the validity of third-party funding agreements, questions remain over if and by what means the costs of such agreements may be recoverable under Bermuda law, particularly, the profit element for the funder.

In Stiftung Salle Modulable the primary claim related to a contractual dispute. As the proper law of the contract was held by the Chief Justice to be Swiss law -- under which litigation funding expenses are regarded as legal costs -- the procedural law of the forum (being Bermudian law) will govern recovery of legal costs, including litigation funding expenses.

The Plaintiffs had submitted, in the alternative, that litigation funding costs should be recoverable under Bermudian law as contractual damages. The Chief Justice said he did not consider litigation funding costs as a separate head of damage in the context of the case. He came to this conclusion, seemingly, by applying the "assumed responsibility" test from Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] 4 All ER 159. The Achilleas, a recent House of Lords decision, introduces an "assumed responsibility" test into the law of remoteness of damage for breach of contract. As such, it now appears that a defendant may not be liable under the Hadley v Baxendale two-limbed test if he cannot reasonably be regarded as having assumed responsibility for losses of the particular kind suffered.

It should be noted that the Chief Justice may have left the door open to litigation funding expenses being claimed as a separate head of damage in other cases.

“The present case is not one where the issue of recoverability of litigation funding is truly engaged head on and so the weight to be attached to my findings on this issue in future cases is clearly limited,” said the Chief Justice. He also stated that the matter may have been decided differently if a contractual indemnity clause had been at issue.  

The judgment can be found at www.judiciary.gov.bm under 2014 Bermuda Supreme Court judgments.