The Cayman Islands will imminently welcome the Private Funding of Legal Services Act (the Act) into force, bringing certainty and clarity to the availability and acceptable form of disputes funding arrangements in the jurisdiction.

Prior to the new Act coming into force, both contingent fee agreements between attorneys and litigants and funding agreements between third party funders and litigants require the approval of the court (you can read more about that here).

Litigants have been slow to adopt these funding arrangements. This may be because the requirement for court approval added an additional layer of cost and, in circumstances where the developing case law did not set clear parameters for acceptable funding arrangements, there was sufficient uncertainty as to whether approval would be given.

The Act provides a straightforward statutory framework for these arrangements, which should reduce the "transaction costs" and uncertainties of implementation, and make them much more attractive to litigants, funders and attorneys going forward. The key features of the Act are that:

• It applies to civil proceedings (including proceedings in the Financial Services Division of the Grand Court) and arbitration proceedings, but not to criminal proceedings and certain family law proceedings.
• It repeals the common law offences of maintenance and champerty.
• It permits contingency fee agreements between litigants and attorneys within prescribed parameters without court approval. A contingency fee agreement is an agreement that the remuneration payable to the attorney is wholly or partly contingent on a successful outcome in the proceeding, and might include a success fee. Any success fee component payable to the attorney cannot exceed (1) 100 per cent of the attorney’s normal fees and (2) in respect of money claims, a prescribed percentage (to be provided for in the yet to be published regulations) of the amount awarded. The court can approve a higher cap on the success fee (having regard to the nature and complexity of the proceeding, and the expense or risk involved) of up to 40 per cent of the amount awarded. The agreement must be in writing and provide the client with a 14 day cooling off period.
• It permits third party funding agreements between litigants and funders within prescribed parameters. The fee payable to the funder may be calculated by reference to either (1) the costs of the proceeding plus an amount calculated by reference to the funder’s anticipated expenditure or (2) a percentage of the amount or the value of the property recovered in the proceedings. Unlike contingency fee agreements, the Act does not set limits on how much the funder can recover.
• It does not permit fee arrangements whereby the attorney is remunerated with a percentage of the judgment awarded or property recovered.