The Exential case and litigation funding in the BVIs

The Exential case and litigation funding in the BVIs
Tim DeSieno
Global Director of Distressed Debt and Senior Investment Manager - United States
Ken Epstein
Investment Manager and Legal Counsel - United States

On 29 September 2020, lawyers from Carey Olsen obtained a decision from the Commercial Court in the British Virgin Islands (BVIs), approving the use of third party funding (TPF) by liquidators in a BVI insolvency case. 

While professionals in the BVI have been deploying TPF as a practical matter, the decision is helpful in that it is the first written ruling that expressly approves it. The decision reinforces Omni Bridgeway’s view that the doctrines of maintenance and champerty (M&C) have little if any relevance to modern commercial dispute resolution. Having considered a range of common law authorities, Justice Jack concluded:

In my judgment, the funding arrangement proposed is not contrary to BVI public policy. Indeed, the contrary is the  case. Without the funding, the liquidators would be unable to obtain recoveries for the benefit of the creditors of the company. Approving the funding arrangement is in the current case essential to ensure access to justice” [para 11]

The context of the case is helpfully summarized by Carey Olsen in this Briefing (authors: Alex Hall Taylor QC, Richard Brown, and Paul Griffiths). 

Over the past decade, judges in other offshore common law jurisdictions have reached similar conclusions. The general trend (originating in various well-known decisions of the English and Australian courts in the mid-2000s) promotes access to justice as an overriding public policy concern. For example:

  • In the Cayman Islands: ICP Strategic Credit Income Fund Limited [2014] 1 CILR 314; A Company v A Funder, unreported, 23 November 2017, Segal J
  • In Bermuda: Stiftung Salle Modulable and Rutli Stiftung v. Butterfield Trust (Bermuda) Limited [2012] Bda LR 78
  • In Jersey: Re Valetta Trust [2011] JRC 227, and Barclays Wealth Trustees (Jersey) Limited & Anor v Equity Trust (Jersey) Limited & Anor [2013] JRC 094

Generally, such decisions have arisen in the context of insolvencies and trust litigation, which provide the jurisdictional means for the insolvency practitioner or trustee to seek approval from the appointing court to enter into a funding arrangement. On the other hand, Hong Kong judges have been reluctant to grant approvals to commercial litigants outside the trust and insolvency context (for example, Raafat Imam v Life China Company Ltd & Ors [2018] HKCFI 1852, a case involving a breach of a consulting agreement in Hong Kong, where M&C remain criminal offences as relics of English common law, despite the fact that the People’s Republic of China generally has no such prohibition and permits contingency fee arrangements).

One noteworthy aspect of the decision in Exential is the Commercial Court’s recognition that the BVIs previously abolished M&C without a public policy reservation (similar to the reservation in s.14(2) Criminal Law Act 1967 in the UK, which preserved “any rule of law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal”). As a result, Justice Jack concluded that “the [BVI] legislature was not concerned with any breach of public policy from the making of litigation funding arrangements” [8]. When combined with the finding in para [11] cited above, it appears that in the BVIs:

  • A public policy exists in favor of litigation funding, at least in access to justice cases;
  • There is no public policy per se that would operate to invalidate a litigation funding arrangement (for example, based on the size of the funder’s return or “control” over the conduct of proceedings); and
  • Prima facie, funding should be available in the BVI to commercial litigants generally, and not just by court appointed liquidators / trustees, provided the arrangement does not, overall, undermine the integrity of the litigation process.

Exential supports the view that litigation funding does not undermine the integrity of the legal system, and that funding agreements should be enforced unless there is evidence of conduct prohibited by existing rules of abuse of process. This was the position reached by the High Court of Australia in the Fostif case:

As for fears that "the funder's intervention will be inimical to the due administration of justice", whether because "[t]he greater the share of the spoils ... the greater the temptation to stray from the path of rectitude" or for some other reason, it is necessary first to identify what exactly is feared.  In particular, what exactly is the corruption of the processes of the Court that is feared? It was said, in In re Trepca Mines Ltd (No 2) , that "[t]he common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses". Why is that fear not sufficiently addressed by existing doctrines of abuse of process and other procedural and substantive elements of the court's processes? And if lawyers undertake obligations that may give rise to conflicting duties there is no reason proffered for concluding that present rules regulating lawyers' duties to the court and to clients are insufficient to meet the difficulties that are suggested might arise.

(Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386, at [92], per Gummow, Hayne and Crennan JJ)

It is also worth noting that M&C is not a doctrine recognized in civil law systems. In Germany and the Netherlands for example, where Omni Bridgeway has operated for many years, third parties such as funders and insurers play an active part in the administration of justice, and there is no material concern about undermining the integrity of legal process.

In our view, and whilst accepting that each jurisdiction will have its own nuance, litigation funding in the context of modern commercial dispute resolution should be presumed permissible unless there is actual evidence of an abuse of process. Such abuses are rare, whether in funded or non-funded litigation; but if evidence of abuse does exist, the affected party can apply to court for appropriate relief, such as a stay of proceedings or a sanction in costs. 

We share Carey Olsen’s aspiration that the BVI is (and has been) “open for business” for professional funders. With our market leading enforcement practice and global coverage, Omni Bridgeway is uniquely well placed to assist with the type of complex international insolvency, fraud, trust and asset recovery cases which arise from the offshore world.