A Company v A Funder
| Jurisdiction | Cayman Islands |
| Judgment Date | 23 November 2017 |
| Date | 23 November 2017 |
| Docket Number | CAUSE NO.: FSD 68 OF 2017 (NSJ) |
| Court | Grand Court (Cayman Islands) |
CAUSE NO.: FSD 68 OF 2017 (NSJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Litigation funding agreements — maintenance and champerty — application for a declaration prior to the issue of proceedings that a funding agreement was not illegal on grounds of public policy under Cayman law?
Marc Kish of Harney Westwood and Riegels for the Plaintiff
This is a case concerning third party litigation funding. This is the practice whereby a stranger to litigation contracts with a party to finance all or part of a party's legal costs as the case progresses in exchange for taking an agreed share of the recovery or settlement proceeds but nothing if the action fails. In this case the funding agreement has been entered into by and between the Plaintiff and the Defendant. The issue which falls to be considered is whether the funding agreement is unlawful on grounds of maintenance or champerty. Maintenance and champerty are both crimes and torts in Cayman. Maintenance involves the procurement by direct or indirect financial assistance of another person to institute or carry on or defend civil proceedings without lawful justification. Champerty is an aggravated form of maintenance whose distinguishing feature is the support for litigation by a stranger in return for a share of the proceeds.
The Plaintiff intended to commence proceedings in Cayman (and apply for an ex parte freezing injunction) against parties who are subject to an arbitration award obtained by the Plaintiff. The Plaintiff intended to rely on the funding made available by the Defendant in these proceedings. But the Plaintiff is concerned that by doing so it risks committing the crime and tort of maintenance or champerty and has therefore commenced these proceedings for the purpose of obtaining a declaration from the Court to the effect that the funding agreement is not unlawful and that entering into and the commencement of proceedings with funding made available pursuant to the agreement will not be unlawful by reason of maintenance or champerty.
The Plaintiff acknowledged the artificiality of the procedural construct it has used. The Defendant has not taken part in the proceedings and is not adverse to the Plaintiff nor does it contest the relief which the Plaintiff seeks (indeed it must be taken to support the Plaintiff's application). In substance this is an ex parte application for a declaration. The Plaintiff also acknowledged that a declaration in these proceedings could not of itself prevent criminal liability if the steps taken by the Plaintiff otherwise involved the commission of a crime. Furthermore, the defendants to the action which the Plaintiffs intended to commence (to enforce the arbitration award and New York judgment) would not be bound by the order in these proceedings and would, to the extent that the issue of illegality on grounds of maintenance or champerty subsequently arose in those proceedings, be able to make their own submissions and argue the point afresh (although no doubt my decision would be taken into account)
I heard the Plaintiff's application on 25 May and subsequently handed down a Note of Decision on 5 June. The Note of Decision explained briefly my decision and that my full reasons would be set out subsequently in a judgment. This is that judgment.
While expressing some reluctance to grant the relief sought in these circumstances but recognising that a real issue arises because of the risk of criminal liability and that an order of the Court may be of some assistance to the Plaintiffs in the event that the issue of criminal liability was subsequently raised, I was prepared to allow the application to proceed and subject to requiring certain amendments to be made to the funding agreement I made a declaration (in a modified form to that which the Plaintiff sought). I describe further below the details of the application and the order I made.
By an ex parte originating summons (the Originating Summons) issued on 5 April 2017 the Plaintiff, a large company incorporated in Korea, sought relief in connection with proceedings which it intended to issue in this Court for the recognition and enforcement of a New York arbitration award and judgments. These projected proceedings were to be funded by the Defendant, a third party commercial funder (who I shall refer to as the Funder) and in the Originating Summons the Plaintiff sought declarations that the issue of such proceedings would not be champertous and that its agreement with the Funder dated 8 April 2016 (the Funding Agreement) was not an illegal contract (and an order that the Court file be sealed or that certain redactions be made to the evidence filed in support of the Originating Summons before copies could be inspected or before being served on the party who was to be named as the defendant to the proceedings to enforce the arbitration award). The Funder was joined as the defendant to the Originating Summons but was not intended to and did not appear at the hearing of the Originating Summons.
The Originating Summons was heard on 25 May. At the conclusion of the hearing I reserved judgment and invited the Plaintiff to make further written submissions dealing with the redactions which the Plaintiff proposed be made to the Funding Agreement (and the consultancy agreement which had been entered into by the Plaintiff with an entity associated with the Funder).
On 5 June I issued a Note of Decision in which I explained that I had concluded that provided that certain amendments were made to the Funding Agreement I would make a declaration that the Funding Agreement was not unenforceable in Cayman as a matter of public policy (by reason of champerty). The amendments required were that the termination provisions in clause 15 of the Funding Agreement were amended so that they conformed to the terms of clauses 11.2 and 12 of the Code of Conduct for Litigation Funders. Subsequently the Plaintiff confirmed that they had agreed with the Funder to make amendments to the Funding Agreement which amendments were put in evidence and approved by me. The order (the Order) I made was in the following terms:
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“1. The funding agreement dated 8 April 2016 between the Plaintiff and the Defendant (as amended by a Deed of Variation dated 26 June 2017) is not unenforceable in the Cayman Islands as an illegal contract by reason of being contrary to public policy and champertous.
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2. Consequently the issuing of proceedings by the Plaintiff for the recognition of a final arbitration award given in favour of the Plaintiff, and any proceedings necessary for the enforcement thereof which are funded pursuant to the said funding agreement are not an abuse of process on the ground that they are funded by a funding agreement which is champertous or otherwise unlawful by reason of being contrary to public policy.
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3. The Court file be sealed until further order of the Court.
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4. There shall be no order as to costs.”
In his affidavit in support of the Originating Summons Lee Ho-Seok explained that the Plaintiff had commenced arbitration proceedings on 4 January 2013 pursuant to the terms of certain maritime contracts (the Contracts) entered into in 2012 with America Metals Trading LLP ( AMT). The Contracts were governed by New York law and incorporated a disputes clause providing for arbitration in New York under the ICDR Rules (the Arbitration).
In the Arbitration, AMT was named as the first respondent and four brothers who are Brazilian nationals and the members and ultimate beneficial owners of AMT (the Monteiro Brothers) were named as additional respondents (collectively, the Award Debtors).
The Plaintiffs claim in the Arbitration was that the Award Debtors conspired to defraud it of over USD 14.4 million by taking payment for but failing to deliver shipments of pig iron in accordance with the underlying Contracts.
Following a Partial Final Award made on 20 November 2013 the Arbitration culminated in the issuance of a final arbitration award in favour of the Plaintiff dated 27 February 2014 (the Award) in the amount of USD 15,482,751.04 plus interest and costs (the Award Debt). The Award was made jointly and severally against each of the Award Debtors.
On 19 February 2014 and 14 June 2014, the Plaintiff succeeded in having the Award recognized and entered as two judgments of the Supreme Court of the State of New York, County of New York, against AMT and the Monteiro Brothers in a total amount (inclusive of cumulative interest as at that date) of USD 17,282,197.36 and USD 17,815.046.81 accordingly (the New York Judgments).
The Award Debtors have not voluntarily complied with the terms of the Award. The Plaintiff asserts that the Award Debtors appear to have taken steps to place assets outside the reach of the Plaintiff both before and after the date of the Award and that the Award Debtors' conduct post-Award amounts to a wilful furtherance of the underlying frauds.
The Plaintiff had identified assets within this jurisdiction in the name of certain Award Debtors and was the intended Plaintiff in proceedings in the jurisdiction of the Cayman Islands for the recognition of the Award and subsequent enforcement against the relevant Award Debtor assets both in the jurisdiction and overseas intended Proceedings). The Plaintiff also intended to apply for a Mareva or freezing injunction over those assets (the Mareva Injunction).
The Plaintiff alleged that the Award Debtors had engaged in a pattern of evasive and non-compliant behaviour in relation to the underlying frauds, the Arbitration and the Award, and the Plaintiff therefore had reason to believe that absent the granting of the relief sought in the Originating Summons on an ex parte without notice basis, the...
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