The authors argue that two specific areas in which litigation funding can be particularly attractive to litigants are trusts disputes and financial relief proceedings.

There is always a search for new asset classes especially those that might be uncorrelated with other markets – an important consideration in volatile times, such as at the present. One example that occasionally pops up is that of litigation funding – the business of financing lawsuits and capturing the revenues from these. Lawsuits can sometimes rise in tough times – which might suggest that it has a contra-cyclical quality which certain investors might find attractive. The field continues to evolve. To delve into the details are Stephen Baker, senior partner, and Eleanor Davies, associate, at law firm Baker & Partners. (More on the authors below.) The editors are pleased to share these insights; the usual editorial disclaimers apply. Jump into the conversation! Email tom.burroughes@wealthbriefing.com

The role of litigation funding in modern litigation is growing, and Jersey is no exception. We are increasingly seeing litigation funders engaged in disputes in a wide variety of areas, from asset tracing and recovery to trusts disputes. The advantages are obvious to litigants with a good claim but limited resources: if a funder can be convinced to take a case on, then the hurdle of funding modern litigation with its increasing costs can be overcome and recovery becomes an achievable prospect. The ability for litigation funding to widen access to justice has been recognised by the Jersey courts for over a decade now, and litigation funding arrangements provided by reputable funders such as members of the Association of Litigation Funders have been accepted despite the traditional prohibition against maintenance and champerty. 

Two specific areas in which litigation funding can be particularly attractive to litigants are trusts disputes and financial relief proceedings. There are specific points to be aware of for litigants wishing to enter into funding arrangements in both areas.

Starting with trusts disputes, litigation funding can be attractive to both beneficiaries and trustees. Beneficiaries who suspect a breach of trust often lack the means to bring a claim against the trustee, because all their assets are wrapped up in a trust which is often discretionary in nature. A beneficiary is unlikely to be able to seek a distribution to sue the trustee they suspect of breach of trust. Alternatively, there may not be any assets left if they have been lost through a trustee’s negligence. A new trustee wishing to bring a claim against a former trustee for breach of trust often faces a similar problem: how to find the cash to pursue a claim when there are no assets left in the trust?

If a beneficiary brings a claim, the complication for litigation funders tends to be what happens if the claim is successful. Litigation funding tends to work by the funder agreeing to pay a litigant’s costs upfront in exchange for a share of the winnings if the case is successful. However, the outcome of a successful breach of trust claim is typically not a payment to the beneficiary who brought the claim, but an order (whether against a former or a current trustee) that the trust fund be made whole from the loss caused by the breach. The reconstituted trust fund is then available for the benefit of all of the beneficiaries who are entitled to it, following the terms of the trust. Jersey saw this in the now-famous Crociani v Crociani litigation, when the result for the beneficiary who won (and who had obtained litigation funding) was that her trust fund was ordered to be replenished by the defaulting former trustees.

The problem for the funder, and so for the litigant if it puts the funder off, is how to get their share of the winnings if they are held in the trust. The beneficiary who brought the claim has no direct pot of winnings to pay the funder and must hope that the trustee will distribute enough of the replenished trust fund to them so that the funder can be paid. 

In practice, it is likely that a reasonable trustee would regard enabling a beneficiary to honour their contractual obligation to a litigation funder as an appropriate application of the trust assets and so make a distribution. After all, a reasonable trustee would need to take that into account without the funding arrangement, the trust fund would not have been replenished in the first place. The position can also be secured by the court ordering the trustee to discharge the beneficiary’s obligations to their litigation funder from the trust fund, as happened in Crociani v Crociani.

If it is a trustee that is seeking litigation funding, for example for claims against a former trustee, then it will need to bear in mind whether it is appropriate – and it usually will be – to seek what is called a “Beddoe” order. This is an order of the court sanctioning a trustee’s decision to enter into litigation, which protects it from being held personally liable in any subsequent claim by a beneficiary that entering into litigation was improper. The problem of gaining access to the winnings does not occur here: if successful then the former trustee can be ordered to pay the current trustee’s costs, including any costs under the funding arrangement.

The other area of disputes where litigation funding is attractive is in high-value matrimonial disputes, particularly financial relief proceedings where one spouse either suspects the other of hiding assets, often in a trust structure, or wishes to claim assets held in trusts as forming part of the matrimonial pot. Such disputes are becoming increasingly common and, like claims brought by beneficiaries, often litigation funding is required to compensate for a lack of funds which would otherwise prevent a claimant from bringing a claim on their own. As with trusts disputes, the potential for recovery can be high and the merits of a claim strong. 

Claiming assets held in trusts can be an expensive process – not least because trust structures often have underlying companies in other offshore jurisdictions – and require the sort of investigative and asset tracing assistance that the larger litigation funders can offer as part of the package. This is equally true where a spouse has obtained a financial order and seeks to enforce it against their ex-spouse’s assets, as in the well-known English Akhmedov case where Mrs Akhmedova sought to enforce a court order against her ex-husband, the oligarch Mr Akhmedov. It has been widely reported that Mrs Akhmedova had the benefit of litigation funding, and it isn’t hard to imagine why it might have been necessary, given the five years it took for her claim to reach settlement earlier this year.

There has, apparently, been some disquiet amongst the English family judiciary about the Akhmedov settlement, as reported in The Times over the Christmas period, and whether it means that wealthy litigants might get the wrong impression that they can buy themselves out of court orders. However, it is perhaps best taken as an indication of the role litigation funding has in modern high-value litigation, and the value it can offer. After all, even only fifty per cent of something is better than nothing at all.

About the authors:

Stephen Baker is a Jersey Advocate and Senior Partner at Baker & Partners. He specialises in complex international financial litigation including trust and commercial disputes as well as civil fraud.
Eleanor Davies is an English Solicitor and Jersey Advocate. She has a range of experience in Jersey litigation matters and specialises in company and trusts disputes.