Tuesday, February 16, 2021
The exact dollar amount that third-party investors infuse in U.S. lawsuits every year is unknown, but conservative estimates begin around $2.3 billion, with agreement that the industry has room to grow. With the ongoing pandemic stretching litigation timelines and straining budgets, the litigation funding industry remains highly active. Despite the importance of litigation funding to all parties involved (lawyers, plaintiffs, and defendants), regulation varies by state, and litigation funders are largely left to self-regulate.
In the absence of clear direction on this significant issue, the ABA, in August 2020, provided much- needed guidance by adopting Best Practices for Third-Party Litigation Funding.
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The Private Funding of Legal Services Act, 2020 (the Act ), which was gazetted on 7 January 2021 but is not
yet in force, seeks to bring the Cayman Islands position on
litigation funding in line with the well-established regimes in
other common law jurisdictions. The Act will open up the world of
litigation funding to litigants in the Cayman Islands by abolishing
criminal and civil liability for maintenance and champerty and
making statutory provision for entering into litigation funding
agreements without the sanction of the Court.
Litigation funding can be loosely divided into three
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This article originally appeared in the American Bar Association s Consumer Financial Services Committee Newsletter, November 2020.
In August of 2020, the American Bar Association (ABA) House of Delegates issued Best Practices for Third-Party Litigation Funding (the Report ).[1] Litigation funding, in any of its various forms, is largely unregulated by statute in most states. Accordingly, litigation funding companies with a national presence must navigate a shifting mosaic of common law, regulator guidance, and bar association opinions in order to operate. Amidst this legal uncertainty, self-policing is necessary to avoid regulatory scrutiny and to dissuade legislators from enacting overly onerous statutory limitations. The Report provides a valuable resource for self-policing of the industry.