Whilst it has long been recognised by Third Party Litigation funders based in the United Kingdom that the Channel Islands have a well established litigation market, there has been no established domestic market for funding. This is because until the recent decision of the Royal Court in Jersey “In the Matter of the Valetta Trust”, the legality and enforceability of funding agreements in the Channel Islands remained untested, unlike in the United Kingdom and elsewhere.

However, as a result of the arguments presented to it by Advocate Lisa Springate of Bedell (who acted on behalf of the Representors and the new trustee), the Royal Court concluded in this case that public policy strongly pointed towards the agreement in question being regarded as valid and enforceable.

The importance of this decision to Third Party Litigation funders and those contemplating litigation in Jersey is that it is now officially recognized that a funding agreement is in the interests of justice and is to be encouraged, provided that it is properly structured. Such agreements facilitate access to justice by plaintiffs who would not otherwise be able to afford to bring the litigation in question, as well as for those who wish to share the cost of litigation with a funder.

The Valetta Trust

By way of background, the Representors are beneficiaries of the Valetta Trust which is a Jersey discretionary trust. The only material asset of the Trust was a minority shareholding in a company which in turn owned certain rights to a product. In 2003, the former trustee sold the Trust's shares in the company to itself as trustee of another trust which also held shares in the company. That other trust was for the benefit of the family of one of the co-investors involved in developing the product. The sale proceeds received by the Trust were subsequently distributed to the beneficiaries and accordingly, the Trust had been dormant for some time.

The Representors contend that the sale was at a gross undervalue which was known to the former trustee. The Representors therefore wished to institute proceedings against the former trustee for breach of trust as well as against certain other persons who are said to have been knowingly involved in the sale at an undervalue. The former trustee and other defendants strongly deny the allegations.

The Representors could not afford to bring proceedings and the Trust has no assets other than the claim against the former trustee. In the circumstances, they entered into a funding agreement with an entity known as Harbour Litigation Investment Fund LP (“Harbour”) based in England. Under this agreement, Harbour will fund the litigation in return for a share of the proceeds if the plaintiffs are successful. The defendants are protected in respect of their costs if the plaintiffs are unsuccessful.

Whether funding agreements are permissible under Jersey Law

At the outset, the Royal Court requested that it be addressed by Counsel on whether such an agreement is permissible under Jersey law as it did not consider that it would be appropriate to authorise the new trustee (which wished to be a party so that it is covered by the funding arrangement) to enter into an agreement which was unenforceable under the law of Jersey.

In reaching its decision that public policy consideration strongly pointed towards the agreement in question being held as valid and enforceable, the Royal Court stated that there is no material difference between the law of Jersey and the law of England in this area. However, the Royal Court made it clear that whether a particular agreement is valid and enforceable, as opposed to an abuse of process will be dependent on the circumstances of each case.

In the present case, the Court had regard to the fact that whilst the funding agreement undoubtedly provides Harbour with a share of the proceeds, it is calculated to ensure compliance with the principles derived from the English and Australian cases and cannot be said in any way to corrupt the purity of justice. The control of the proceedings remain with the plaintiffs who will still retain a substantial proportion of the damages if successful and the defendants are protected in respect of their costs, if the claim fails. Furthermore, the agreement facilitates access to justice by plaintiffs who would not otherwise be able to afford to bring the litigation in question. For these reasons, the Court authorised the trustee to become party to the funding agreement.

In concluding, the Royal Court emphasised that its judgment was only applicable to third party funding agreements. It noted that whilst there has been a minor relaxation in England as a result of a statute which permits conditional fee arrangements, the requirement of public policy that officers of the court should be inhibited from putting themselves in a position where their own interests could conflict with their duties to the court remains otherwise in force, that is to say contingent fee agreements between client and lawyer remain prohibited in this jurisdiction. In Jersey, no statutory relaxation of this principle has been introduced and in the Royal Court's judgment, it remains in full vigour.