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Dealing with Delaware

A case in Delaware on litigation funding has no impact in England, according to litigation guru Nick Rowles-Davies.

Delaware law is not applicable in England when it comes to litigation funding

The debate concerning privilege in litigation finance has once again been brought to the fore by a recent Delaware decision in the case of Carlyle Investment Management LLC v Moonmouth Company SA.

Handed down by Vice Chancellor Parsons, the opinion deals with whether or not a litigation funding agreement is protected from disclosure by some form of privilege.

The ultimate decision--that under Delaware law the litigation funding documents were protected by work product privilege--is very useful to the litigation finance industry in the United States. But what is the relevance elsewhere? Does this judgment have any significance in other jurisdictions? Whilst the opinion was resolved by applying the law of Delaware, the judge did review the state of the law on this point in Guernsey and the Channel Islands, England and Wales, other common law jurisdictions.

The current position in the Channel Islands is that litigation funding is an accepted practice, as it is in England. However, there is no reported decision on the point in question.

The state of the English law is that there is no obligation on a party to disclose the fact that it may have the benefit of third party funding in order to bring its case, in the same way that where a party has the benefit of legal costs insurance the details of such insurance are a private matter between the insured and the insurer.

The judge in Delaware paid significant attention to the case of Excalibur Ventures LLC v Texas Keystone Inc and Others--the infamous “Excalibur” decision so often cited by both supporters and detractors of litigation finance. However, the decision that is referenced is the decision of Popplewell J on disclosure, which is extremely fact sensitive and considers the Arroyo and Barr v Biffa decisions regarding the privileged status of an ATE policy wording. They were also cases decided on very fact specific issues. In Arroyo it was held that the policy wording of an ATE policy was protected by litigation privilege. In Barr, it was not, but that was down to the solicitors having waived privilege by mentioning it in a witness statement.

Whilst these cases are of interest, the most helpful decision in a common law jurisdiction, that of Waterhouse in New Zealand, was overlooked.

In that case, Waterhouse v Contractors Bonding Limited, the New Zealand Supreme Court considered whether and if so, the extent to which third party funding arrangements should be disclosed.

The Court decided that the fact that there is a litigation funder, the identity of that funder, and whether they are subject to the jurisdiction of the New Zealand courts should be disclosed when the litigation is commenced.

However the Court did not agree to the disclosure of the financial means of the funder or the disclosure of  the circumstances in which funding could be withdrawn. Importantly, funding agreements should only be disclosed where there is an application to which the terms of the funding agreement could be relevant, such as for a stay for abuse of process, for third party costs orders and possibly security for costs. Such disclosure should not include privileged matters, nor matters which might give a tactical advantage to the non-funded party.

The Excalibur decision is fact specific in that it was unusual as the terms of the litigation funding agreement were relevant, and interlinked, to the claimant’s ability to perform substantial financial obligations, should specific performance be ordered. The case remains the only English decision on whether a litigation funding agreement can be subject to litigation privilege.

It was held that the funding agreement was not protected by litigation privilege, but that legal advice privilege may apply--“insofar as the disclosure of the funding arrangements would or might give the other side an indication of the advice which was being sought or the advice which was being given, it would be covered by legal advice privilege.”

Ultimately, the Delaware decision is a timely boost for litigation financiers operating in the US, but it has no impact in England, where the legal position remains unchanged, to be decided upon the specific facts of the case in question.

Nick Rowles-Davies is Managing Director of Burford Capital (UK), and author of Third Party Litigation Funding. 

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