Is litigation funding legal in the Isle of Man?

The question of the legality of litigation funding has very rarely come before the Isle of Man High Court of Justice and uncertainty remains as to the current state of the law, which may limit access to justice for claimants in Isle of Man litigation.

Andrew Langan-Newton, Dispute Resolution Advocate, explains the law regulating litigation funding in the Isle of Man.

What is litigation funding?

Litigation funding is an agreement where a third party (with no prior connection to the litigation) agrees to provide the finance for all or part of the legal costs of the litigation in return for a right to a share of the compensation if the claim succeeds. Litigation funding has now grown into an industry providing access to justice in jurisdictions such as the USA, England & Wales, and Australia for litigants who would otherwise be without the necessary resources to bring and maintain a claim.

Litigation funding in England & Wales has only been allowed to develop over the past 30 years. Historically, a third party undertaking litigation funding for a share of the ‘spoils’ (termed ‘champerty’) would be committing both a criminal offence and a civil wrong (a ‘tort’) in England & Wales. The change in attitude towards champerty had been nurtured by the introduction of the Criminal Law Act 1967 in England & Wales, which abolished the criminal offence and tort of champerty. However, the Criminal Law Act retained a rule against contracts facilitating champerty on the grounds that such contracts are contrary to public policy. In light of a changing public policy, the courts of England & Wales have approved of the use of litigation funding.

The law against litigation funding in the Isle of Man

There is no authoritative statement of the current law against champerty in the Isle of Man. The most recent indication has come from First Deemster Andrew Corlett, speaking extrajudicially in 2017 at a conference in Jersey:

“The rules relating to champerty and maintenance still apply (so far as I am aware).”

By an Act of Tynwald dated 1747, champerty was prohibited in all Isle of Man lawsuits with an exception for court-approved conditional fee agreements between Advocates and impoverished litigants (for example, ‘no win, no fee’ agreements, which are currently prohibited in Isle of Man litigation under Rule 9 of the Advocates’ Practice Rules 2001). Unusually, the law was expressly specified to be in force for only three years. Consequently, the law prohibiting champerty was reissued thirty years later as part of the Attorneys Act 1777.

This Act remained in force for 199 years before it was repealed by Tynwald on the introduction of the Advocates Act 1976. The Advocates Act did not contain a provision prohibiting champerty and since 1976 there does not appear to be any further legislation regulating the third-party funding of litigation in the Isle of Man.

Impact of the removal of the Attorneys Act

In a context where the prohibition of champerty under the Attorneys Act has been repealed but there has been no definitive statement of the current law issued by the Isle of Man court, guidance may be elicited from the judgments of other commonwealth jurisdictions as to the current legality of champerty.

In the BVI judgment of Crumpler and Standish as Joint Liquidators of Exential Investments Inv (in Liquidation) [2020], Justice Jack noted that the BVI legislature had (in 1997) legislated to abolish any common law offences relating to champerty and had repealed the legal effect of champerty statute laws of England & Wales that may have applied to the BVI.

Noting that in doing so, the BVI legislature had not reproduced the preservation in the England & Wales Criminal Law Act 1967 of the public policy rule against champerty contracts, Justice Jack accepted that this suggested that the BVI legislature was not concerned with any breach of public policy from the making of litigation funding arrangements. In granting approval of the funding arrangement, Justice Jack concluded that the funding arrangement in Crumpler afforded access to justice and was not contrary to BVI public policy.

Although interpreting a different legislative approach, the judgment in Crumpler may provide informative guidance to an Isle of Man court in seeking to interpret Tynwald’s repeal of the Attorneys Act 1777 and the prohibition against champerty, as an intention to approve of litigation funding to instigate and maintain Isle of Man litigation.

Future clarification of the law

Despite the reasoning of the BVI court in Crumpler and the relaxation of the public policy of England & Wales towards litigation funding, the legal position of litigation funding in Isle of Man litigation will remain uncertain until a clarifying declaratory judgment is issued by the Isle of Man court.

If you have any questions on the issues raised in this article, please contact Andrew Langan-Newton.